While foreign direct investment (FDI) into sub-Saharan Africa grew at a compound rate of 22.3% between 2007 and 2012, specialist advisory firm EY urged investors seeking higher returns to leverage tangible information and comprehensive risk-assessment mechanisms when making Africa-focused investment decisions.

“We need to stress the importance of having fact-based conversations about Africa, informed from a basis of rational analysis rather than anecdotes and conjecture, as the continent remains a complex and challenging environment in which to do business,” the firm asserted in its ‘Africa by numbers: Assessing risk and opportunity in Africa’ report.

The report, which was released on Friday, profiled eight of the continent’s most popular investment destinations, assessing the top five destinations for FDI, the top performing sectors, the FDI outlook and identifying active infrastructure projects.

EY Africa CEO Ajen Sita held that it was no longer enough to simply “look at numbers” when considering which markets to enter on the continent, noting that the size of the continent could prove daunting, citing the various rules, regulations, stakeholders and market dynamics present across each of the continent’s 54 countries.

“This report provides a useful and factual guide to support companies in shifting the emphasis from developing a growth strategy for Africa to accelerating the execution of that strategy,” he added.

The report indicated that most African sovereigns had experienced strong compound growth in FDI projects over the past five years, lead by Cameroon, Egypt, Ethiopia, Ghana, Kenya, Mozambique, Nigeria and South Africa.

“OVERWHELMING” DOMESTIC INTEREST

Contrary to perceptions that South Africa was losing ground both in terms of its gateway status and competition for FDI, the EY research showed that there remained an “overwhelming” preference for South Africa as a business and investment destination and that there had been a robust growth in levels of FDI projects into the country

Between 2007 and 2012, FDI projects into South Africa grew at a compound rate of 22.4%, well above the average for the African continent as a whole.

This growth was also off a relatively large base, in comparison with most other countries, and saw South Africa attracting more than twice as many FDI projects than any other country in 2012.

“There has been strong growth in FDI projects into many parts of sub-Saharan Africa over the past five years, [which] is indicative of the continent’s rising status as an investment destination.

“Our analysis shows that South Africa has been very much part of this story and remains by far the most important destination and hub for investment into the continent across a range of sectors,” EY Africa Business Center lead partner Michael Lalor commented.

Although the trend in the country’s FDI numbers was positive, EY cautioned that there was a “strong probability that we will see a dip this year”.

Factors such as labour unrest, ratings downgrades and the current account deficit, were expected to have an impact, while the ongoing global economic volatility would negatively impact FDI flows.

The report, however, did anticipate that growth in the global economy would begin to pick up in 2014, while the long-term outlook for South Africa’s growth – at around the 4% mark – was relatively positive when benchmarked against a selection of other developed and emerging economies.

“Our relative optimism in this regard is based on several factors but, perhaps most notably, on government’s record of sound macroeconomic management, which is sometimes far too casually discounted, and the comparative policy certainty provided by the National Development Plan.

“In this context, we expect growth in FDI into SA to resume in 2014,” he said.

This was partly owing to the expectation that investor interest in Africa would continue to grow and also because the country remained an attractive investment destination when compared with other African markets.

“This is the case because, on any kind of objective risk-versus-opportunity analysis of African markets, South Africa will be among the best positioned markets for the foreseeable future,” Lalor noted.

In this context, the country was also playing an increasingly important role as a source of FDI for other, faster growing African economies.

South Africa was ranked fifth overall in terms of investing in FDI projects in the rest of Africa since 2003, with compound growth of 57% in South Africa-originated FDI projects into the rest of Africa since 2007.

EY asserted that, when one stripped out investment from other countries into South Africa itself, the country became the single-largest investor in FDI projects in Africa in 2012.