Global commodity boom increases FDI

20 Mar '07

3 min read

For some time now, Africa has been attracting attention with a growing number of positive headlines. While disturbing accounts of crisis hotspots, misery and hyperinflation are not yet a thing of the past, reports of reform progress, investment opportunities and booming economies are becoming more frequent. Indeed, the business prospects for many African countries, especially ones that are rich in raw materials, are very promising.

After real GDP growth of 6% in 2006 we look for a robust 5.5% in 2007. The current growth surge is certainly mainly due to the sustained commodities boom, but a dynamic economy and successful reforms have also played a part. Positive developments can be observed not only in the business arena but also on the political front. With 21 democratic elections being held this year, Africa is heading in the right direction politically.

Magnet for direct investment:
Thanks to the worldwide commodities boom many African countries are not only awash with export revenues but are also enjoying an increase in foreign direct investment (FDI). Since 2002, FDI in Africa has more than trebled (admittedly starting from a low base) – an increase unmatched even in Eastern Europe and the emerging markets of Asia.

While most of the FDI is still channelled into the extraction of raw materials, Africa's manufacturing industry is increasingly attracting the attention of foreign investors. For instance, fully twice the amount of FDI has flowed into manufacturing as into raw materials production in the commodity-rich countries of Nigeria, South Africa, Egypt and Zambia since 2002. A steady improvement in the business climate and governance are vital if these countries want to continue the trend.

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