The Economist Intelligence Unit (EIU) has projected that foreign direct investment (FDI) flows to Sub-Saharan Africa (SSA) will fall by 30% from US$31.7bn in 2019 to US$22.2bn in 2020, but the impact will vary by country and sector. In spite of varied challenges, EIU said, SSA’s enormous mineral wealth, fast-growing population and prospects of deeper regional integration will ensure that the region stays on investors’ radars.
“The pandemic and region wide recession will squeeze company profits, leading to projects being delayed or shelved, and will cut reinvested earnings, a key source of FDI. Investors may focus more on their home markets than on overseas ventures,” EIU stated in its latest report. EIU said the outlook for 2020 is much bleaker owing to unprecedented market disruption in the wake of the global Covid 19 pandemic.
“The scale of the post-pandemic FDI rebound will depend on the strength of domestic and global economic recoveries, and on commodity price trends, which is pivotal for SSA, given that most countries depend on hydrocarbons, minerals or agricultural raw materials to drive growth and exports. Diverse economies will be the most protected from the FDI slump.”
SSA’s oil and gas producers face the biggest hit, EIU said, leading to lost earnings and new project delays, which could persist into the medium term, in view of the possible transformation of global energy markets. Also, SSA’s more numerous oil importers will benefit from cheaper oil. “Major oil producers, including Nigeria and Angola, as well as mid-tier players, such as Congo Brazzaville, Gabon, Equatorial Guinea, Chad and Ghana, can all expect much weaker FDI inflows in 2020 or, in Angola’s case, more rapid disinvestment,” it said.
“The slump will also affect would-be hydrocarbons producers such as Senegal, where separate offshore oil and gas developments now face delays of a year or longer.” EIU said: “Agricultural prospects are better, although investment will continue to be impeded by strict land use rules and regulations. Investment in services, such as telecommunications and banking, will be more resilient, with the exception of tourism.” Energy, especially renewables, remains an attractive sector.
“Although the regional outlook for FDI inflows is pretty poor for 2020, and inflows will not return to their 2019 levels until 2021 22, with risks tilted to the downside, the region’s growth potential, as yet mostly unrealised, is still substantial.” With regional integration being a key investment driver, the under-construction Africa Continental Free-Trade Area (AfCFTA), which will include an investment protocol in the final version, EIU said, could unlock significant FDI inflows, including on an intra-Africa basis. AfCFTA’s initial launch has been delayed by the pandemic until 2021, but its long-term potential is unchanged.