East Africa’s inflows of Foreign Direct Investment increase by 11pc

Africa is now positioning itself as a major business hub for overseas investors, according to the Institute of Chartered Accountants in England and Wales (ICAEW) latest Economic Insight report.

Where aid was the traditional source of finance, the continent is now seeing a dramatic five-fold increase in Foreign Direct Investment (FDI), with Nairobi topping the list as the most attractive destination.

The report, commissioned by ICAEW and produced by the Centre for Economics and Business Research Ltd, provides a snapshot of the region’s economic performance, focusing specifically on Kenya, Tanzania, Ethiopia, Nigeria, Ghana, Ivory Coast, South Africa and Angola. ICAEW launched the Africa Q3 2015, in Nairobi on Wednesday night.

According to the report, drawing on estimates prepared by the World Bank, the total level of external financial inflows into Africa has increased from $40.4 billion in 2000 to $192 billion in 2013. This is largely attributed to the inward FDI from China with investment mainly going into primary resource sectors and infrastructure.

“China has approached African economies in a very different way to Europe, focusing less on official aid and engaging more aggressively through foreign direct investment and trade. This has been a game changer for the development industry, forcing European countries to rethink their strategy of connecting with the continent,” explained Michael Armstrong, regional director, ICAEW Middle East, Africa and South Asia.

Thanks to resource wealth, West Africa and Southern Africa are leading the way, attracting the majority of FDI; although East Africa is catching up. While the latter region currently has the lowest level of African foreign development investment inflows at $6.8bn, its share grew at a rate of 11 per cent between 2013 and 2014. This is partly due to efforts for closer regional integration in the East African Community, which has involved harmonising investment regulations across the region and reducing red tape.

Despite this low level of investment overall, Nairobi still tops the list as Africa’s most attractive destination for FDI. This is predominantly motivated by the fast-growing middle class that is setting the stage for a booming consumer market. In addition to a growing entertainment and media industry, Kenya is also emerging as a global leader in the financial services sector thanks to mobile money systems such as M-Pesa.

According to Danae Kyriakopoulou, ICAEW economic adviser and the report’s author: “While economic development naturally varies across the continent, Africa’s regional outlook as a whole remains bright with a number of projects expected to bolster growth.”