Preface

    Many African countries have already done much to create a more business-friendly environment to promote local investment as well as foreign direct investment, and many have made impressive progress towards political and economic stability. In their efforts to revive economic activity they have scaled down bureaucratic obstacles and interventions in their economies and embarked on privatization programmes, and are now putting in place pro-active investment measures.

   These efforts -- helped in the recent past by other factors, such as favourable commodity price -- have borne fruit, leading to a turnaround in many countries, after a long period of economic contraction. As a result, for the first time since the early 1980s, per capita gross domestic product of the continent as a whole has grown considerably since 1994. Some countries that not so long ago were being torn apart by civil unrest or war have recovered and are growing again, although given recent developments in the world economy, this growth still has to be carefully nurtured.

   Foreign direct investment flows into Africa can make an important contribution to the economic development of the continent. However, at $9 billion in 1997, they were less than what Singapore received. One reason for this below potential performance is the image of Africa among many foreign investors who still associate the continent with political turmoil, economic instability and natural disasters. These problems do indeed persist in some African countries, and they remain a serious impediment to development. However, frequently little attempt is made by investors to differentiate between the continent's over 50 countries. As a result, despite offering many attractions to foreign investors, most African countries are not even listed for consideration by transnational corporations -- let alone make it onto their "short list" -- when it comes to locational decisions for FDI.

   On close examination, however, one finds that a number of "frontrunner countries" have attracted above-average amounts of FDI -- even by the standards of developing countries as a whole -- not only in traditional sectors, such as mining and petroleum, but also in manufacturing and service industries. From the viewpoint of some foreign companies, investment in Africa seems to be highly profitable, more profitable indeed than in most other regions.

   This booklet, prepared by UNCTAD's Division on Investment, Technology and Enterprise Development, is intended to give a more balanced image of Africa. It sends a clear message to foreign investors: "Treat Africa as you would any other continent or region. Do not simply write it off. Look at it closely, country by country, industry by industry, and opportunity by opportunity. Your competitor may well be there already."

   This message needs to get out to as many direct investors as possible. UNCTAD and the International Chamber of Commerce, in cooperation with UNDP's Special Unit for Technical Cooperation among Developing Countries and the Multilateral Investment Guarantee Agency and its PROMOTE AFRICA Programme, have thus produced a Fact Sheet summarizing this booklet's major findings. This Fact Sheet will be sent to corporate executives of transnational corporations, from developed and developing countries, involved in making locational decisions.

   This booklet is only one step, but nevertheless an important one, to help change the image of Africa, and thus to put the continent back on the investment-location map.

Rubens Ricupero
Secretary-General of UNCTAD

Geneva, June 1999

Acknowledgements

   This booklet was prepared by Ludger Odenthal and Zbigniew Zimny, under the direction of Karl P. Sauvant. Specific inputs were received from Georg Kell. Principal research assistance was provided by Mohamed Chiraz Baly. Assistance was also received from Ozavize Lawani and Alain-Christian Pandzou. Secretarial assistance was provided by Bartolomeo D'Addario, Florence Hudry and Jennifer Tacardon. The booklet was desktop-published by Teresita Sabico. It benefited from comments by Masataka Fujita, Vishwas Govitrikar, Khalil Hamdani, Padma Mallampally, Anne Miroux, Fiorina Mugione, Lynn K. Mytelka and Sheila Page.

Verified by KPMG: the historical statistical information included in this booklet is reliably quoted from the indicated sources, 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.

Executive summary

Foreign direct investment (FDI) is welcomed and, indeed, actively sought by virtually all African countries. The contribution that FDI can make to their economic development and integration into the world economy is widely recognized. For this reason, African countries have made considerable efforts over the past decade to improve their investment climate. They have liberalized their investment regulations and have offered incentives to foreign investors. More importantly, the economic performance of the region had substantially improved from the mid-1990s.

However, the expected surge of FDI into Africa as a whole has not occurred. Too often, potential investors discount the African continent as a location for investment because a negative image of the region as a whole conceals the complex diversity of economic performance and the existence of investment opportunities in individual countries.

While the problems many African countries face are widely known and dominate the perceptions of the continent as a whole, there are a number of positive aspects that, although highly relevant for foreign investors, are little known. Most African countries have substantially improved their FDI framework, and a number of them have already attracted significant amounts of FDI, in absolute or relative terms, or both, from an increasing number of home countries, including developing countries. In addition, FDI in Africa is no longer concentrated in the traditional natural resources sector, but also manufacturing and services industries have received considerable amounts of FDI in recent years. It has proven to be highly profitable and fairly consistently so over time. Direct investors need therefore to differentiate. They need to look at Africa country by country, sector by sector, and opportunity by opportunity. As in other continents, there are profitable investment opportunities to be found.