The multi-billion dollar wave of foreign direct investment into Africa is well known among investors. Less known is another significant development: a surge in what regional policy makers refer to as Africa direct investment.
The share of intra-African investments in the continent’s FDI reached a record 23 per cent last year, up from just 8 per cent five years ago, according to consultancy group EY. “Cross-border FDI in Africa is set to accelerate further, as local firms seek new markets,” EY says in a new report, “Africa attractiveness survey 2014: Executing Growth“.
The surge in intra-African direct investment comes on the back of high profile local companies expanding across the region, including South African-based retailer Shoprite, Standard Bank, bottler Coca-Cola Sabco and telecom group MTN.
South African companies are seeking new growth markets to compensate sluggish economic growth at home, trying to tap into a fragile middle class across the region. Shoprite, which now has more than 150 outlets in 16 African countries outside its home market, said it sold more cans of Red Bull, the energy drink, in five shops in Angola last year than in all its 382 outlets in South Africa, for example.
Nigeria’s Dangote Group, owned by Africa’s richest man, Aliko Dangote, is also expanding quickly across the region, opening cement factories in Zambia and Cameroon. Kenyan companies are also spreading, particularly in the east African region.
The report notes:
This growth is fuelled by the need for improved regional value chains and strengthening regional integration. Another driver of growth is the African investors’ understanding of the market and of the potential opportunities and challenges.
Africa is also the fastest-growing source of FDI in Africa, accumulating a growth rate of 31 per cent between 2007 and 2013, compared with 16 per cent for Asia and 5.8 per cent for the Middle East.
By number of FDI projects, African headquartered groups are now the second source of investment in the continent, behind only western Europe, EY said. “Intra-African investments are also the second-largest source of job creation on the continent,” it noted.
South Africa is the largest domestic investor in the continent, accounting for nearly 35 per cent of all the so-called Africa direct investment, followed by Kenya with 16 per cent and Nigeria with 11.6 per cent.