Daily Insight: Waning Cold Money in Africa: Any Silver Lining in 2018?

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Earlier, the United Nations Conferences on Trade and Development (UNCTAD) released it’s 2018 World Investment Report. According to the report, over 2017, global foreign direct investment (FDI) flows fell by 23.5% to $1.4tn, and this contrasts other macroeconomic variables, such as GDP and trade, which saw substantial improvement in 2017. Notably, while FDI flows to developing economies remained stable at $671bn, FDI flows to Africa continued to slide, down 21.5% from 2016 to $41.8bn.

Further analysis of FDI flows to African countries showed most of the decline was borne by the larger commodity-exporting countries such as Egypt, Mozambique, Congo, Nigeria, and Angola, weighed by feedback effect of commodity bust on macroeconomic indicators. In addition, foreign investment to South Africa continued to underperform amid political uncertainties and sustained underperformance in the mining sector, while FDI inflows to diversified exporters, including Ethiopia and Morocco, were more resilient.

UNCTAD forecasted FDI inflows to Africa to increase by c. 20.0%y/y to $50bn in 2018. In our view, this will be buoyed by significant improvements in the underlying exports across the large commodityexporting countries. With the recovery in commodity prices observed in H1-18 and expectation for modest improvement in H2-18, amid improving macro fundamentals and interregional cooperation, we expect FDI flows to Africa to rebound in FY-18.

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