Africa now attracting more foreign investment

Dong Fang Development Company, a Chinese textile shop in Nairobi. The Sino-Africa trade increased to $55 billion in 2007. Photo/ANTHONY KAMAU

By CATHERINE RIUNGU

Posted Saturday, August 30 2008 at 15:28

Africa is becoming a preferred destination for foreign direct investment despite the failure by the G8 countries to keep their Gleeneagles commitment.

Investors brought in $36 billion in 2007, almost double the 2005 figure, according to a report published by the Africa Re-insurance Corporation (Africa Re).

The report attributes the FDI growth mainly to the influx of Chinese companies.

The Sino-Africa trade increased to $55 billion in 2007 with a positive balance of $2.1 billion in favour of the continent.

The report says the increase in FDI is a reflection of a general positive growth on the continent for the fourth consecutive year.

The continent has recorded an average growth rate of more than 5 per cent, matching a general average for the world.

The rate of growth, however was dampened by the increase in oil prices and agricultural products and the resulting inflationary pressure.

The economic well being in Africa is attributed to a number of factors key among them the cessation of conflicts in the Great Lakes region, the entrenchment of peace in West Africa — Liberia and Sierra Leone — improvement in public and private governance brought about by the new generation of political leaders who are more focused on development, and the increase in the revenue from exported raw material.

The continent has defied warnings from the West that it runs the risk of accumulating its debts.

However, African countries now approach China for, which grants them significant loans within a short time, whereas the traditional lenders take time to respond to only a few of their needs and often with stringent conditions.

The biggest borrowers from China are South Africa, Angola, Nigeria and Sudan.

China, together with Singapore, Saudi Arabia, the United Arab Emirates and Kuwait have taken over the role of lenders to the world economy.

The leading economy on the continent — South Africa — saw a 4.5 per cent increase in gross domestic product in 2007 after an average of 3 per cent over the past 10 years.

This was attributed to an improvement in the national budget, from a deficit of 2.8 per cent in 1999 to only 0.6 per cent at the end of last year and a better debt management, which was 30 per cent of GDP, down from 50 per cent in 1994.

But inflation, which stood at less than 6 per cent then, has now increased to about 8 per cent following the surge in prices of oil and food products.

Angola attained a 24 per cent growth in its GDP due mainly to the sharp increase in the price of oil and other minerals.

The non-oil sector — agriculture, mines and construction — has regained its vitality following the resurgence of subsistence and export agriculture (coffee), diamond extraction, and the onset of reconstruction programme necessitated by the destruction caused by the civil war that ravaged that country for the past three decades.

In East Africa, Kenya, which recorded a growth of 7 per cent due to transfer of funds from the diaspora, tourism and tea, experienced post-election violence early this year marring its celebrated stability.

Analysts have projected that due to the violence, the country’s economy will grow by 4 per cent this year. But authorities say that the economy, which five years ago was on negative growth, will hit 10 per cent by 2012.

Uganda’s GDP increased by 6.2 per cent despite a deficit in energy supply while Tanzania, with similar difficulties attained a growth of 8 per cent.

The economy of Ethiopia is beginning to overheat following an 8 per cent growth in 2007 for the third year in a row, while the rate of inflation stood at 16 per cent mitigated by the purchase of cereal to be re-sold at a subsidised price by the state. That exceptional growth is attributable to vibrant agricultural activity, especially coffee, horticulture and oil seed.