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COVID-19 slashes foreign direct investment in Africa by 16%

London, (The Southern.African Times) – The COVID-19 pandemic had a significant impact on foreign direct investment (FDI) in Africa as flows to the continent declined by 16% in 2020 to $40 billion, from $47 billion in 2019, according to UNCTAD’s World Investment Report 2021, published on Monday.

Cascading economic and health challenges due to the pandemic combined with low prices of energy commodities weighed heavily on foreign investment to the continent, the report said.

The report shows that commodity-dependent countries were affected more severely than non-resource-based economies. “The challenging environment affected all aspects of foreign investment,” said UNCTAD’s director of investment and enterprise, James Zhan.

Greenfield project announcements, a measure of investor sentiment and future FDI trends, dropped by 62% to $29 billion, from $77 billion in 2019.

Cross-border mergers and acquisitions (M&As), fell by 45% to $3.2 billion, from $5.8 billion in 2019. International project finance announcements, especially relevant for large infrastructure projects, plummeted by 74% to $32 billion.

FDI inflows to North Africa contracted by 25% to $10 billion, down from $14 billion in 2019, with major declines in most countries. Egypt remained the largest recipient in Africa, albeit with a significant reduction (-35%) to $5.9 billion in 2020.

FDI inflows to sub-Saharan Africa decreased by 12% to $30 billion, with investment growing in only a few countries. FDI to Southern Africa decreased by 16% to $4.3 billion even as repatriation of capital by multinational enterprises (MNEs) in Angola slowed down. Mozambique and South Africa accounted for most inflows in Southern Africa.

Despite the slight increase in inflows to Nigeria from $2.3 billion in 2019 to $2.4 billion, FDI to West Africa decreased by 18% to $9.8 billion in 2020. Senegal was also among the few economies on the continent that received higher inflows in 2020, with a 39% increase to $1.5 billion, due to investments in energy.

Central Africa was the only region in Africa that registered an increase in FDI in 2020, with inflows of $9.2 billion, compared with $8.9 billion in 2019. Increasing inflows in the Republic of Congo (by 19% to $4.0 billion) helped prevent a decline.

FDI to East Africa dropped to $6.5 billion, a 16% decline from 2019. Ethiopia, despite registering a 6% reduction in inflows to $2.4 billion, accounted for more than one-third of foreign investment to East Africa.

Although UNCTAD forecasts FDI in Africa to grow in 2021, a tepid economic recovery and slow vaccine roll-out program threaten the scale of the investment recovery. FDI to the continent is projected to grow by only 5% in 2021, lower than both the global and developing country projected growth rates.

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