UNCTAD: COVID-19 slashed FDI flow in Africa by 16%

The COVID-19 pandemic has left a deep impact on foreign direct investment (FDI) in Africa, with a significant decline of 16% in FDI flows to the continent in 2020, dropping from $47 billion in 2019 to $40 billion. While this decrease is notable, it is less severe compared to other regions such as the European Union, which saw a 74% decline, and Latin America, which experienced a 47% decrease. The combination of economic and health challenges exacerbated by the pandemic, along with low energy commodity prices, weighed heavily on foreign investment in Africa, particularly affecting commodity-dependent economies. In an interview with CNBC Africa, James Zhan, Director for Investments and Enterprise at the United Nations Conference on Trade and Development (UNCTAD), discussed the short-term and long-term prospects for FDI recovery in Africa. Zhan highlighted that in 2020, all regions of Africa, except Central Africa, experienced a decline in FDI flows. Central Africa saw an increase due to a rise in FDI in the Republic of Congo. Looking ahead to 2021, Zhan cautiously expressed that FDI flows to the continent are expected to stabilize with a potential growth of only 5%, which is lower than global and developing country projections. The economic recovery and vaccine rollout progress will play a critical role in shaping the investment landscape for the year. Zhan pointed out that indicators like Greenfield project announcements and international project finance announcements dropped steeply in 2020, painting a challenging outlook for FDI in the short term. However, in the long run, Zhan identified five key factors that could drive FDI flows into Africa, including the rise in demand for commodities, reconfiguration of global value chains, key project implementations, efforts from major countries to promote investment in Africa, and the impending finalization of the African Continental Free Trade Area. When analyzing the FDI inflows to sub-Saharan Africa, Zhan noted a 12% decrease to $30 billion. The investment was concentrated in only a few countries within the region. FDI to Southern Africa declined by 16% to $4.3 billion, with significant drops in FDI flows to countries like Angola and South Africa, which are major FDI recipients in sub-Saharan Africa. Despite these challenges, Zhan remains cautiously optimistic about the long-term prospects for FDI in Africa beyond 2022. As Africa navigates the road to FDI recovery post-COVID-19, concerted efforts from governments, businesses, and international partners will be essential to attract investment, promote economic growth, and foster development across the continent.