Investing in Africa

It’s often overlooked, but the past decade saw a very substantial increase in the amount of money foreign companies invested in Africa – what’s known as foreign direct investment (FDI). In 2000, FDI was worth about $9 billion; by 2008 it had risen almost tenfold to $88 billion. To put that in perspective, that was double the $44 billion provided for African countries in official development assistance (ODA) in 2008.

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Traditionally, most FDI in Africa has gone into natural resources, such as mining and oil production. But in recent years, services and manufacturing have been claiming a bigger share, as have telecoms. Agriculture, too, has been a growing target for investors, though some critics accuse them of making land grabs, including for the food security of countries on other continents. However, these investments have also served to raise Africa’s traditionally weak agricultural productivity.

So, FDI has become increasingly important for African economies. But in global terms, this vast continent still receives only a small proportion – about 5% – of total global FDI. And the financial crisis delivered a big blow to African FDI inflows, which dropped at least 36% in 2009, ending six consecutive years of increases. As the global economy recovers,FDI should strengthen too. Africa may also benefit from investments from Asia, which are flowing into a range of sectors, including energy, telecoms, transport and real estate.

Useful links

• FDI in Africa – Policy Brief from NEPAD-OECD Africa Investment Initiative
• NEPAD – New Partnership for Africa’s Development (African Union)
• The NEPAD-OECD Africa Investment Initiative
• “Economic Diversification In Africa: A Review of Selected Countries” – joint study by the United Nations Office of the Special Adviser on Africa and NEPAD-OECD Africa Investment Initiative
• OECD Insights Blog – “Africa: Towards Sustainable Growth and Economic Diversification”
• For a flavour of how African investment prospects seemed in 2000, see “High risk, high return: How private financiers see development” in OECD Observer No 223, October 2000