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How the COVID-19 is impacting foreign direct investment into East Africa
The latest World Investment Report 2020 by the United Nations Conference on Trade and Development indicate that FDIs in East Africa declined by 9 per cent to $7.8 billion in 2019 from $9 billion in 2018. There could be a sharp decline in FDIs this year as the COVID-19 pandemic continues to ravage economies across the globe. Oscar Emasu, Research Analyst at Crested Capital joins CNBC Africa for more.
Fri, 24 Jul 2020 10:42:03 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Decline in FDIs in East Africa due to political uncertainties, sector fluctuations, and evolving investment landscape
- Key sectors attracting investments include mineral oil, energy, manufacturing, agriculture, financial services, and ICT
- COVID-19 pandemic introduces challenges and uncertainties for FDIs, emphasizing the need for alternative local financing sources
The latest World Investment Report 2020 by the United Nations Conference on Trade and Development has revealed a decline in Foreign Direct Investments (FDIs) in East Africa. The report indicates that FDIs in the region decreased by 9% to $7.8 billion in 2019 from $9 billion in 2018, reflecting a downward trend. CNBC Africa had a conversation with Oscar Emasu, a Research Analyst at Crested Capital, to delve deeper into the reasons behind this decline and the potential impacts of the COVID-19 pandemic on future investments in the region. Emasu highlighted several key factors contributing to the decrease in FDIs in East Africa, such as political uncertainties, fluctuations in investment activities in key sectors like oil, and the evolving investment landscape in the region.
One of the main reasons for the decline in FDIs in Uganda, as explained by Emasu, is the impending presidential elections within the next 24 months. Such political events often lead to a slowdown in investment decisions as investors adopt a cautious approach towards uncertain times. Additionally, there was a noticeable pullback in investment activities in Uganda's oil sector, further contributing to the drop in FDIs. Similarly, Kenya and Ethiopia also experienced declining FDIs, with Kenya witnessing an 18% decline despite stable inflows, and Ethiopia facing significant changes in its investment environment with the government opening up to foreign companies.
In terms of sectors attracting the most investments in East Africa, Emasu pointed towards the mineral oil and energy sectors in Uganda, along with manufacturing, agriculture, financial services, and ICT across the region. Notably, there has been a growing interest in financial technology (FinTech) companies, with Ethiopia seeing companies like Safari Com expressing interest in the telecom sector. However, the onset of the COVID-19 pandemic has introduced new challenges to the investment landscape, disrupting global economies and creating uncertainty among investors.
Emasu discussed the expected impact of COVID-19 on FDIs in the region, emphasizing that the pandemic has brought unprecedented challenges and uncertainties to investment decisions. While investments are likely to decrease in the short term due to the ongoing global crisis, there may also be opportunities for capital flow into sectors that can withstand the pandemic's effects. Emasu highlighted the importance of finding alternative local financing sources to fill the gaps left by declining FDIs, with the Ugandan government taking steps to channel funds through the Uganda Development Bank.
When it comes to the role of local investors in filling the investment gap, Emasu suggested that local investors in East Africa face similar challenges to their global counterparts. While local investors may need to rely more on domestic funding sources, such as pension funds, private equity, and private debts, there is potential for these sources to support key sectors and projects in the region. Emasu also touched upon the status of the oil sector in Uganda, noting a slowdown in activity due to uncertainties surrounding investments and the absence of conclusive decisions on major projects.
As East Africa navigates the dual challenges of declining FDIs and the impact of COVID-19 on the investment landscape, concerted efforts will be needed to attract and sustain investments in key sectors. The region's ability to adapt to evolving market conditions, leverage local funding sources, and create a conducive environment for investment inflows will be crucial in shaping its economic recovery and growth post-pandemic.
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