Africa received its largest ever share of global foreign direct investment in 2011, but potential investors without a business presence in the continent still view it as “the least attractive investment destination in the world”, Ernst & Young said on Thursday.
A report by the global accounting firm painted a mixed picture for investment prospects in the continent of 1 billion people. Despite the growth in FDI, optimism over economic reforms and a consumer boom, fears over corruption and political instability often affect investors’ perceptions, it said.
“Despite high optimism, high growth and high returns, the perception gap still exists and the African continent as a whole still attracts fewer FDI projects than India and far fewer than China,” said Ajen Sita, managing partner for Africa at Ernst & Young.
The number of FDI projects in Africa grew 27 percent from 2010 to 2011, close to levels last seen before the financial crisis, the firm said in its 2012 Africa Attractiveness Survey.
The continent attracted 5.5 percent of global FDI projects, up from 4.5 percent the previous year and its highest proportion ever, with significant inflows into the manufacturing, infrastructure-related and services sectors. The 857 new FDI projects in 2011 were just short of the peak seen in 2008, when there were 901 projects.
Investment from emerging and developed markets grew at a similar pace between 2010 and 2011, the survey showed, despite the West’s economic slowdown. Projects from countries such as India, China and Turkey increased by 27.6 percent, compared with a 26.6 percent rise from more mature economies.
Ernst & Young polled 505 global executives, and 60 percent said their perception of Africa as a business destination had improved over the past three years. Nearly three quarters said they believed Africa would become more attractive to potential investors over the next three years.
But respondents found Africa less appealing when compared to other regions, the report said, though it added that there was “stark contrast” between those who already had a business presence in the region and those who didn’t.
The former ranked only Asia ahead of Africa, while the views of the latter were “overwhelmingly negative”.
“In fact, for those respondents with no business presence in Africa, the continent is viewed as by far the least attractive investment destination in the world,” the report said.
FDI inflows to Nigeria, South Africa and Angola are forecast to average $40.6 billion per year over the next five years as their oil and mineral reserves draw investors from emerging and developed markets, the report said. Around a quarter of a million new jobs are likely to be created in the three countries as a result.
Intra-African investment has also been a significant driver of growth, with Kenya, Nigeria and South Africa among the top investors into the rest of the continent.
Nigeria topped the list of countries expected to draw significant funds over the next five years, with the report forecasting an average of $23 billion per year in FDI inflows and around 95,000 new jobs. But recent militant attacks in the continent’s top oil producer, which has been the largest African recipient of FDI over the last decade, could deter some investors, it added.
Islamist group Boko Haram has been fighting a low-level insurgency for more than two years and has become the main security threat in Nigeria.
FDI inflows to South Africa were projected to average $10 billion a year, generating up to 125,000 new jobs, compared with $7.6 billion a year and 30,000 new jobs in Angola.
Ernst & Young said more regional integration and increased investment to close an infrastructure gap, which will require an estimated $90 billion annually, would boost Africa’s standing among investors.
“In the midst of a global economy that is being reshaped, with growth and capital flows shifting from north to south and west to east, Africans have a unique opportunity to break the structural constraints that have marginalized the continent for decades, if not centuries,” said Sita.