Seven Surprising Things from Ernst and Young’s 2014 Africa Attractiveness Survey

Earnst and Young’s (EY) annual Attractiveness Survey examines the appeal of Africa as an investment destination by analysing the reality and perception of foreign direct investment (FDI) across the continent. Many of the report’s findings are as one would have expected, such as the fact that FDI is mostly channelled to urban hubs. Others, however, are something of a revelation. Here are seven of the reports most surprising conclusions:

1) Although the total value and share of FDI has increased in Africa, the number of FDI projects and jobs has decreased.

In 2013, the quantity of FDI projects in Africa and the total number of jobs created by FDI dropped by 3.1% and 9.1% respectively. Conversely, capital investment and Africa’s share of global FDI increased by a healthy 12.9% and 5.7% respectively. Investors are essentially targeting fewer but larger projects.

2) FDI in Sub-Saharan Africa (SSA) has continued to increase, whilst flows to North Africa remain stunted.

The difference between FDI trends in North Africa and SSA is becoming more and more significant. In 2013, FDI projects in North Africa declined by a hefty 28.7%, which, according to EY, can be explained by the political turmoil North of the Sahara since the Arab Spring. SSA, in contrast, enjoyed a 4.7% increase in FDI projects in 2013, thus reversing the decline of 2012. In addition, SSA’s proportion of African FDI exceeded 80% for the first time in 2013.

3) New FDI hotspots are emerging.

Although South Africa has maintained its place as the number one FDI destination in Africa, new hotspots are emerging; the most prominent examples being Ghana and Kenya, which have both achieved compound average growth rates of more than 40% since 2007. The number of FDI projects in Mozambique, Tanzania and Uganda has increased by 20% over the same period. Even from a low starting point, the growth rates in these countries have been extraordinary, indicating business opportunities will continue to improve in the future.

4) Intra-African investment momentum builds.

The proportion of intra-regional investment in Africa is steadily growing. In 2013, the share of FDI projects funded by other African countries reached an all time high of 28.8%. In contrast, in 2003, intra-regional investment comprised just 4.4% of FDI projects. In 2013, only Western Europe had a higher share of FDI projects in Africa. Contrary to popular belief, China’s share of FDI in Africa remains relatively low, with just 3.1% of FDI projects between 2012 and 2013. The share of FDI projects coming from the United Kingdom, over the same period, stands at 13.3%, making it the largest single source of FDI for Africa.

5) There has been shift away from extractive sectors towards consumer-facing industries.

As service and consumer related industries have increased in relative importance, the extractive sectors have become less prominent in Africa. The proportion of extractive industries in FDI projects reached a nadir in 2013, with mining and metals accounting for just 2.4% of projects, and coal, oil and natural gas accounting for just 3.5% of projects. Consumer-facing sectors – technology, media and telecommunications, retail and consumer products, and financial services – on the other hand, accounted for 47.7% of projects between 2007 and 2013, with financial services receiving the highest share at 17.5%.

6) Remarkable improvements in Africa’s perceived attractiveness as an investment destination.

When EY’s first attractiveness survey was carried out in 2011, Africa ranked 8 out of 10 world regions – only Central America and the ex-Soviet States were less appealing to investors. In 2013, however, Africa moved into joint second position, alongside Asia. In addition, almost three out of four respondents believed that Africa would become a more appealing investment option over the next three years. This outstanding improvement in such a short space of time demonstrates the extent to which investor’s perceptions of Africa are beginning to change.

7) The perception gap remains wide

There exists a stark perception gap between the opinions of those people already doing business in Africa and those who have yet to do so. Investors currently working on the continent are more positive than ever about its potential, identifying Africa as the most attractive investment destination in the world today. Those who have yet to do business in Africa are considerably less eager, ranking the region amongst the world’s least attractive investment destinations. As EY acknowledge: “The gap could hardly be wider.” They argue that this perception gap keeps African FDI flows down and helps to explain why the improvement in overall investment perceptions has been accompanied by only a modest increase in real FDI value.

Fergus Simpson

Guildford, August 25th 2014

A version of this article was published in Gateway for Africa (

Reinventing Growth

O U T  O F  T H E  S W A M P of destruction left by World War II came the concept of gross domestic product, or GDP. Its pursuit has defined global economic strategy for over sixty years. But what has this achieved?

Literally millions of people have been freed from the shackles of poverty, with enormous benefits for humanity: healthcare has improved, literacy rates have increased and infant mortality has plummeted. We have even managed – on several occasions – to send men and women to the moon! There are, however, a huge number of people dissatisfied with the reigning model of progress. How could this be?

Inequality is greater today than at any point in human history. A study by the United Nations found that the richest 1% of people own more wealth than the poorest 95% combined. In addition, the huge material throughput required to maintain growth-based economies is starting to have consequences of its own: natural resources are becoming scarce and environmental sinks overloaded (indeed, anthropogenic climate change may well prove to be the greatest challenge our species ever face).

We are essentially confronted with a paradox: on the one hand we must stimulate growth in order to reduce poverty and maintain economic stability, whilst on the other hand we must constrain growth in order to avoid crossing dangerous ecological limits. Could this be the ultimate Catch-22? Or, is it possible, as I believe, to reinvent growth in a way that is both environmentally sustainable and socially equitable?

To reinvent growth in order for it to respect the principle of environmental sustainability, we would need to reduce the ecological burden of growth to within acceptable limits. This could be achieved through two measures: firstly, more environmentally sustainable technologies, such as low (or even zero) carbon energy sources, should be adopted on a global scale; secondly, natural resources, such as fisheries and forests, must be harvested in a way that maintains long-term ecosystem viability.

To reinvent growth in order for it to be socially equitable, the wealth gap between rich and poor countries must be dramatically reduced. This does not necessarily mean the incomes of people living in Europe or North America must decline; it only requires the incomes of those people living in Sub-Saharan Africa and South-America to increase at a faster rate. Large-scale investments in agriculture, healthcare, education, infrastructure and sustainable technologies across the developing world (alongside a more equitable system of global trade) are essential if this is to be achieved.

Since World War II, the pursuit of GDP growth has achieved huge gains in human welfare: we must now reinvent the way in which we grow to tackle the most pressing economic, environmental and social issues of the 21st Century. Although significant, the investments required to achieve this ambitious goal are manageable. The real challenge lies in achieving the necessary degree of cooperation between governments, businesses, civil society and academics to bring about change. This would not be the first time that such large-scale collaboration has been required: it was only sixty years ago, remember, that Europe was on to the brink of total destruction; today, reassuringly, the continent is home to the most peaceful, democratic and prosperous societies on earth.

Fergus Simpson

 Guildford, July 15th 2014