Fact sheet on Foreign Direct Investment

Focus on the new Africa

A joint initiative by:

• United Nations Conference on Trade and Development (UNCTAD)
• Multilateral Investment Guarantee Agency (MIGA)
• United Nations Development Programme (UNDP)
• International Chamber of Commerce (ICC)

"This is an important step to help change the image of Africa, to put the continent back on the investment-location map."
Kofi Annan, Secretary-General, United Nations

Verified by KPMG: the historical statistical information in this fact sheet is reliably quoted from the sources indicated in the booklet, it being recognized that systematic, reliable and up-to-date data on Africa are often difficult to obtain. They need, therefore, to be interpreted with caution.

Focus on the new Africa

A friendlier business environment
Where is the best place to get a high return on your foreign direct investment (FDI)? The surprising answer is Africa, judging by data for African affiliates of United States transnational corporations (TNCs). Their FDI returns in Africa have averaged 29% since 1990. The profitability of their African affiliates has been consistently higher in recent years than that of affiliates in most other regions of the world, including those of the developed countries. In 1997, profitability was 25%, compared with a world average for United States foreign affiliates of 12%. Japanese companies also did much better in Africa than elsewhere, returning 6% on FDI in Africa in 1995 as against a 2% world average. A number of major corporations have already taken advantage of Africa's investment opportunities as indicated by the testimonials below.

Why Africa dropped behind
Nonetheless, FDI in Africa has increased only a little in recent years. Locational decision makers in many firms, and investment advisers of TNCs, have been slow to see the changing economic realities in many countries of Africa. Political events in a number of African countries have for a long time discouraged foreign direct investors. On their TV screens, company executives have seen civil unrest, starvation, epidemic diseases and economic disorder. Investment conditions until the early 1990s discouraged many companies from setting up shop in African States, especially as some companies found themselves subjected to expropriation when political winds changed.

How the stereotype is misleading
While such problems persist in some African countries, the tendency to lump all African countries together in a single negative stereotype clearly gives a wrong impression. As the new UNCTAD study Foreign Direct Investment in Africa: Performance and Potential underlines, the more than 50 countries in Africa more than a quarter of the members of the United Nations vary widely in history, development, political systems and economic climate.

In the 1990s, regulatory and other reforms have been introduced by a number of governments to make their economies more attractive to foreign investors. Today, the regulatory conditions established in many African countries are on a par with those in other developing countries.

Reforms and initiatives
Among the steps to improve the FDI climate taken by African governments are:

• Improved environment
  Trade liberalization, strengthening of the rule of law, improved legal and support institutions, better governance, improved transparency and better transport and telecommunications have helped make it easier to do business in many African countries. Over 40 African countries are now members of the WTO, with more in the process of joining.

• Economic reforms
  Many African countries have stabilized their economies, sometimes through the devaluation of overvalued currencies. They are reducing inflation rates and cutting budget deficits. Others are raising educational standards and, more generally, upgrading their human resources.

• Private sector encouragement
  Many countries are stimulating economic growth by making life easier for the private sector. At least 17 have broad-based privatization programmes in place. When one looks at particular sectors, the number is even bigger: some 25 countries in sub-Saharan Africa are transferring all or part of their telecommunications ownership from the state to the private sector. In South Africa, for example, Telekom Malaysia, together with SBC Communications from the United States, has invested US$1.2 billion in Telkom South Africa. The results of the privatization efforts in Africa are already visible. Countries in which privatization has attracted significant FDI include Ghana, Mozambique and Uganda.

• Better FDI regulatory framework
  The great majority of countries have substantially improved their FDI regulatory frameworks. Many more countries now allow profits to be repatriated freely or offer tax incentives and similar inducements to foreign investors. Many African countries have investment promotion agencies (IPAs), to assist these investors.

At the international level, 37 African States are now members of the Convention Establishing the Multilateral Investment Guarantee Agency (and seven are in the process of fulfilling their membership obligations), 42 are signatories to the Convention on Investment Disputes between States and Nationals of Other States, and 26 to the Convention on Recognition and Enforcement of Foreign Arbitral Awards. Fifty countries have concluded bilateral investment treaties aimed at protecting and promoting FDI, and 41 have signed double taxation treaties.

FDI front runners
Some countries that have been among the most active reformers have already attracted the attention of foreign companies, as demonstrated by the example of seven African countries that established themselves as "front runners" in attracting FDI. These are Botswana, Equatorial Guinea, Ghana, Mozambique, Namibia, Tunisia and Uganda. The dynamism of their FDI inflows now rivals other well-performing developing countries. Though the seven countries account for less than one tenth of the continent's population and GDP, they received one quarter of African FDI in 1996.

In addition to the front runners, several African countries have been good performers in the FDI stakes for a number of years, including Egypt, Morocco and Nigeria. When adjusted for market size (FDI per US$1,000 GDP), a number of small countries have also performed well. The figures show that even least developed countries, such as Mozambique, United Republic of Tanzania and Uganda, can be attractive to foreign investors despite their very low income levels.

Also, some of Africa's companies have themselves become TNCs, thereby showing that they are internationally competitive not only in terms of trade, but also in terms of international production. South African Breweries, for example, has now invested in 11 African countries, employing more than 7,000 people and is listed on the London Stock Exchange.

More than just natural resources
Contrary to common perception, FDI in Africa is no longer concentrated in natural resources. Even in oil-exporting countries, services and manufacturing are key sectors for FDI.

• At the beginning of the 1990s, the primary sector accounted for only a little over 30% of the total FDI stock in Nigeria, while manufacturing attracted almost 50% and services close to 20%.
• Tourism FDI represents the second largest FDI sector in Egypt, after manufacturing. Egypt is also attracting FDI in research & development related projects from companies such as Eli Lilly.
• Morocco's FDI receipts have increased five-fold in the past decade, to reach US$1.1 billion in 1997, most of it in manufacturing and services.
• Since the 1980s, Mauritius has been attractive to foreign investors looking for a place to set up manufacturing plant, including plants for electronic equipment.

International initiatives
Countries outside Africa, as well as the United Nations family, are also contributing to the improvement of Africa's prospects as an attractive location for FDI. They have undertaken a number of measures to promote FDI into Africa and have facilitated access to their domestic markets. Measures to accelerate foreign debt relief are crucial in this respect, as a means of supporting economic growth in Africa. Official development assistance has a significant role in helping to build infrastructure and support domestic development generally.

International organizations are also active. UNCTAD, for example, undertakes investment policy reviews in African countries and, together with ICC, has launched a project on investment guides and capacity-building. MIGA carries out assessments of institutional capacity for a large number of IPAs and, primarily through its Promote Africa field functions, assists them to formulate effective strategies for attracting FDI.

What does this all add up to?
The message is clear:
Do not miss out on Africa!
Look at it closely, country by country, industry by
industry, and opportunity by opportunity.
Your competitor may well be there already.

The corporate view of Africa 1999

"Several key African economies are growing at an impressive rate, encouraged by growing political stability and financial prudence. Trade and exchange rate liberalization are features of the reforms designed to facilitate international investment and to achieve an economic climate that encourages business development."
Dominic Bruynseels, Managing Director, Barclays Africa

"We are seeing a gradual improvement in the economies around the region and accordingly we are expanding our business in countries where we are already present as well as opening up in new countries. Over the last four years we have re-opened in South Africa and opened branches in Tanzania, Cameroon, Algeria and Uganda."
Anjum Iqbal, Africa Division Executive, Citibank

"We seek unique opportunities for growing our business in Africa, and we have put in place a unique Africa Strategy to accomplish that. We have also invested heavily in Africa, forming several joint venture partnerships to further strengthen our system. We see great opportunities to market our products to sub-Saharan Africa's 600 million consumers."
Carl Ware, Senior Vice President, The Coca-Cola Company; President, Coca-Cola, Africa

"Offices throughout the continent and decades of African experience give Marubeni a good understanding of the continent's rich opportunities. Each country brings its own challenges but, whether it be in commodity trading, infrastructure, agriculture-related projects or in other business, we believe our long-term perspective and sustained effort will pay dividends."
Yuichi Ishimaru, Corporate Vice President, Director, Chief Executive for Europe and Africa, Marubeni Corporation, Japan; Managing Director, Marubeni Europe plc

"Nestlé‚ has invested and continues to invest in Africa. Its manufacturing operation started in South Africa in 1927 and now extends over 12 countries, operating a total of 30 factories thoughout the continent. The company's policy is to produce locally for local markets using local raw materials."
Michael W. Garrett, Executive Vice President responsible for Asia, Oceania, Africa and Middle East, Nestlé

"To feed rapidly growing populations, agriculture in Africa urgently needs higher crop yields. These can be achieved through the effective use of improved seeds, fertilizers and state-of-the art crop protection products. Our company is meeting these agricultural needs by assisting local private distributors in their efforts to reach and supply small-scale farmers with these inputs. Results of private distribution have been particularly encouraging in Egypt, Tunisia, Morocco, Kenya and Zimbabwe where new business opportunities have been generated. Our company is committed to the African market, with local manufacturing in Egypt, Ivory Coast and South Africa, local organizations in 13 countries and close partnerships in most other countries."
Rudolf Guyer, Head BI Africa, Novartis Agro AG

"Partnership, economic investment and long-term commitment lie at the heart of the Royal Dutch/Shell Group's approach to business in Africa. Shell companies operate in 33 African countries, employ 15,000 African staff and have some US$3.8 billion invested in Africa. They pay an estimated US$1.5 billion in direct and indirect taxes to African countries. They are responsible for about a fifth of African oil production involving major investments such as Shell Nigeria's proposed US$8.5 billion integrated investment plan for oil and gas fields in Nigeria. I believe that business can deliver African investment but more needs to be done to create the economic, social and political environment in which companies can flourish and succeed."
Phil Watts, Group Managing Director, Royal Dutch/Shell Group of Companies

"Standard Chartered has great confidence in the underlying potential of Africa and is making significant investments in its Consumer Banking, Corporate and Institutional Banking and Treasury businesses. These businesses, employing 5,500 people, are available to customers in over 130 branches in 11 countries in sub-Saharan Africa. Standard Chartered is not just reinforcing its already strong presence in countries where it is a household name, but is also expanding into new markets, including Nigeria, where a branch will open later in 1999."
Christopher Wheeler, Area General Manager, Africa

"Unilever's direct presence now extends over 13 countries, while Unilever products are on sale in nearly 40 countries in sub-Saharan Africa. The objective of Unilever in Africa is to offer quality products at affordable prices, made available everywhere, every day. Unilever is committed to developing the skills and knowledge of local employees."
Manfred Stach, President, Africa Group, Unilever

"Private investors rather than governments are developing mobile telecommunications in Africa. The market is promising, as cellular services are an excellent alternative to the overstretched fixed networks that are in place in many countries. Vodafone places great emphasis on political stability in making investment decisions and is currently concentrating on developing its mobile telecoms businesses in Egypt, Uganda and South Africa."
Hans Kuropatwa, Director, Vodafone Group International

This Africa fact sheet is a joint initiative by UNCTAD, MIGA and MIGA/Promote Africa, the Special Unit for Technical Cooperation among Developing Countries of UNDP, and ICC.

For further information, please contact:

Karl P. Sauvant, Chief,
Investment Branch
DITE, UNCTAD
Palais des Nations
CH-1211 Geneva 10, Switzerland
Tel. +41 22 907 5707
Fax: +41 22 907 0194
E-mail: Click here to send a mail

Ken Kwaku, Program Manager
MIGA/Promote Africa
2nd floor, NDC Building
11 Goethe street
Windhoek, Namibia
Tel. +264 61 206 2213
Fax: +264 61 239 770
E-mail: Click here to send a mail

John Ohiorhenuan, Director
Special Unit for Technical Cooperation among Developing Countries
(SU/TCDC)
UNDP, New York, United States
Tel: +1 212 906 5897
Fax: +1 212 906 6352
E-mail: Click here to send a mail

Contributions by the Governments of France and Japan for the distribution of this fact sheet are gratefully acknowledged.

To obtain a copy of UNCTAD's booklet Foreign Direct Investment in Africa: Performance and Potential (Geneva: UNCTAD) on which this fact sheet is based, please contact:

Division on Investment, Technology and Enterprise Development (DITE)
UNCTAD, Palais des Nations, 1211 Geneva 10, Switzerland
Tel: 0041 22 907 5699; Fax 0041 22 907 0194
E-mail: Click here to send a mail

It is also featured on the following web sites:

www.unctad.org
www.un.org/partners/business
www.ipanet.net
www.kpmg.de
www.undp.org/tcdc/tcdc.htm