Foreign direct investment inflow in Africa dropped by 50 per cent in 2020 as the continent recorded its worse economic recessions in 50 years, EY said in a new report.
According to EY’s 11th Africa Attractiveness Report, the broad services sector, including business services, telecoms, media and technology, financial services and consumer, attracted 72 per cent of Africa’s FDI.
It said the extractive sector – mining, oil and gas – accounted for only four per cent of FDI inflows in 2020.
“This could be ascribed to its still largely resource-export dependent economies, which felt the impact of commodity price declines and rapidly decreasing demand, particularly from China, causing them to fall into recession,” said Anthony Oputa, EY’s regional managing partner for West Africa and Nigeria country leader.
He noted that Africa, along with the rest of the world, was significantly impacted by the COVID-19 pandemic, causing lots of business disruption across industries and sectors.
“All hope is not lost. Despite the drop in FDI, Africa is on the path to multi-speed recovery. While Foreign Direct Investment fell sharply in 2020, this is only half the story. The share of FDI into services sectors is rising rapidly, which will support job creation over time,” he added.
According to the report, FDI is shifting away from extractive industries as an increased global focus on environmental sustainability requires a step change across the corporate world.
“This addresses the green energy transition and related concerns that form part of the corporate embrace of ESG – environmental, social and governance issue,” the report notes,” it said.
EY Partner and Strategy and Transaction Lead, Olufemi Alabi, said Africa’s economies had been rapidly transforming through the first two decades of the new millennium, making them less dependent on extractive industries as they aimed to become more sustainable and competitive.
“Investors are moving away from oil exploration and mining to ‘new age’ sectors, including ICT, retail and business services. This trend is likely to accelerate as energy investors are increasingly compelled to meet stringent zero net carbon emission targets,” he added.
