Western Countries lead FDI into Africa

Much has been made of China’s growing interest in Africa and of Chinese investment in the continent. Certainly, China has spent a lot of money there, predominantly on infrastructure projects. But when it comes to greenfield investment — direct investment in physical facilities by foreign companies — it is in fact western companies that are most active in Africa. 

 

Chinese companies are growing in both importance and volume as drivers of outbound greenfield investment globally but to date have preferred investing in developed markets in Europe and North America. This is because their motives for investing overseas are usually centred on access to new technologies and tie-ups with prestigious brands.

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US and European companies, meanwhile, are often in the hunt for cost advantages, consumer markets and export platforms. Africa offers easily the first two and, in some respects, the third, even if these attributes remain overshadowed by the lure of Africa’s resources sector.

Western Europe accounted for more than half of all greenfield investment into Africa in 2014, with an estimated $47.6bn invested, according to a report from fDi Intelligence and This Is Africa, both Financial Times services.

North America was the second-largest source region for investment into Africa, at $13bn. The report is based on data from fDi Markets, an investment tracking service that is part of fDi Intelligence.

Measured by capital expenditure on greenfield projects, France was the biggest spender. It was the top FDI source country for investment into Africa in 2014 at $18.3bn, followed by Greece, the US, China and Belgium. French investment was driven largely by oil company Total. Greece’s high position is explained by Mac Optic, a Greece-based company that announced plans for a multibillion-dollar refinery and petrochemical plant in Egypt.

Belgium saw the highest increase in capital investment into Africa in 2014 with its $5.2bn, thanks to commercial real estate developer Pylos’s plans to build more than a dozen shopping malls across Mozambique.

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China accounted for 7 per cent of greenfield investment into Africa last year, investing $6.1bn, and ranked seventh on the list of source countries when measured by project numbers, with 28. These project figures for China were a large increase on the previous year, however, showing that interest in Africa by Chinese companies is on the rise. Its largest investments have been in the energy sector.

Despite concerns by some officials that the US is getting outflanked in Africa by China and US companies are behind the curve when it comes to expanding into Africa, the numbers suggest the latter, at least, might not necessarily be the case. The US was the top source country by number of projects last year, with 67 US companies launching or announcing 97 projects — a 47 per cent rise on the previous year’s tally. The US was the third-ranked country for capital investment into Africa, with $8bn invested by US companies last year.

US companies have shown interest in such sectors as alternative energy, business and financial services, housing and construction, and communications, in addition to oil and gas.

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Among the largest US investors last year, according to fDi Markets, was Enviro Board, a New Jersey-based maker of housing construction materials, It announced plans to establish a building-board manufacturing facility in Zambia, expected to create 3,200 jobs and provide materials for 500,000 new houses in the country.

Cummins, an Indiana-based maker of engines, filtration and power generation products, has invested heavily in alternative energy projects in Kenya. Verizon Communications, a telecoms service provider, has expanded its private IP multiprotocol private label switching infrastructure into Madagascar, Mauritius and Tunisia.

And IBM, among the world’s most prolific corporate investors, made a handful of high-tech investments in Africa last year. It opened a new Mainframe Linux and Cloud Innovation Centre in Nairobi, and new innovation centres in Casablanca, Lagos and Johannesburg — all designed, the company said, to spur local growth and fuel an ecosystem of development and entrepreneurship around big data, analytics and cloud computing in the region. 

While the resources sector continues to dominate investment into Africa, such investments, at the higher end of the value chain, are encouraging, as are data showing a growth in manufacturing projects, a necessary rung at the other end of the ladder. There will probably be more of both types of investments in the near future as foreign companies increasingly become aware of opportunities in Africa and as growth slows elsewhere. Despite recent increases in FDI into Africa, there is still considerable scope for more investment in this underinvested region, not only by US and other western firms but also by Asian companies.