International auditing firm Ernst & Young (EY) said Wednesday that Foreign Direct Investment (FDI) will slow down in the the next 18 months in Sub-Saharan Africa (SSA) as investors adjust their investment strategies.
In its third installment of the Africa Attractiveness program for 2016 in Johannesburg, EY said investors are likely to concentrate on those with better growth prospects.
EY also noted that three largest economies from the SSA which are Angola, Nigeria and South Africa revised their growth forecasts downwards which showed that they are facing challenges. Countries in the East, Francophone and North African regions are expected to have a growth rates of 4 percent and above.
Michael Lalor, Africa Business Centre Leader at EY, said investor sentiment towards Africa as an attractive investment destination is likely to remain somewhat softer over the next few years.
He said, “This has far less to do with Africa’s fundamentals than it does with a world characterized by heightened geo-political uncertainty and greater risk aversion. Companies already doing business in Africa will continue to invest, but will probably exercise a greater degree of caution and be more discerning.”
“Some will invest at a slower pace, looking to consolidate operations and drive profitability; while others are likely to double down on their investments, using this period of economic slowdown to further strengthen their positioning in key markets,” he added.
EY said Asia-Pacific investors become more prominent, led by China and Japan. The region has become the second largest, when measured by FDI projects, capital and job creation.
The audit firm stated that Chinese-sourced FDI into Africa rose by 209 percent in the first quarter of 2016 as compared to the same period in 2015. Capital investments and jobs created in the first quarter on 2016 were more than those created in any year since 2005. China is the third biggest investor in the continent.
Western Europe remains the largest regional investor in Africa, contributing 35.1 percent of FDI projects and 17.8 percent of capital investment in the first quarter on 2016.
EY also said UK’s Brexit and Donald Trump’s election as the U.S. President has also created uncertainty in investor sentiment. Since the United States and the UK have major investments in Africa, the two occurrences could affect the FDI to Africa.
Lalor said investors will adopt a cautious approach. He said there has been policy changes in the continent that promise to attract new investments.