Highest return on investment recorded by Africa

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Africa received record foreign direct investment (FDI) inflows of US$ 53 billion in 2007, according to this year’s World Investment Report of the UN Conference on Trade and Development (UNCTAD).

UNCTAD released the report Thursday, saying the continent also trumped the world’s other developing regions by providing the highest rate of returns on FDI for the past two years.

According to the report, subtitled “Transnational Corporations and the Infrastructure Challenge”, the surge in FDI to the region and its profitability, were driven by the boom in global commodity prices and by Africa’s changing policy environment.

In terms of policy measures, African governments and their partners adopted various new laws and took other steps to attract more FDI, which continues to gain in importance as a form of international economic transactions and as an instrument of international economic integration.

Africa’s FDI inflows in 2007 continued to be geographically concentrated, with the top 10 host countries accounting for over 82 per cent of total inflows, while nine countries received inflows of US$ 1 billion or more.

North Africa attracted 42 per cent and sub-Saharan Africa 58 per cent of FDI to the region.

Investment in African Least Developed Countries (LDCs) also grew for the second consecutive year. “As a result of the commodity price boom, income on inward FDI grew by 31 per cent in 2007, and the rate of return on investment in Africa was the highest among developing regions in 2006 and 2007,” UNCTAD said in the report.

It explained that a large proportion of FDI in 2007 concentrated on expanding projects related to natural-resource exploitation, partly through reinvested earnings. “Consequently, the share of reinvested earnings in total FDI inflows increased to 28 per cent,” said the report, observing that FDI in natural-resource exploitation contributed to accelerated export growth.

Foreign exchange reserves in Africa grew by some 36 per cent in 2007 and by even more in some major oil-exporting countries such as Nigeria and Libya.

Despite higher inflows, Africa’s share of global FDI remained at about 3 per cent, with transnational corporations (TNCs) from the United States and Europe being the main investors in the continent, followed by African investors, particularly from South Africa.

According to the report, TNCs from Asia concentrated mainly on oil and gas extraction and on infrastructure. “Prospects for increased FDI inflows in 2008 are promising in light of continued high prices for commodities, large projects already announced for the year and forthcoming payments from previously concluded cross-border mergers and acquisitions (M&As). “This could result in a fourth consecutive year of FDI growth on the continent,” the report forecast.

UNCTAD’s World Investment Prospects Survey 2008-2010 showed that almost all TNCs plan to maintain or even increase their current levels of investment in Africa. Panapress.

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