The second edition of the Compact with Africa (CwA) investment monitoring report provides an update of country and sector-level trends in Foreign Direct Investments (FDI) flows and announcements in Cross-Border Investments (CBI) in CwA, covering the five-year period between 2013-2017.

It follows the previous analysis released during the 2018 World Bank Group/IMF Spring Meetings and is part of a broader set of efforts by this G20 initiative to better understand the dynamics of investment flows into CwA countries.

For the purposes of this report, the analysis of FDI flows is limited to general trends at the country and regional levels, and a comparison of flows to CwA countries relative to the rest of Africa. The CBI analysis, which draws from project-level data, allows for a more detailed look at recent investment trends at the sector and sub-sector levels, and by country of origin.

Key highlights

FDI flows to CwA countries have increased by 36 percent over the past five years, despite deterioration in the external environment and an overall drop of 40 percent in FDI inflows to the rest of Africa during this period. This was largely driven by the global weakening of commodity prices in recent years and the economic slowdown in the EU and China, both important sources of FDI for the region. The positive trend for CwA countries suggests increased resilience against the backdrop of a more challenging global scenario.

FDI stock to CwA countries reached $277 billion and grew at a faster rate (10 percent year-on-year) than the rest of Africa (6 percent year-on-year between 2016-17), signaling higher levels of FDI accumulation in compact countries.

Cross-border investment activity is accelerating in CwA countries. Between July 2017 and June 2018, a total of 274 cross-border investment projects were announced, representing an increase of 12 percent over the preceding 12-month period (July 2016-June 2017).

In 2017, Egypt continued to lead as largest recipient of FDI among CwA countries ($7.4 billion), followed by Ethiopia ($3.6 billion), Ghana ($3.3 billion) and Morocco ($2.7 billion). In Egypt, improved macroeconomic stability and a new investment law passed in 2017 helped boost investor confidence and attract private investment. Ethiopia has maintained strong momentum in recent years, following government efforts to improve the attractiveness of the country as investment destination. Ethiopia recorded a near three-fold increase in FDI inflows over the past five-year period.

Extractive industries (coal, oil and natural gas), real estate, alternative and renewable energy (solar/wind), chemicals (pesticides and fertilizer) and metals were the top five sectors for CBI announcements by U.S. dollar volume in CwA countries over the past three years, reflecting long-term investment commitments and a focus on infrastructure upgrading in the region.

Since 2015, the manufacturing sector attracted the largest number of CBI project announcements in CwA countries (285 projects; 29 percent of total), especially in the food industry, building and construction materials, textiles and automotive sub-sectors, contributing to greater economic diversification in CwA countries.

G20 and the EU accounted for the major share of CBI announcements to CwA countries in the 2015-2018 period with over $39 billion in announced investments or around three-quarters of the total. Russia ($31 billion), China ($30 billion) and Italy ($18 billion) were the three largest CBI source countries.

The pace of reforms in CwA countries accelerated in recent years. CwA countries outperformed the rest of Africa on improvements in Doing Business indicators and distance-to-frontier (DTF) scores. Since the launch of the compact in 2017, a total of 101 reform commitments have been identified during its first year, with additional reform progress expected in 2018. This indicates substantial commitment to the reform agenda and gradual improvement in the enabling environment for business in compact countries.

The report sends a strong signal that sound policies to improve investment conditions are paying off and market interest in Compact countries is growing. At the same time, it underscores the long-term nature of this initiative as it requires time to build up a track record that strengthens investor confidence.

This interim monitoring report was prepared by the International Finance Corporation (IFC) in collaboration with the African Development Bank (AfDB) and the African Center for Economic Transformation (ACET).

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About the Compact with Africa

The pdf G20 Compact with Africa (CwA) (1.65 MB) was initiated under the German G20 Presidency to promote private investment in Africa, including in infrastructure. The CwA’s primary objective is to increase attractiveness of private investment through substantial improvements of the macro, business and financing frameworks.

It brings together reform-minded African countries, international organizations and bilateral partners from G20 and beyond to coordinate country-specific reform agendas, support respective policy measures and advertise investment opportunities to private investors. The initiative is demand-driven and open to all African countries.

Since its launch in 2017, the CwA has sparked great interest. So far, 11 African countries have joined the initiative: Benin, Côte d’Ivoire, Egypt, Ethiopia, Ghana, Guinea, Morocco, Rwanda, Senegal, Togo and Tunisia.

Compact teams in each CwA country are at the heart of implementing the initiative. Promoting private investment and new investment opportunities in Compact countries is critical for the success of the initiative. The annual G20 investor event will be held on November 8, 2018 at the margins of the AfDB “Africa Investment Forum” in Johannesburg, South Africa. This will be an opportunity to interact with the private sector, showcase example of improved framework conditions and concrete private sector activity coming out of the Compact initiative.

The Africa Advisory Group (AAG), which coordinates and advances the CwA initiative, reports bi-annually to ministers and governors on progress, future ambitions and measurable targets in each Compact country.