The latest report of the United Nations Conference on Trade and Development (UNCTAD) on world investment confirms the renewed attractiveness of Africa in 2018. While foreign direct investment (FDI) fell by 13% worldwide last year, foreign direct investment to the African continent jumped by 11%. In a gloomy global economic context, troubled by the threat of an escalation of the US-China trade war, Africa is escaping the protectionist storm by continuing to attract a growing share of investments.
It would be easy to miss the forest for the trees. It should be remembered, however, that Africa continues to capture a tiny share of FDI in the world, only 3.5%, or $45.9 billion. In comparison, India alone received nearly $42.3 billion in FDI in 2018. In 2018, FDI in Africa remained below the level of 2014-2015, following the fall in commodity prices. Natural resources also continue to be the main vector of investment on our continent – allowing the Republic of Congo, for instance, to move up to third place in the African ranking thanks to investments in oil exploration and production – with a few exceptions in some more diversified economies.
Several factors may contribute to an increase in FDI in 2019: the hypothesis of stable commodity prices; increased US investments in the African continent to compete with China (including the creation of the U.S. International Development Finance Corporation (USDFC) which should be able to mobilize 60 billion mainly for the African continent); and the ratification of the Agreement on the African Continental Free Trade Area, that is boosting the continent’s attractiveness as a large economic area in the process of creating a big continental market.
While most regional groups are for the most part weakened by internal tensions – even the European Union can no longer act as a model with Brexit and the rise of populism – only Africa is strengthening its integration within the framework of a common economic and political project. On May 30, the Continental Free Trade Area officially came into force, laying the groundwork for a single market of 1.2 billion people with an estimated GDP of $2.5 trillion. At the same time, the business climate on the continent continues to improve, facilitating investment and supporting the development of small and medium-sized enterprises. In the Doing Business 2019 ranking, Africa shines by the number of reforms carried out, even in countries that are subjects to conflicts.
Nevertheless, while it is true that African States must continue to improve their attractiveness to foreign investors, one of the priorities must remain the mobilisation of our domestic resources. It is not FDI that will bring structural transformation of our economies. The average tax-to-GDP ratio on the African continent remains low compared to the average ratio of OECD countries and other regions of the world. This loss of income is more than harmful to development policies, while the United Nations Economic Commission for Africa estimates that our continent could earn $99 billion a year by adopting better tax policies.
Our challenge to emerge in a globalized world is not without obstacles: our continent is leading an unprecedented range of reforms, but it is only by combining regional integration, improving the business climate and diversifying our economies that we will make Africa a global economic power.
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