The World Investment Report 2007 Transnational Corporations, Extractive Industries and Development, produced by the United Nations Conference on Trade and Development (Unctad), revealed that foreign direct investment (FDI) into Africa doubled between 2004 and 2006 to $36bn. The growing interest of foreign companies in African markets is to be welcomed but the results are not quite as rosy as they may seem on the surface.
Unctad, the UN organisation designed to help developing countries integrate into the world economy, argues that a generally improved business climate in many African states, as well as the search for primary resources, has driven rising investment. FDI rose from $18bn in 2004 to $29.6bn in 2005 and then $36bn in 2006.
Africa as a whole is certainly becoming more integrated into the global economy, given that outflows of FDI also reached a record level in 2006 of $8bn, up from just $2bn in 2005. Expansionist policies by some of South Africa's largest corporations were the driving force behind this increase.
The report stated that the investment climate for FDI flows to the region had improved. It argued: "Many African countries incorporated measures into their policy and regulatory frameworks to ensure steady inflows of FDI and to increase those flows which have the most positive impact on the development of their economies. Prospects for FDI into Africa continue to be positive because of high global commodity prices as transnational corporations, particularly from Asia, are taking advantage of good returns on investment."
The value of cross-border mergers and acquisitions involving African companies also reached the record level of $18bn, partly on the back of purchases by Indian and Chinese companies.
The top 10 destinations for FDI in Africa in 2006, in descending order, were: Egypt, Nigeria, Sudan, Tunisia, Morocco, Algeria, Libya, Equatorial Guinea, Chad and Ghana. The first nine countries in this list are either North African states that are benefiting from ever closer trading links with the EU, or oil and gas producers, or both. Only tenth placed Ghana is an exception in the top 10 but it too will become a significant oil producer before too long.
The top eight investment destinations attracted more than $1bn each during the course of the year. The 10 countries received $32bn, or 90% of the total but it is pleasing to note that FDI rose in 33 countries during the year to 2006. Among the...