Resource nations like South Africa thrive due to jobs created in telecoms, mining, financial and services sectors as a result of direct foreign investment. It is with this in mind that we take a closer look at how a nation can get ready to attract funding from international investors.
Two factors determine suitable Foreign Direct Investment (FDI) inflows into Africa – Africa’s significant natural resources and, political and business environment impacted by security factors, infrastructure and government policies.
Robbie Cheadle, Mergers and Acquisitions – KPMG says that between 2010 to 2014, total foreign direct investment (FDI) inflows to Africa rose by 20%. Southern Africa gained more in FDI inflows, followed by Central and East Africa. Since 2010, FDI inflows to both North and West Africa declined.
FDI inflows to nations with mineral-rich continued in 2014 despite the downturn in certain commodity prices. Top five FDI inflow countries in Africa were The Republic of Congo, Nigeria and Mozambique, despite low rankings in the 2014 Transparency International Corruption Perception Index and the World Bank “Ease of Doing Business” survey. Other mineral-rich nations with challenging business environments, that are receiving high levels of FDI inflows, are the Democratic Republic of Congo, Equatorial Guinea, Tanzania and Uganda.
Robbie Cheadle argues that if the natural resources in a nation are sufficiently attractive to investors, they find a fix for political and business environment issues.
The other important consideration for potential investors is the political landscape and business environment. The political situation includes political stability and security factors. The business environment includes factors such as infrastructure, corruption, bad laws, taxation regime and ease of starting and operating a business.
North and West Africa showed reduced FDI inflows due to armed conflict, political uncertainty and security threats, regardless of the quality of a country’s geological base.
However, nations with politically stable, and business environments with diversified economies, good infrastructure, low corruption do attract higher levels of FDI inflows. A good example is South Africa, it still attracted FDI inflows despite lower commodity prices and ongoing labour unrest.
Other examples of this trend are Kenya, Morocco and Rwanda. The business environments in Zambia and Ghana are conducive to foreign investments, but they are impacted by the downturn in some commodity prices and high debt.