Friday, September 18, 2009

Foreign investment in Africa down sharply

CHARLOTTE MATHEWS, Business Day, 2009/09/18

FOREIGN direct investment flows to Africa plunged sharply in the first quarter of this year after reaching record levels of 88bn last year, according to the United Nations Conference on Trade and Development’s (Unctad’s) annual World Investment Report released yesterday.

Unctad said the decline, which was expected to continue this year, had important consequences for development on the continent, as foreign investment was a major contributor to gross fixed capital formation.

The report showed foreign direct investment into SA last year was 9bn, almost double 2007’s 5,7bn, but it dropped 80% in the first quarter of this year to 1,2bn compared with 5,3bn in the first quarter of last year. However, the figures are distorted by the Industrial and Commercial Bank of China’s payments for a 20% stake in Standard Bank .

Divestments by South African transnational corporations reduced SA’s outward foreign investment that dropped to a negative 3,5bn last year from a positive 2,9bn the year before, which pulled down the African continent’s outflows to 9,3bn from 10,6bn.

Unctad estimated that global investment flows this year would fall below 1,2-trillion from 1,7-trillion last year because of the effects of the financial and economic crisis. Next year’s flows would recover slowly to 1,4-trillion but were likely to approach 1,8-trillion in 2011.

Most of the last year’s decline in foreign investment flows was into developed countries, while the trend continued to rise in developing economies and those in transition, like southern and eastern Europe.

But, said Unctad, this reflected a delay in the downturn as it had affected the exports of those countries more slowly. Flows of investment out of developed countries fell less sharply than inflows, with the US and France remaining the world’s leading investors.

The report showed that Sasol was SA’s biggest transnational corporation in the category of developing countries in 2007 , ranked 22nd by foreign assets, followed by Gold Fields ( 40th) and Naspers ( 44th) .

Unctad said cross-border investments in agriculture were increasing, which was significant for developing countries. It was driven not only by commercial farming but, particularly among countries in the southern hemisphere, by concerns about food security.

Investment by transnational corporations in agriculture, either directly or by forming contractual relationships with farmers, could bring much-needed inputs, skills transfer and financial benefits to small farmers in developing countries. It was important that governments paid attention to promoting contractual arrangements between investors and farmers, Unctad said.