East Africa continued to register notable GDP growth in 2017, performing stronger than all other regions across the continent, according to Ernst & Young (EY) Global’s 2018 Africa Attractiveness report.
According to the report, East Africa attracted 197 projects or 30 per cent of the continents total foreign direct investment (FDI). The region also the region recorded a 82 per cent increase in the number of FDI projects last year compared with 2016.
“This shifting investment landscape is a function of numerous factors, including multi-speed growth, investment friendly economic policies and, to some extent, regional integration initiatives, particularly in the east of the continent where the East African Community made up of Burundi, Kenya, Rwanda, South Sudan, Tanzania and Uganda has been successful in increasing economic growth since its formation,” the report says.
“This evident rise is from a rather low base in 2016, when the region’s share of FDI projects fell sharply. The FDI numbers in 2017 not only recovered from the prior year, but also made the region Africa’s major FDI hub for the first time,” the report adds.
Kenya, the region’s leading economy, reported a 68 per cent increase in inward investment projects last year, despite political uncertainty in the second half of the year following a prolonged election cycle.
Major oil discoveries also put Uganda on the investment atlas, with the country attracting 14 FDI projects in 2017, up from nine in the previous year,” the report says.
British investors were particularly active, with 10 project commitments, followed by Dutch companies.
Ethiopia, which was Africa’s second-fastest growing economy in 2017 saw its consumer products and retail (primarily textiles), real estate, hospitality and construction sectors collectively responsible the surge in FDI to the country last year.
“Looking ahead, the recent opening up of the telecoms, shipping, power generation and aviation sectors to foreign investment will prove to be a further boost to investor interest,” the reports said.
Tanzania also saw a sharp rise in FDI projects, attracting nine projects, mostly in infrastructure, as well as private investment in the development of a regional hydrocarbons sector.
The FDI projects have been tracked against the size of the economy, and its score on the annual World Bank Ease of Doing Business ranking. Through this analysis, it appears that countries with strong growth rates and that adopt more business-friendly policies tend to perform better in attracting FDI.
Rwanda is, by far, Africa’s most successful country in terms of attracting FDI. This is evidenced by the fact that Rwanda ranks as one of Africa’s most business-friendly destinations. It is also one of the continent’s most consistent rapid growth economies.
Rwanda receives 1.5 FDI projects for every US $1 billion of GDP. Measured on the same criteria, South Africa receives only 0.32 projects, attracting only 20 per cent of what Rwanda does, given its relative size.
“Major economies, such as Nigeria and Angola trail by an even larger margin, receiving only 0.16 and 0.02 projects respectively. Both countries also rank very low on the Ease of Doing Business rankings compared with their counterparts in the continent. That, coupled with their recent low growth after plunging oil prices in 2016 and the same scenario persisting in 2017, would explain their low score according to this methodology,” reads the report.