Ernst & Young has revealed that the Africa Continent recorded its worse economic recessions in 50 years with a 50 percent drop in foreign direct investment (FDI) inflow.
This was contained in its 11th Africa Attractiveness Report which provides an in-depth analysis into foreign direct investment and economic progress in Africa.
The report said the broad services sector, including business services, telecoms, media and technology, financial services, and consumer, attracted 72 percent of Africa’s Foreign Direct Investment (FDI).
The extractive sector-mining, oil and gas, on the other hand, accounted for only four percent of FDI inflows in 2020 but does not mean that Africa is not still heavily reliant on commodities. This is one of the key findings as revealed in the report, noting that FDI into Africa last year fell by 50 percent, the hardest-hit region worldwide.
“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,” according to Anthony Oputa, EY Regional Managing Partner for West Africa and EY Nigeria Country Leader.
The report further exposes that Africa’s overall GDP contracted by 2.4 percent in 2020, but this is less than the 3.6 percent contraction in the overall global GDP. For Anthony, 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, noting 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.”, notes Anthony.
“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 ESGs-environmental, social, and governance issues,” the report notes.
Though extractives accounted for a considerable portion of inbound capital (31 percent) between 2016 and 2020, they rank low in comparison with both services and industry in project numbers (seven percent) and the share of jobs created (11 percent).
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