Africa ups its game to lure foreign investors

Improved investor-friendly policies are reaping rewards for a number of African states. According to Thalma Corbett, chief economist at NKC Independent Economists, countries like Ghana, Mauritius and Mozambique are seeing increased foreign direct investment, which can be attributed in part to a better business environment Corbett was speaking at an NKC/Prescient conference on Africa, held in Midrand on Thursday.

Foreign direct investment (FDI) into Africa has steadily been increasing over the past decade, to reach $55-billion in 2010, according to UNCTAD’s figures. Corbett said that it’s estimated that the rate of return of FDI on the continent is the highest globally.

She said a number of countries had positioned themselves to attract investors. “Generally we tend to see higher FDI when you have a big market, enormous resources like oil or mineral wealth, when the country is easy to do business in and when the country has investor-friendly policies.” Countries with agricultural potential have also been targeted by foreign investors.

Jonathan Kruger, fund manager of the Prescient Africa Equity Fund, said African states have been successfully focusing on attracting investors. “FDI, along with macro stability, are key to the continent’s continued development. African states are realising this more than ever before.”

All the major African economies – bar Libya – are forecast to show positive growth this year. Ghana’s economy is set to grow more than 12 percent in 2011, the best performing country on the continent. Corbett said, “Ghana is expected to be one of the fastest growing economies on the planet for the next number of years. This is being driven by oil production, which commenced in mid-December 2010, by the continued expansion of gold production, and by good performances by the cocoa sector.” Angola is forecast to be the top performer next year, with real GDP rising over nine percent. Resources remain a big draw card in Angola, with the energy sector the primary recipient of foreign direct investment last year. However, she warned that doing business in Angola remains exceedingly difficult.

South Africa is near the bottom of the pile, with economic growth below four percent expected over the next two years. Corbett said the prospects for Libya are dismal, with pundits predicting its economy to contract by nearly 30 percent this year.

According to Nigerian Senator Udoma Udo Udoma at the conference, Nigeria is also enjoying increased interest from foreign investors. Nigeria’s economy grew 7.8 percent in real terms last year. At the same time, the country has introduced numerous reforms to strengthen the regulatory framework.

Udoma said, “These efforts, supported by the economic reforms being introduced by the Federal Government, are making Nigeria an increasingly attractive investment destination.” FDI, which decreased in 2010, was also likely to receive a boost once the new Petroleum Industry Bill has been passed.

He said the capital market offered investment opportunities, given the increasing appetite for bonds. New listings in the telecommunications sector, as well as the oil and gas sector, are also in the works. Nigeria is one of the top ten oil producers in the world, with oil production set to increase from 2.4 million barrels a day currently, to four million barrels per day. It is also among the top ten countries globally in natural gas reserves.

Udoma said, “The fact that only three percent of households in Nigeria are currently invested in the market also indicates abundant resources lying idle outside the market.”

However, he warned that challenges remain when investing in Nigeria. Corruption is still rife, while security remains a concern for those working in the country. Skills shortages and declining education standards are also hampering economic transformation. He said, “Opportunities abound, but do your due diligence in choosing your local partners and investment intermediaries.”

This is the second year that NKC Independent Economists has hosted the conference, this year in association with Prescient. NKC and Prescient earlier this year formed a strategic alliance, with both offering research on niche markets in Africa, excluding South Africa. As part of the alliance, Prescient Securities distributes NKC’s research under the Prescient brand to the South African institutional fund management market. Prescient said this was to meet the increased demand by the fund management industry for information on African markets.