South Africa Facing Increased Competition For Foreign Investment

South Africa Facing Increased Competition For Foreign Investment

South Africa, Egypt and Morocco accounted for 37 percent of new business projects since 2003, with South Africa ranking No. 1 for foreign direct investment in Africa, according to an Ernst & Young survey.

Michael Lalor, lead partner at Ernst & Young Africa Business Centre, presented the E&Y annual Africa attractiveness survey in Johannesburg Tuesday. The survey shows foreign direct investment in Africa is dominated by a few countries, according to an article in Independent Online.

While foreign direct investment fell globally by 15 percent in 2012, and by 12 percent in Africa, Africa’s share of total FDI rose to 5.6 percent.

South Africa gained 154 new projects last year out of a total of 764, according to Lalor. But increasing competition is coming from other countries in the region such as Ghana, whose foreign direct investment projects grew more than 50 percent from 2007 to 2012 compared to South Africa’s 22.4 percent growth.

In terms of growth, Nigeria’s foreign direct investment projects gained 23.4 percent with South Africa just behind ranking 11th in growth, according to the article.

Lalor said FDI into Africa fell 12 percent last year due to disappointing investment from developed economies. “Although FDI projects from the U.K. grew, those from the U.S. and France, the other two leading developed market investors in Africa, were considerably down,” he said in the article.

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Africa proved resilient, scoring an increased share of total FDI of 5.6 percent, up from 5.4 percent in 2011 and 3.2 percent in 2007.

South Africa was the largest investor in FDI projects in Africa outside of South Africa last year, Lalor said in the article.

African economy is diversifying, Lalor said,with 70 percent of FDI projects in 2012 going to the service sectors, and 73.5 percent of capital investment going to projects related to manufacturing and infrastructure, according to the article.

In the last 10 years, FDI flowed into 958 projects in the financial services, 461 into coal, oil and natural gas and 419 into metals.

The survey confirmed a gap between the perceptions of investors established in Africa and those without a business presence there. Those already established  perceived the environment as more positive and were more optimistic about the future than those outside, according to the survey.

The E&Y survey polled more than 500 business leaders and investors from 38 countries. Most who responded said they thought mining and metals had the highest potential for growth in Africa. Yet less than a third of Africa’s growth over the past five years came from natural resources. FDI projects related to mining and other extractions represented 2 percent of FDI projects and 12 percent of capital last year, compared with 8 percent and 26 percent respectively in 2007, according to the article.

The government should focus on making it easier for companies already established in Africa to invest and do business there, Ernst & Young Africa chief executive Ajen Sita said in the article.

Survey responses suggested this would require reducing corruption and improving transportation and infrastructure.