Africa must adopt a comprehensive and bold strategy to attract more Foreign Direct Investment (FDI). Essential components of this strategy include implementation of robust infrastructure upgrades, cultivation of a highly skilled workforce, and the promotion of sector diversification.
A pivotal study titled Exploring Data on Foreign Direct Investment to Support Implementation of the Africa Continental Free Trade Area (AfCFTA) Protocol on Investment, underscores issues that can explain effectiveness of FDI within the AfCFTA framework.
The study’s objective is to support implementation of the AfCFTA Protocol by providing insights into FDI dynamics, which is essential for integrating the protocol into national and regional strategies. It also seeks to generate a comprehensive understanding of FDI data focusing on major recipient countries, sources of intra- and extra-Africa investments, and attracting significant investment.
Further, it aspires to promote sustainable development by facilitating intra-Africa investments, contributing to economic integration, and ensuring that investment benefits are more equitably distributed across the continent.
Trade liberalisation under the AfCFTA is anticipated to boost FDI by lowering entry barriers and regulatory risks, thereby enhancing the overall investment environment.
Key findings regarding foreign direct investment (FDI) in the context of the AfCFTA reveal several essential insights. Inwardly, FDI in Africa is concentrated in a limited number of countries, which means that the benefits of such investments are uneven across the continent.
This concentration restricts the potential for broader economic development in countries less favoured in attracting FDI. Ten African economies have emerged as key destinations for Foreign Direct Investment (FDI), each offering distinct opportunities.
With its diverse economy and strong financial services sector, South Africa consistently attracts significant FDI. Egypt has become a major player, particularly in energy, telecommunications, and real estate. Ethiopia has seen a notable rise in FDI, especially in manufacturing and agriculture, driven by its focus on industrialisation.
As the continent’s largest economy, Nigeria continues to draw FDI, particularly in oil and gas, while also expanding into telecommunications and technology.
And Mozambique is also gaining attention for its natural gas reserves. Kenya is recognised for its technology sector, while Senegal is increasingly appealing due to its energy and mining sectors. While Tanzania is attracting FDI in mining and tourism, Ghana is favoured for oil, gas, and agriculture investments, bolstered by its stable political climate.
These countries reflect a mix of established and emerging markets, with a growing trend towards diversifying investments beyond traditional resource extraction, highlighting Africa’s potential for sustainable economic growth.
However, the sectoral composition of inward FDI is heavily skewed towards natural resources, with few linkages to other sectors of the economy.
This suggests a pressing need for African nations to attract a more diversified range of sectors to enhance overall development. Emphasising the urgency and importance of this issue can make the audience feel the need for immediate action.
While there are indications of marginal diversification occurring, these changes are happening at a slow pace.
Another finding is the difference between intra-African and extra-African FDI. The former focuses more on services such as communications, financial services, and tourism, whereas the latter is predominantly concentrated in natural resources and manufacturing.
This distinction indicates that promoting intra-African FDI could lead to a greater emphasis on non-traditional sectors, which may be beneficial for economic diversification.
Additionally, trade liberalisation under the AfCFTA is anticipated to boost FDI by lowering entry barriers and regulatory risks, thereby enhancing the overall investment environment.
Implementing the AfCFTA Protocol on investment is expected to be crucial in helping countries attract FDI-oriented service sectors.
It also aims to promote a more equitable distribution of FDI across African nations.
This initiative can create a cohesive framework for investment across Africa; regulatory frameworks should be streamlined to simplify investment processes and protect investors’ rights in shaping the future landscape of FDI on the continent. Investment promotion agencies should be well-equipped to lure investors.
