Building capacity to help Africa trade better

Towards creating an enabling environment for investment in Africa: highlights of the COMESA Investment Report


Towards creating an enabling environment for investment in Africa: highlights of the COMESA Investment Report

Taku Fundira, tralac Researcher, discusses the findings of the 2011 COMESA Investment Report

Africa currently presents interesting economic opportunities. It is host to some of the fastest-growing economies in the world. Real Gross Domestic Product (GDP) for the continent has increased by 5.2% annually in the past decade, compared with 2.3% in the 1990s (WEF, 2011). Working towards creating an enabling environment to attract foreign direct investment has become a common commitment amongst African countries at both the national and regional level.

In the past few decades, Africa has made significant strides toward democratic governance, transparent economic systems, and elimination of some of the crippling bureaucratic barriers to trade and investment. Since 2005, of the 53 regulatory changes observed by UNCTAD in Africa, four fifths (42) were favourable to FDI, while 11 made the environment less favourable (WIR, 2006).

The positive outcomes of some of these efforts can be seen in countries like Angola, Ethiopia, Mozambique and Rwanda which recently recorded inflation-adjusted growth rates higher than India, Russia or Brazil. The World Bank rates Mauritius a better place to do business than Germany and South Africa ranks above Chile. Botswana, Tunisia, Rwanda, Ghana, Namibia, and Zambia all offer a more favourable entrepreneurial environment than China (de Vignemont and Smallwood, 2011).

Privatisation long viewed as generally improving the output and efficiency of the organisations that are privatised continues across Africa. Algeria, Angola, Comoros, Congo, Côte d’Ivoire, Kenya, Libya, Mauritius, Morocco, Nigeria, Sierra Leone and Tunisia either privatized specific sectors or introduced plans to enhance cross-sectoral liberalization. The focus industries included utilities, telecommunications and tourism. Some programmes attracted Trans-National Corporations (TNCs) from other developing countries. In Angola for example, the privatization agency approved Telecom Namibia’s bid to become the first private operator of Angola’s fixed-line network. Egypt has pursued policies aimed at opening up its markets in activities where it has a clear advantage (e.g. tourism) as well as in some manufacturing industries.

Another set of favourable changes concerns attempts to improve the investment climate. Recognizing that an investor-friendly climate has a beneficial effect on the subsequent relationship between host and investor, a number of countries have reformed their admission procedures by introducing one-stop investment shops. A number of African countries, such as Egypt, Ghana, Senegal and South Africa, have reformed their tax systems, often reducing corporate income taxes. Some have eased operational conditions for TNCs. For example, Egypt is facilitating the entry and residence of foreigners (WIR, 2006).

These developments have not only occurred at the country level, but also at the regional level, where regional economic communities (RECs) have developed mechanisms aimed at supporting investment into the region. In East and Southern Africa, the Common Market for East and Southern Africa (COMESA) and the Southern African Development Community (SADC) are examples of RECs that have put in place a regional investment policy to promote the region as an attractive destination particularly for markets seeking foreign direct investment (FDI). For COMESA, its regional investment policy is articulated in the COMESA Common Investment Area (CCIA) while the latter’s contained in the SADC Investment and Finance Protocol. The only REC which is yet to develop mechanisms for a common investment area is the East African Community (EAC) although as a result of overlapping membership, four out of five EAC States are part of the CCIA and one country, Tanzania, is covered by the SADC Investment & Finance Protocol.

In light of this, the COMESA REC has published its inaugural Investment Report (2011) which focuses on investment trends in the COMESA region and also highlights some of the salient issues affecting the region. The following investment trends were observed for the COMESA region (COMESA, 2011):

  • Inward Foreign Direct Investment estimates indicate an 18% increase in total inward FDI and the first overall increase since 2007. This increase includes inflows into Libya, DRC, Mauritius and Uganda. Declines were experienced in major traditional FDI destinations such as Egypt and Sudan. Although Egypt remained the top recipient of total inward FDI in 2010, with a market share of 33%, Libya, DRC and Sudan which accounted for 20, 15 and 15% respectively of total COMESA FDI inflows.

  • In terms of relative size of FDI inflows to GDP, Seychelles (39%), DRC (22%) and Djibouti (11%) had the highest ratios in 2010, with the DRC recording a significant increase in this ratio compared to 2009, while on the other hand Madagascar had a significant decline in the ratio with its 2010 ratio half the size of that in 2009.

  • Intra-COMESA FDI Inflows – in the absence of reliable data from Member States, enterprise based FDI surveys have been used to determine the extent on intra-COMESA or even intra-regional FDI inflows. Amongst the top recipients on intra-COMESA FDI based on the national surveys conducted were Egypt and Uganda which received US$ 171.8 million (between 2009 and 2010); and US$167.5 million (between 2007 and 2009) respectively. Libya was the major investor in most cases. Outside of COMESA, other major African investments in COMESA were mainly from South Africa.

  • “By sector major investing companies were – Elsewedy Electric and Arab Swiss Engineering Company in the electronic components and building sector; Diamond Trust Bank, Cooperative Bank and Gulf African Bank in the financial services sector; and Kenol Kobil Group in the energy sector. Regarding FDI from other African sources, key players in the financial services sector were United Bank of Africa, Standard Bank Group, Sanlam and Exim Bank of Tanzania while in the communications sector, MTN Group, Dimension Data Holdings and Altech Group. The food sector saw Pick n Pay invest in Zambia and Mauritius in 2010.”

  • Outward FDI – FDI outflows registered a growth of 25% in 2010, based on data among the reporting countries. At the country level, the key drivers of this growth were Egypt, Libya and Zambia whose outflows grew by 59%, 10% and 7% respectively.

  • Inward FDI Stocks in COMESA – A 13% rise in total COMESA inward FDI stocks was recorded, increasing from US$132 billion in 2009 to US$148 billion in 2010. Swaziland, DRC, Mauritius and Seychelles recorded significant increases in stock levels over this period. 2010 inward stocks as a percentage of GDP were highest for Seychelles (215%), Djibouti (84%), Zambia (53%) and Uganda (35%).

  • Cross Border Mergers and Acquisitions by Industry – Cross Border Mergers and Acquisitions (M&A) sales dropped by 19% in COMESA in 2010. Primary industries contributed to this decline registering an 84% drop in 2010. Tertiary industries which accounted for 75% of M&A sales registered an increase in sales of over 200%. M&A purchases registered an increase of 91% buoyed by increases in both the tertiary and secondary industries of 675% and 53% respectively.

  • Greenfield FDI Projects in COMESA – Greenfield FDI projects in COMESA dropped to 217 in 2010 compared to 265 in 2009. The bulk of these Greenfield projects were in the services sectors though from the perspective of estimated capital investment, they represented 35% of capital investment. Primary sectors accounted for just 9% of the total number of Greenfield FDI projects but in value terms accounted for 52% of capital investment. Asia (35%); the EU (29%); and Africa (16%) were the largest sources of these Greenfield FDI projects in 2010. Egypt (34%) received the largest number of Greenfield FDI projects among the COMESA countries. This was followed by Kenya (16%), Uganda (10%), Libya (8%) and Zambia and Zimbabwe with 6% respectively.

An interesting trend to note with regards to intra-African investments from the findings of the report which is different to the nature and type of investments that Africa has traditionally received from the global players is that investments are diversified and focus is less concentrated in primary resource based investments. Evidence suggests an increase in investment in services.

Sectors receiving special investment attention include: Telecoms (towers, broadband services); Financial services (commercial banks, insurance, ancillary services such as ATMs); Agribusiness; Infrastructure; Oil & gas (marginal fields, oil field services, gas development); Mining; and Electric power (energy infrastructure, energy services). South Africa continues to play a significant role in intra-African FDI. According to the World Investment Report (2011), the share of African host countries in the outward stock of South African FDI has increased from less than 5 per cent before 2000 to 22 per cent in 2008, reaching almost $11 billion.



COMESA, 2011. COMESA Investment Report, available: http://www.tralac.org/images/Resources/COMESA/2011 COMESA Investment Report.pdf

de Vignemont, G. Smallwood, R. 2011. Africa: the next investment destination. Price Waterhouse Coopers (PWC), September 2011.

WEF, 2011. Africa Competitiveness Report 2011. World Economic Forum (WEF), available: http://www3.weforum.org/docs/WEF_GCR_Africa_Report_2011.pdf

WIR, 2006. FDI from Developing and Transition Economies: Implications for Development. World Investment Report, UNCTAD.

WIR, 2011. Non-Equity Modes of International Production and Development, World Investment Report, UNCTAD.


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