COVID-19 impact on investment in Africa
The coronavirus (COVID-19) pandemic impacts on foreign direct investment (FDI) across the world. In 2019, UNCTAD anticipated global FDI flows to rise marginally in 2020. However, due to the COVID-19 pandemic, UNCTAD initially projected that global FDI flows could decline by between 5% to 15% during 2020 and 2021. Nonetheless, these projections have changed drastically more recently. UNCTAD’s latest estimates are that global FDI flows could fall by between 30% to 40% because of the spread of COVID-19. This significant change from the earlier estimates are a result of earnings revisions confirming the rapid deterioration of global prospects, global demand shock’s impact on sales and global supply chain disruptions. The negative effects of FDI will be concentrated in countries severely hit by COVID-19, but the effects will extend to other countries due to demand shocks and supply chains connections.
Africa’s investments will also be affected by COVID-19. Between 2018 and 2019, Africa’s FDI inflows increased by 11% to US$46 billion, following consecutive decreases in 2016 and 2017. UNCTAD had also predicted that FDI inflows would rise this year. However, due to COVID-19, the continent’s overall FDI inflows is estimated to shrink by 15%. Investments affected most are those in energy and primary industries because of the oil price drop as well as the airline and tourism industries due to travel cancellations and bans. According to UNCTAD’s latest projections, Africa will also experience foreign capital outflows due to COVID-19.
Many African governments have adopted emergency policy measures to protect public health and stop the spread of COVID-19. Some of these measures are intended to support investors and investments during the pandemic (e.g. finance assistance programmes). Some policy measures (e.g. company closures, export control measures, lockdown regulations etc) have negative impacts on investments.
Governments are justified to adopt emergency measures designated to protect public health during health crises like the COVID-19 pandemic. But it is also important to ensure that such measures do not unreasonably jeopardise investments and breach investment-related obligations. Some experts are already predicting future investment claims (e.g. discrimination or indirect expropriation) arising out of COVID-19 emergency measures adopted by countries.
Equally important, countries should increase transparency by sharing or publishing (through easily accessible platforms) information on new investment and investment-related measures introduced to fight COVID-19. This would maintain a transparent and predictable investment environment during the pandemic, and keep investors informed of policy measures affecting them and help them to respond accordingly in their investment activities or decisions.
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