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AfricaMoney | August 17, 2017

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Mauritius among top three destinations in Sub-Saharan Africa for US & Japan FDI

Mauritius among top three destinations in Sub-Saharan Africa for US & Japan FDI

The report by Washington-based nonprofit public policy organization, Brookings Institution, analyses the investment flows between Sub-Saharan Africa and its major partners – the US, China, the European Union (EU) and Japan. (Image: China.org.cn)

Mauritius features among the top three destinations for US FDI to Sub-Saharan Africa and is the second most attractive destination for FDI flows from Japan to the region, according to a report by US-based think tank Brookings Institution’s Africa Growth Initiative (AGI).

The top destinations for US foreign direct investment flows in the region are Nigeria (37 percent), followed by South Africa (17 percent) and Mauritius (16 percent).

For Japan, South Africa is also the top recipient (with 68 percent of flows), but Mauritius (22 percent) and Liberia (7 percent) each receive sizable shares as well.

The report by the Washington-based nonprofit public policy organization analyses the investment flows between Sub-Saharan Africa and its major partners – the US, China, the European Union (EU) and Japan.

While the EU is considered the largest of the four partners in terms of FDI stock, when the EU is disaggregated by country, the US and France were the largest sources of FDI stock for sub-Saharan Africa in 2012 at $31 billion each, followed by the UK with $25 billion.

However, it shows that FDI flows to sub-Saharan Africa are highly concentrated in only a few countries.
South Africa and Nigeria are the top recipients of sub-Saharan Africa-bound FDI flows for China, the EU and the US.

For the EU, South Africa comprises 68% of its FDI flows to sub-Saharan Africa while for China, South Africa receives 35% of its flows.

All in all, since 2000, global FDI stock in sub-Saharan Africa has increased dramatically from over $33.5 billion to $246.4 billion in 2012.

According to analysis of UNCTAD’s Bilateral FDI Statistics (2014), the EU, China, Japan and the US accounted for approximately 54% of the stock of FDI in the region in 2012.

Four EU member countries —France (38%), the U.K. (31%), Germany (8%), Belgium (8%)—accounted for over 80% of the EU’s share of FDI stock in the region.

However, FDI flows to Sub-Saharan Africa from US, EU, China and Japan remain low compared to the share of investment of these countries in other regions globally.

Accordingly, even though the US is one of the top contributors of FDI stock to Sub-Saharan Africa, less than 1% of the US’s global FDI stock abroad is destined for the region.

The US primarily invests its $367 billion of FDI in Europe (55 percent), Latin America (13 percent), Canada (8 percent), and other developed countries such as Australia, New Zealand, Israel and Japan (13 percent collectively).

Similarly, the EU and Japan direct only 0.8 and 0.2 percent of their FDI, respectively, toward sub-Saharan African countries abroad. China, on the other hand, invested 3.4 percent of its FDI stock abroad in the region in 2012.

Sector wise, predominantly resource-rich countries—South Africa with its precious metals and minerals as well as Nigeria with its oil reserves—receive a majority of FDI, indicating that natural resources remain a significant factor in attracting investors to the continent.

For example, the main sectors in which the US and China both invested in Sub-Saharan Africa were the mining and extractive industries, comprising approximately 58 percent and 30.6 percent of each country’s FDI stock to the region, respectively, in 2011.

However, financial services, manufacturing and construction also received notable shares of FDI stock from both countries.

China’s reported FDI composition was more diversified than the composition of U.S. FDI, with 19.5 percent in financial services, 16.4 percent in construction, 15.3 percent in manufacturing, and the remaining 18.2 percent in business and tech services, geological prospecting, wholesale retail, agriculture and real estate.

US FDI was concentrated 12% in finance and insurance, 5% in manufacturing and 25% in other industries.

According to the World Investment Report of 2014, international investors are increasingly looking to new opportunities in consumer-oriented sectors (such as information technology, foods, financial services and wholesale retail) that target the region’s expanding middle class.

Along with the appetite for mineral resources, energy and other returns that drew massive investment into Africa, the report compared the status of the quality of governance in the countries where the US, Japan, the EU and China invested in 2012.

When the EU was disaggregated by individual member countries, it emerged that France has the largest share of investment in countries with the lowest levels of governance.

Given its focus on oil-producing countries with low governance levels, the U.S. is comparable to other regions.

Importantly, however, the U.S. Dodd-Frank Act, which requires public dis¬closure of payments at the project level from listed com-panies, involved in extractive industries.

One way in which the US can increase FDI to sub-Saharan Africa is through the promotion of Bilateral Investment Treaties (BITs). Among the most active countries at concluding BITs (globally, in 2013) were Mauritius and Tanzania, which each concluded three BITs.

Secondly, so-called “blended initiatives,” such as Power Africa, offer another useful model to increase investment through partnerships between the African private sector, US government agencies, African governments, and other partners like multilateral institutions such as the African Development Bank.

It may be noted that the report has been prepared in the context of President Obama’s US-Africa Leaders’ Summit to be held from 5-6 August, 2014.

On the second day of the summit, the US Department of Commerce and Bloomberg Philanthropies will convene the inaugural US-Africa Business Forum.

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