FDI to Africa Declines on Low Oil Prices

Foreign Direct Investment to Africa declined by 3.5 percent in 2016, due in part to weak commodity prices, with financial flows to key African economies like Angola and South Africa taking a hit yet again in 2016 compared to past years, according to the 2017 World Investment Report by the United Nations Conference on Trade and Development.

Oil and gas-dependent economies in Central Africa were especially hard-hit —Equatorial Guinea, Sub-Saharan Africa’s third largest oil and gas producer, saw FDI inflows decrease by 77 percent to $54 million and The Democratic Republic of the Congo’s FDI declined by 28 percent to $1.2 billion in 2016.

Countries in Africa followed a global trend, with flows of foreign direct investment falling by about 2 percent worldwide.

“Investment in developing countries declined even more, by 14 per cent, and flows to LDCs and structurally weak economies remain volatile and low. Although UNCTAD predicts a modest recovery of FDI flows in 2017–2018, they are expected to remain well below their 2007 peak,” Said António Guterres, Secretary-General of the United Nations, in the report. “These developments are troublesome, especially considering the enormous investment needs associated with the Sustainable Development Goals. … Progress on sustainable development – and lasting peace – requires more investment in basic infrastructure, energy, water and sanitation, climate change mitigation, health and education, as well as investment in productive capacity to generate jobs and income growth.”

Source: United Nations Conference on Trade and Development 

Countries like Egypt and Ghana, however, where massive oil and gas projects are moving forward despite the low oil prices, both saw investment increase, with Ghana’s FDI inflows increasing by 9.2 percent over 2015 to $3.5 billion and Egypt’s increasing by 17.1 percent to 8.1 billion. Ghana’s efforts to develop the $7 billion offshore oil Offshore Cape Three Points Project, headed by Vitol Group, Eni and Ghana’s National Petroleum Corporation, attracted most of the country’s foreign investment.

Nigeria also saw a recovery in 2016 as compared to 2015 — with investment of 45 percent to $4.4 billion in 2016 from a 2015 low — but the increase was still far below recent years.

East Africa, buoyed by Ethiopia, saw FDI increase by 13 percent. Nearly all of those gains, however, came from Ethiopia’s resounding performance in the manufacturing and infrastructure sectors — the country increased FDI by 46 percent to $3.2 billion. And even though Kenya saw a decline in FDI for 2016, the East African country’s trading value on Kenya’s liquid stock exchange overtook Nigeria’s stock exchange for the first time in 2016.

Recovery on the Horizon

Despite the downturn, UNCTAD expects a recovery is on the horizon, with FDI inflows in Africa expected to increase by 10 percent in 2017, reaching about $65 billion. The view, based on a modest rise in oil and gas prices as well as an increase in non-oil projects on the continent, takes into consideration deals and projects expected to close in 2017. For example, Total is expected to purchase a percentage of Tullow Oil’s stake in the Lake Albert development in Uganda for $900 million and the Africa Finance Corporation is expected to launch a $3.3 billion joint venture.

Despite expecting an increase in oil and gas-related spending in 2017, the report urges African nations to look to non-oil FDI and diversification projects.

“The challenge remains putting policies in place to leverage this FDI so as to diversify domestic productive capacity before the next commodity downturn,” the report states.