Africa, overall, is open to foreign investment. But what are the most prominent sectors? This question lies behind the new mega investment projects across the continent. Thanks to their natural resources, African countries are attractive to foreign investors. However, as we face climate change, investing in environmental-friendly projects is more crucial than ever.
Net decrease in investment in Africa
A significant decline in international investment was recorded in 2022. This decline was also observed in Africa, where foreign direct investment (FDI) went from $80 billion in 2021 to only $45 billion in 2022. According to the United Nations Conference on Trade and Development (UNCTAD) report, Egypt, South Africa and Ethiopia are the top three countries in Africa that received the most FDI. Egypt topped the list with $11 billion in FDI, followed by South Africa with $9 billion in FDI and Ethiopia with $3.7 billion. Senegal ranked fourth with $2.6 billion in FDI. Morocco, the Democratic Republic of Congo (DRC), Ghana, Uganda, Tanzania and Zambia followed with $0.116 billion in FDI.
The UNCTAD report notes a 4% increase in flows to all emerging economies, mainly African countries. Despite the decline in FDI, almost half of the major investment projects (over $10 billion) are in Africa. These new projects mainly concern energy and gas supply. From $24 billion in 2021, investment projects in this sector have risen to $120 billion. The construction and extraction sectors are also promising ($24 billion and $21 billion respectively). Information and communication technologies (ICT) are also attracting foreign investors. Mostly European investors: the United Kingdom ($60 billion), France and the Netherlands ($54 billion each) hold the largest FDI stocks in Africa.
Investing in Africa: the most promising sectors
Oil, gemstones, raw materials, agriculture, agri-food, etc., are the most promising sectors for investment in Africa in 2023. But what kind of investments should be made, and what should we expect? Will these profits benefit the local population and Africa's economic growth? These questions were at the heart of the first African Climate Summit. Hosted by Kenya and the African Union (September 4-6), the summit brought together leaders and experts in Nairobi to find new solutions to the climate crisis. According to Stephen Jackson, United Nations Resident Coordinator in Kenya, these solutions require financing. Regarding promising sectors in Africa, he confirms that the continent has the greatest natural resources for renewable energy. The Congo rainforest is the planet's "second green lung. Africa also has the largest amount of arable land in the world.
Random controversial mega-investment projects
Environmentalists oppose any project that sacrifices the African continent in favor of foreign investors. For them, any investment must consider the global warming threat. They point out that although Africa emits far less carbon dioxide than its northern neighbors, the continent is more vulnerable to the consequences of global warming. As a result, mega-investment projects are being scrutinized more closely.
NGOs have criticized the mega-project of the French TotalEnergies since its inception. In 2022, the French oil company and its Chinese partner CNOOC announced a €10 billion investment agreement with Uganda and Tanzania to develop and export oil from Uganda. The project, which includes the construction of a pipeline between Uganda and Tanzania, is one of the largest of its kind in the world. This is an opportunity for Uganda to receive more foreign investment and attract other investors thanks to its oil. TotalEnergies promises to create jobs and improve living conditions for local people.
However, the project has been controversial from the start. A new report by the NGO Human Rights Watch, published on July 10, 2023, speaks of a "disaster" that will "contribute to the global climate crisis. The human cost is also catastrophic, with more than 100,000 people displaced and thousands impoverished. TotalEnergies claims that it is paying compensation to displaced families. The compensation, which is sometimes delayed, is not enough to cover the losses suffered, with consequences that will last for years.
Towards greener investment in Africa
In November 2022, the German NGO Urgewald took advantage of COP27 to publish a report entitled "Who is Financing Fossil Fuel Expansion in Africa". According to its observation, "two-thirds of new fossil fuel investment projects are led by multinational companies based outside Africa, and the majority export to meet Western needs." For its part, the World Bank points out that one of the priorities for the inhabitants of the African continent is access to electricity and water. These are essential needs that must be met in the context of the global crisis.
According to the International Energy Agency, investment in Africa and energy production capacity should double over the next decade. It remains to be seen whether the focus will be on green investments or fossil fuels. Some experts say forcing African countries to abandon fossil fuels will be difficult. Despite an abundance of natural resources and sunshine conducive to the development of photovoltaics, the sector remains underdeveloped in Africa. Bloomberg New Energy Finance notes a 35% drop in renewable energy investment in Africa between 2020 and 2021, compared to a 9% increase elsewhere.
This justifies the question of financing raised at the African Climate Summit. Boost FDI, yes, but within a framework for real long-term growth. Economists remind us that economic growth and the conservation of natural resources are not mutually exclusive but complementary. This is a real challenge for the African continent.
