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Africa’s growth remains uneven, with East Africa out-pacing the rest of the continent; The continent grew 3.8% in 2018, with Sub-Saharan Africa rising somewhat slower, at 2.6%; FDI into Africa remains small by global standards, but prominent in relation to GDP; The US and western Europe remain Africa’s largest investors; FDI flows to the most diversified, business friendly economies.
At the start of the World Economic Forum (WEF) in Cape Town today, South Africa, along with many other African countries, face an unprecedented set of economic challenges that need urgent attention that should be addressed by creating an enabling business environment.
Sandile Hlophe, EY Africa Government & Public Sector Leader, who advises many levels of South African government on digital transformation, financial improvement and risk management, said that as aspirational as WEF Africa’s aims are, dialogue is only effective if followed by action.
Speaking from WEF Cape Town at the launch of the EY Africa Attractiveness report 2019 – that looks at how South Africa and the African continent, are attracting FDI (Foreign Direct Investment) to grow their economies, Hlophe said that it was high time for a “sleeves rolled up, action orientated agenda” to accelerate FDI flows to the continent. “We need a shift from ideology and dialogue to accelerated implementation.”
Hlophe noted that attracting FDI should be one the most important initiatives for African governments.
“FDI helps in economic development and is especially important for developing economies as it leads to job creation and wealth creating economic growth, he continues.”
He said that after a growth ‘drought decade’, Africa appeared to be making its way back onto a growth trajectory with FDI inflows to the continent expected to increase following a rise of 11% in 2018.
Encouraging as the signs are, more needs to be done because Africa’s growth remains below potential. FDI inflows, for example, are still below the annual average of the last 10 years.
South Africa
Looking at South Africa, Hlophe noted that the country attracted the highest number of FDI flows projects in Africa (110). South Africa however only attracted US$5m in FDI, placing it behind Egypt (US$12m), Algeria (US$9m), Nigeria (US$8m), Ethiopia (US$7m) and even Zimbabwe (US$6m).
“Despite being a country critically lacking in consumer and business confidence, and with unemployment stubbornly high, it is encouraging that South Africa remains on investors’ radar.
“An urgent focus on implementing economic reforms as outlined in the President’s economic stimulus and recovery plan announced in September 2018 and progressing State Owned Companies plans to strengthen governance and stabilise cash flows, will go a long way towards stimulating increased FDI flows,” he added.
Technology as FDI magnet
Technology focused FDI, in Africa and the rest of the world, is rising steadily as the pace of digital transformation picks up.
“While Africa is still behind the technology curve, there is a once-in-50-years opportunity for the continent to leapfrog incremental technology advancement. By adopting digital transformation successes from more advanced countries – such as intelligent automation, cloud-based software deployment and data storage – Africa can quickly scale up its technology use.”
Hlophe added that the Fourth Industrial Revolution (4IR) meant investing in digital infrastructure that enables independent devices (such smart phones, computers and vehicle navigations systems) to communicate with each other by exchanging and analysing data to provide humans with actionable insights.
“Getting business and government to work together in investing in digital infrastructure, such as 5G data networks, WIFI platforms and Cloud data centres, will place African countries at the front of the FDI investment queue,” he concluded.
