Foreign direct investment (FDI) to Africa is projected to increase by more than 10% this year, bringing it close to the record levels achieved in 2008, with new resource-seeking investment in Angola, Mozambique and South Africa the most prominent, according to the 'African Economic Outlook 2013' report released on Monday.

The report, which is produced yearly by the African Development Bank, the Organisation for Economic Cooperation and Development (OECD) Development Centre, the Economic Commission for Africa (ECA) and the United Nations Development Programme, indicated that the higher FDI was expected to play a role in driving economic growth in Africa of 4.8% in 2013 and 5.3% in 2014.

Market-seeking investment to Africa was likely to intensify as the continent’s decade of strong growth improved household buying power, which would increasingly attract investors to Africa, ahead of commodity prices.

However, as long as strong global demand for resources sustained commodity prices, resource-seeking investment was expected to remain Africa’s largest FDI driver, the report noted.

Modest South African Recovery
FDI to Southern Africa, in particular, was projected to recover strongly in 2013, as a result of investment in Angola’s oil sector and South Africa’s power sector, which was, following its liberalisation, expected to facilitate FDI in electricity generation.

This was already evidenced by an $800-million investment in February last year by India-based JSW Energy in a greenfield power plant project in South Africa.

Despite a rich natural resource endowment, the country’s extractive industry continued to operate below potential in 2012, owing to a lack of technological progress, labour unrest and policy uncertainty.

“If these impediments were addressed, the mining sector could grow by between 3% and 4% a year until 2020, creating at least 300 000 jobs,” said the report.

While economic growth in the country suffered in 2012 as a result of social unrest and the euro crisis, this was expected to accelerate moderately in 2013 and 2014 on the back of improved global demand and accommodating macroeconomic policies.

Outward African FDI
Meanwhile, the significance of South Africa for intra-African investment had increased in the past decade and was equivalent to 6% of the country’s gross domestic product in 2011, despite total African investment in other countries halving to $3.5-billion in 2012 from $7-billion the year before.

The value of announced intra-African greenfield investment also dropped significantly to $3.1-billion in 2012, from an average of $11-billion in the three prior years.

African investors represented 7.7% of total announced greenfield projects in Africa in 2012, while, at $27.3-billion, South Africa accounted for 45% of intra-African greenfield investment between 2003 and 2012.

Continental Outlook
Overall, Africa’s economic outlook for the coming two years was “promising”, confirming its resilience to internal and external shocks and its role as a growth pole in an ailing global economy.

However, the report cautioned that the global economic downturn continued to represent a risk.

“Fiscal consolidation in the US and the protracted euro crisis are slowing global demand, which could affect demand and prices for commodities. Conflict in Mali, unrest in northern Nigeria and lingering political uncertainty in Egypt could dampen investment prospects for those regions,” it stated.

Africa’s agricultural, mining and energy resources could boost the continent’s economic growth and pave the way for a breakthrough in human development, said the report, which cautioned that “widening” the sources of economic activity was fundamental to meeting this challenge.

“Growth is not enough. African countries must provide the right conditions for turning natural resources into jobs, optimise their resource revenues through smart taxation and help investors and locals to make the most of linkages,” said report co-author and OECD Development Centre director Mario Pezzini.

ECA Macroeconomic Policy division director Emmanuel Nnadozie added that access to markets was fundamental to structural transformation based on natural resources.

“Regional integration and better access to the markets of large partners could open new opportunities for all,” he commented.

African countries should actively foster change and economic diversification through corridors of development around power, transport and communication lines, while the stable and transparent use of budgets was key to achieving this goal, the report stated.