Corruption and poor infrastructure 'not barriers to investing in Africa'

10 March 2016

Factors such as corruption, poor infrastructure and poor business conditions do not scare investors away from Africa if the business opportunities of natural resources are sufficiently attractive, according to a report.

However, the KPMG report said the lure of significant natural resources is always measured against the stability of local political and business environments.

Total inflows of foreign direct investment (FDI) to Africa have increased by 20% in the five year period to 2014.

Southern Africa was the largest beneficiary of FDI followed by Central and East Africa. However FDI to both North and West Africa has fallen since 2010 because of political instability, terrorism and internal security issues, as well as policy uncertainties arising from continuously changing governments.

Despite low rankings in the 2015 Transparency International Corruption Perception Index and the 2015 World Bank Ease of Doing Business Survey, the Republic of Congo, Nigeria and Mozambique featured in the top five FDI inflow host countries in Africa in 2014.

This indicated that companies were prepared to invest in resource-rich countries regardless of perceived risk.

KPMG analysed a range of sources and found high growth expectations compared to Western economies, politically mature governments, rapidly growing domestic markets and mineral resources were factors that help attract investments to African states.

Even as global commodity prices sank, FDI to mineral or oil and gas rich African countries continued in 2014 and 2015, though at a reduced rate.

The bulk of the $88bn in invested in greenfield FDI projects in Africa during 2014 was into industries which extract oil, gas and minerals.

However, several countries whose economies primarily focus on manufacturing or services also managed to attract increased FDI.

Kenya, for example, increased FDI by 96% while Ethiopia experienced increased FDI inflows of 26% during 2014.

Morocco experienced increased FDI inflows of 9% during the same year while largely agricultural Rwanda experienced increases of 4%.

Robbie Cheadle, associate director, deal advisory, KPMG in South Africa, said: “This is an important trend, as many African countries seek to diversify their economies away from an over-reliance on the extractive industries, particularly during the current cycle of lower prices for certain commodities.

“The biggest deterrents to FDI inflows, regardless of the quality of a country’s geological base, are armed conflict, political uncertainty and security threats, as can be seen from the reduced FDI inflows to North and West Africa in recent years to 2014.”  

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