The 2014 Ernst & Young Africa Attractiveness survey reveals a dramatic improvement in the continent’s perceived attractiveness

nairobi in the skiesErnst & Young has recently released their 2014 Africa Attractiveness Survey. The survey ranks the 15 top African states and provinces in terms of foreign direct investment (FDI) projects.

The most striking observation from this year’s survey is how far Africa’s perceived attractiveness has improved. In less than five years, Africa has risen to become the second most attractive investment destination in the world, tied with Asia.

South Africa, Nigeria and Kenya are considered the most attractive investment destinations in SSA, whereas Morocco is seen as the leading destination for doing business in North Africa, largely on account of its relatively stable political environment.

However the perception gap between those already doing business on the continent, and those with no business presence, remains striking.

More specifically, those already active on the continent rank it as by far the most attractive investment destination in the world today. Those who are yet to invest are far less enthusiastic, ranking Africa as the least attractive investment destination in the world. The gap could hardly be wider.

Even though investment perceptions have improved so dramatically, actual investment in Africa has not accelerated as much, since many potential foreign investors continue to view the entire continent as a high-risk destination.

This view is often based on perceptions that are 20 to 30 years out of date. But it is important to highlight the real challenges of doing business on the continent.

In 2013, Africa’s share of global FDI projects reached 5.7%, its highest level in a decade. The number of new FDI projects in sub-Saharan Africa (SSA) increased by 4.7%, although the total number of new FDI projects declined by 3.1%, due to the political uncertainty in North Africa. However, the average size of FDI projects increased to US$70.1m in 2013, from US$60.1m in 2012. In terms of destinations, while South Africa maintained its position as the top FDI destination, emerging hotspots for investment are Kenya, Ghana, Mozambique, Uganda, Tanzania and Zambia.

The prime factors behind the sub-Saharan African growth story are strong macroeconomic growth and outlook, improving business environment, rising consumer class, abundant natural resources, democratic dividend and infrastructure development.

African investors nearly tripled their share of FDI projects over the last decade, and Intra-African investment has also driven job creation on the continent. This growth is fueled by the need for improved regional value chains and strengthening regional integration.

With the diversification of economic activity in Africa gathering pace, growing employment levels are creating a new consumer class. This has paved the way for increasing FDI in consumer-focused services and manufacturing sectors. Sectors other than extractive industries are growing in importance.

Africa is an inherently challenging place to do business, but many companies pursuing a long-term African strategy have generated excellent returns from their investments.

The top 15 investment regions on the continent are as follows:

1. Gauteng, South Africa

The report describes Gauteng province as the economic engine of South Africa as it makes up 33.7% of GDP. The province is home to two important cities: Johannesburg and Pretoria. The services sector is the mainstay of its economy. Unsurprisingly, it is the most attractive destination for services-related projects in Africa, with numerous projects in TMT (technology, media and telecoms), business services and financial services.

2. Al-Qahirah, Egypt

Al-Qahirah in Cairo, Egypt, is the second most popular destination for FDI projects, despite seeing a decline in activity in recent years. According to EY, Cairo provides considerable opportunities for consumer-facing companies.

3. Casablanca, Morocco

FDI trends in Casablanca, Morocco are similar to those in Cairo with business services, ICT and media, retail and consumer products, and financial services being the sectors that attract the most investment.

4. Nairobi, Kenya

Kenya’s capital Nairobi is gaining recognition as a financial, ICT and media hub. The report: In August 2012, IBM established an innovation lab in the city – it’s first in Africa.

5. Western Cape, South Africa

South Africa’s Western Cape province holds key sea ports, such as Cape Town and Saldanha. In Cape Town, technology, media and telecommunications has become a top investment sector, gaining momentum with the roll-out of broadband infrastructure across the city.

6. Lagos State, Nigeria

By 2030, Lagos city in Nigeria (in Lagos State) is predicted to have a population of more than 25m and a per capita income of $2,810.

7. Luanda, Angola

Angola’s Luanda province holds the country’s capital city, Luanda, and a 3% share of FDI projects in Africa between 2007 and 2013.

8. Tunis, Tunisia

Tunis Governorate (or province) in northern Tunisia is home to the country’s capital city, Tunis. The area holds a share of 2.7% of FDI projects in Africa for the period 2007-2013.

9. Greater Accra Region, Ghana

The Greater Accra Region, in Ghana, has seen its share of Africa’s FDI projects increase nearly six fold, from 0.8% in 2007 to 4.7% in 2013. The capital, Accra, was identified as the sub-Saharan African city with the highest potential for growth over the next five years by the MasterCard African Cities Growth Index.

10. Tangier-Tetouan, Morocco

Tangier, a city in northern Morocco, is home to the Tangier Free Zone. An extended metropolitan region is growing around Tangier, which has become North Africa’s largest container port. 

11. Algiers, Algeria

Algiers is a province in Algeria and holds the country’s capital of the same name. EY ranks the area in 11th position in Africa, with a share of 1.9% of FDI projects between 2007 and 2013.

12. KwaZulu-Natal, South Africa

KwaZulu-Natal, the province on the eastern seaboard of South Africa, holds two of Africa’s busiest sea ports – Durban and Richards Bay – and can access markets across both the Indian Ocean and Pacific Ocean. 

13. Dar es Salaam, Tanzania

Tanzania’ s administrative and business hub, Dar es Salaam, is predicted to become Africa’s fifth most populous city by 2030. According to EY’s report, the country will see the greatest expansion of middle class households with incomes between $5,000 and $20,000 per year by 2030. 

14. Maputo, Mozambique

Recent gas and coal discoveries in Mozambique have resulted in a number of multinational companies and foreign investors entering the country. Maputo, the capital city, has been experiencing a property and construction boom, and an influx of expatriates.

15. Eastern Cape, South Africa

The Eastern Cape is South Africa’s fourth province to make EY’s list and has become a key hub for FDI in the automotive industry.

You can study the complete report here.


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