South Africa, not China, was the biggest emerging market investor in Africa between 2006 and 2008 with US$2.6 billion (R19.3 billion) in average annual foreign direct investment (FDI) flows, the 2010 World Investment Report says.
The research, undertaken by the UN Conference on Trade and Development (UNCTAD), however shows China is among the most active investors in Africa, but developed countries still account for most FDI into the continent. It also shows developed nations accounted for by far the bulk of estimated inward FDI flows into Africa, contributing 72% of inflows between 2000 and 2008, and 92% of inward stock in 2008.
“The notion that Chinese investment is somehow the dominant foreign investment in Africa is quite misleading,” said Stephen Gelb, a professor of development economics at the University of Johannesburg and a contributor to the report. “China is far from being the dominant investor. But it is growing faster from a low base.” China invested $2.5 billion in Africa between 2006 and 2008, a fraction of its overall investment outflow, the Business Report says.
Southern Africa remained the largest recipient of FDI within Africa, even though inflows declined from a 2008 high propelled by the Industrial and Commercial Bank of China’s purchase of 20% of Standard Bank for $5.5 billion. South Africa was the fourth-biggest recipient of FDI on the continent, with $5.7 billion of inflows in 2009, after Angola, Egypt and Nigeria. Africa’s key economies were reasonably positioned among the top priority economies for FDI in the world – South Africa in 19th place (its first time in the top 20) and Egypt in 31st. Eight South African companies were ranked among the report’s top 100 non-financial transnational corporations from developing countries.
The biggest local company abroad in 2008 was cellular group MTN with $13.3 billion of foreign assets, followed by Sasol ($6.7 billion), Sappi ($5.9 billion), Netcare ($5.6 billion), Steinhoff ($5 billion), Gold Fields ($4.8 billion), Medi-Clinic ($4.8 billion) and Naspers ($3.8 billion).
Reuters meanwhile reports global FDI flows will steady this year and rise further in 2011-12 as cross-border mergers by multinational companies pick up on growing business confidence. FDI, on which many developing countries rely to finance their economies, will rise to $1.3-1.5 trillion in 2011 and towards $1.6-2.0 trillion in 2012 from $1.2 trillion this year. FDI inflows fell 37% to $1.11 trillion in 2009 after falling 16% in 2008 and peaking at $2.1 trillion in 2007. In the first quarter of this year FDI outflows were about 20 percent higher than a year earlier.
“After this freefall, a timid and uneven recovery appears on its way, thanks to better corporate profits and improved economic and financial conditions.” Prospects for FDI growth are fraught with risks and uncertainties, including the fragility of the recovery, it said. FDI refers to long-term investments, such as stakes in foreign companies or the construction of a plant for a subsidiary, in contrast to volatile financial investments.
The recovery in FDI will mainly occur through a revival of cross-border mergers and acquisitions (M&A) where restructuring and the privatisation of companies rescued in the crisis will offer opportunities, the UNCTAD report said. Multinational companies’ willingness to expand abroad looks more robust for 2011 and 2012 than in 2010, with business confidence benefiting from improved economic conditions, corporate profits and stock market valuations seen this year.
The report documents the growing weight of the emerging economies as both sources and destinations for FDI. China and Russia were the sixth and seventh biggest sources of FDI in 2009, with $48 billion and $46 billion in investments, up from ninth and eighth positions respectively, in 2008. While the United States remains the biggest destination of FDI, China edged up to second place in 2009 from third in 2008.
The recent retreat in investment in manufacturing against that of services — driven by the need for labour-intensive projects — and the primary sector including mining and energy — benefiting from rising commodity prices — is unlikely to be reversed, UNCTAD said. In cross-border M&A, manufacturing fell 77% in value in 2009, while the primary and services sectors contracted by 47% and 57% respectively, although the latter included a drop of 87% in M&A in financial services.
The number of cross-border M&A deals fell by 34% in 2009, or 65% in value, while greenfield investments in new plant by multinational companies declined only 15%. M&A seems to be rebounding more quickly this year than greenfield investment.
The internationalisation of production continues to grow, with the value added by foreign affiliates of multinational firms shrinking less sharply in the past two years than the overall economy. That took multinationals’ share of the world economy to a record 11%, employing 80 million people.
Foreign direct investment by private equity funds fell by 65% in 2009, but flows from sovereign wealth funds increased by 15%, UNCTAD said.
Efforts to encourage investment inflows while regulating them more thoroughly in the wake of the crisis are posing challenges to governments. The proportion of more restrictive investment policy measures rose to 30% in 2009, its highest level since UNCTAD started monitoring the trend in 1992.