What's scaring away foreign direct investors in Africa

by Trust Matsilele 0

Political instability is scaring away even tough miners from Africa; this is according to KPMG’s analysis of the factors that attract investors to Africa.

The report says, surprisingly, corruption, poor infrastructure and onerous business conditions in fact do not scare off investors, if the mineral, oil or gas resources are sufficiently attractive in the context of global demand. 

Robbie Cheadle, Associate Director, Deal Advisory, KPMG in South Africa, states that the lure of significant natural resources is always measured against the stability of local political and business environments, which are impacted by security factors, infrastructure and government policies.

“Total foreign direct investment (FDI) inflows to Africa have increased by 20 per cent in the five-year period ended 2014. Southern Africa achieved the largest increase in FDI inflows over this period, followed by Central and East Africa,” said Cheadle.

The analysis also saw FDI inflows to both North and West Africa having declined since 2010, due to political instability that led to terrorism and internal security issues, as well as policy uncertainties arising from continuously changing and adverse government policies.

KPMG reported that FDI to African countries with exceptional mineral or oil and gas resources continued in 2014 and 2015, albeit at reducing levels as a result of the lower commodity and oil prices.

The Republic of Congo, Nigeria and Mozambique all featured in the top five FDI inflow host countries in Africa in 2014, despite their low rankings in the 2015 Transparency International Corruption Perception Index and the 2015 World Bank Ease of Doing Business Survey.

Nigeria and Mozambique were both cited as notable recipients of FDI inflows during 2015 in the UNCTAD’s Global Investment Trend Monitor published in January 2016..

Other African countries with high-potential natural resources but challenging business environments, that received high levels of FDI inflows during 2014, are the Democratic Republic of Congo, Equatorial Guinea, Tanzania and Uganda.

Cheadle said, if the natural resources in a country are sufficiently attractive to investors, they will look for solutions to difficulties in starting and running businesses and corruption issues in a particular country.

“The biggest deterrents to FDI inflows, regardless of the quality of a countries geological base are armed conflict, political uncertainty and security threats, as can be seen from the reduced FDI inflows to North and West Africa in recent years to 2014. Egypt, which is gradually addressing its security issues, experienced increased FDI inflows during 2015 of 40 per cent.”