Strong economic growth draws FDI to East Africa

Wednesday September 18 2019

China Road and Bridge manger Li Changgui (left) and Chinese Embassy counsellor Guo Ce flag off a training project.

China Road and Bridge manger Li Changgui (left) and Chinese Embassy counsellor Guo Ce flag off a training project. A consistent gross domestic product growth in eastern Africa is attracting investors into the region, and creating thousands of jobs. PHOTO | FILE | NATION MEDIA GROUP 

NJIRAINI MUCHIRA
By NJIRAINI MUCHIRA
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Sustained strong economic growth among East Africa Community states is drawing greenfield investments, a new report shows.

The report by audit firm Ernst & Young (EY) states that a consistent gross domestic product growth averaging seven per cent in Kenya, Uganda, Rwanda, Tanzania and Ethiopia is attracting investors into the region, and creating thousands of jobs.

With an economy currently worth $265 billion, the wider eastern Africa region is projected to become more influential in attracting investors over the next decade.

Notably, despite the discovery of huge deposits of oil, gas and other minerals, foreign investors are pumping resources mainly in retail, finance, telecoms, media, technology, business service and leisure.

The EY Attractiveness Survey 2019 shows that Kenya was the biggest beneficiary of FDI in the region, attracting investments worth $2 billion that resulted in 16,000 new jobs in 2018.

“Kenya is forecast to continue growing at these rates over the next five years, supported by a more stable political climate and a focused approach on agriculture and horticulture exports,” said the report.

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It adds that with Kenya’s focus on innovation and technology, it could become one of Africa’s major tech hubs.

Tanzania attracted investments worth $1 billion that saw the creation of 3,000 jobs, and FDI in Uganda resulted in 6,000 new jobs.

Ethiopia attracted investments worth $7 billion, creating 16,000 new jobs.

Cross-border mergers and acquisitions are among the factors driving FDI, according to the Common Market for Eastern and Southern Africa (Comesa) head of mergers and acquisitions, Willard Mwemba.

“The mergers are signals of the increasing attractiveness of the region as an investment destination, both within and outside Comesa,” he said.

He added that cross-border deals increased sharply over the past two decades, partly as a result of financial liberalisation policies, government policies and regional agreements.

According to the EY report FDI into Africa in 2018 remained largely steady. The continent attracted investments worth $75.5 billion. Over the year, there were 710 projects coming into the continent that generated 117,000 new jobs.

North Africa led in FDI in 2018, with Egypt and Morocco attracting the bulk at $12 billion and $5 billion respectively.

Although southern Africa was the next major FDI destination, the majority of the projects, amounting to $5 billion, went to South Africa.

“South Africa’s ability to remain a forceful FDI destination will depend on the country resolving its political instability in the ruling party, providing leadership, and building a vision that it can unite behind. Failing that, it may find its prominent FDI position may further wane,” said the report.

West Africa also continues to be a major FDI hub: Nigeria leads with $8 billion, and Ghana and Cote d’Ivoire have emerged as important destinations driven by strong economic growth.

Although the US and France and remain Africa’s largest investors in projects, China is leading in the value of investments.

The report shows that from 2014 to 2018, Africa attracted 463 projects from the US worth $30.8 billion and 329 projects from France worth $34 billion.

In the same period, investments inflows from China had 259 projects worth $72.2 billion.

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