Archives for posts with tag: Foreign Direct Investment

Ernst & Young’s recent “Africa Attractiveness Survey” (pdf) shows that 2012 was a rather disappointing year for foreign direct investment in Africa. But digging more into the data leaves some space for optimism. Some excerpts from the report (click to enlarge):

Ernst & Young "Africa Attractiveness Report"

Ernst & Young “Africa Attractiveness Survey”

 At face value, 2012 was a disappointing year, in that it reversed the year-on-year growth we experienced in 2011, and somewhat dampened our expectations of steady growth in FDI projects. Having said that, we do need to put these trends in perspective:

  • Globally, greenfield projects were down by over 15% year on year in 2012, so the background is one of decline across the board.
  • In this context, Africa’s proportional share of global greenfield projects actually grew, continuing a trend that has seen this share grow, in the course of a decade, from 3.5% of the global total in 2003 to 5.6% in 2012.
  • It is also worth noting that the 764 new greenfield projects this year is still higher than the 678 in 2010, and significantly higher than anything that preceded the peak of 2008.

The geographical origin of FDIs in Africa is experiencing major changes:

Investment from developed markets in particular was disappointing.  Although FDI projects from the UK grew, those from the US and France, the other two leading developed market investors in Africa, were considerably down. In contrast, greenfield investments from emerging markets into Africa grew once again in 2012, continuing the trend of the past three years. In the period since 2007, this category of investment from emerging markets into Africa has grown at a healthy compound rate of over 20.7%, in comparison to investment from developed markets, which has grown at only 8.4%.

Intra-African investment has been particularly impressive over this period since 2007, growing at a 32.5% compound rate. (…) This underlines a broader trend of growing confidence and optimism among Africans themselves about the continent’s progress and future.

Other figures in the report show that -as we’ve often said in this blog- manufacturing in Africa has stagnated over the last decade. However several countries could reach a middle income status by 2025

Source: Ernst & Young

Source: Ernst & Young

Source: Ernst & Young

Source: Ernst & Young


The Kenyan Shilling (KSh) reached a 1-year low against the US dollar last week (1 dollar=87KSh), probably because the Presidential Elections are approaching and everybody is worried about it. Bloomberg analysts predict that the value could go down to 89 KSh a dollar on election-day.

What I find interesting is that in December 2007 the Shilling also plummeted just a few weeks before the infamous elections that led to the violence. But the value in 2007 was 63 KSh a dollar, not 87 like last week. Here’s an excerpt from an article written in 2007 in the African Executive:

The Kenya shilling (Ksh.) has hit a nine years low against the US dollar at an average of US$1.00 = Ksh.63.50. The shilling has been gaining strength over the dollar for over two years now. This has come both as a blessing and curse to many Kenyans depending on which side of the divide they hail. For exporters, the strengthening of the shilling against the dollar has wiped out millions of earnings, making them to suffer losses.

So, what puzzles me is not just the “pre-election depreciation” but the long-term trend. Why has the Kenyan Shilling lost so much value in the last 5 years? Why did it appreciate back then? I am asking these questions to myself as well the informed readers of this blog. Take a look at the 5-years trend:

KShUSD 2007 2013

You see that 2011was an “annus horribilis” for the Kenyan Shilling, which lost a quarter of its value in less than a year. But the downward trend goes beyond that.  When it comes to the currency appreciation before 2008, the African Executive gave this explanation:

The shilling has become stronger because of huge inflow from donors, increased remittance by Kenyans in the Diaspora and the weakening of the US dollar.  Other reasons include the buying of 24.99% stake in Equity Bank by Helios Capital Ltd. at an estimated value of Ksh.11 billion, and the take over by 51% of Telkom Kenya by France Telecom, at an estimated value of Ksh.26 billion. Recently, the International Monetary Fund disbursed four billion shillings to the Kenya government. This has further increased the amount of dollars in circulation.

That cannot be the only reason, however, considering that both foreign direct investment and the net inflow of portfolio equity increased between 2008 and 2011. Official development assistance increased as well. Perhaps, another possible  explanation is the one proposed by Wolfgang Fengler, lead economist for Kenya at the World Bank, who wrote that the current account deficit (imports higher than exports) is the structural cause behind the downward trend of the Kenyan currency:

The main reason is that Kenya’s economy is increasingly imbalanced: the country is importing too much and exporting too little. This makes it vulnerable to shocks.  The gap between imports and exports needs to be financed by financial inflows other than export earnings. In 2011, imports have soared (mainly due to higher oil and food costs), while exports remained stagnant. The gap between imports and exports, also called current account deficit, now stands at above 10% of GDP – one of the highest in the world! Today, Kenya’s main exports don’t even earn enough to pay for its oil imports, not to mention other imports beyond oil (figure)!  The money to pay for any additional imports needs to come from somewhere.

I bet there are plenty different explanations that I don’t know about. Feel free to comment if I missed out something.

For a long time Africa has suffered from a terrible representation in the media, but we must admit that things have changed quite a lot recently. Except for the campaigns of some visibility-hungry organizations (see  “Kony 2012” or “A day without shoes”, among others), the number of articles that refer to “Africa” as the “next big thing” has reached an historical high:  “Africa the next investment frontier”, “Africa the next consumer market”  “Africa the next big food trend” “Africa and the upcoming fashion industry”. I’ve always enjoyed reading about innovation and positive change rather than the usual pity-news. But a recent tweet by Linda Polgreen, mentioned in Africa is a Country, unveils an interesting new side of the story:

What is more insulting than the idea of “positive news” from Africa? As if the continent was a dull witted child in need of encouragement.

Is this “positive-news-hype” part of the same paternalistic approach towards the continent? Is it time for Binyavanga Wainaina to write a new “How to write about Africa” making fun of this extreme afro-optimism?

The obvious answer is that we need a balanced coverage. But we also need to realize that the negative portrayals of the past are very “sticky” and they represent a serious obstacle to change. “Rebranding”, if done in the proper way, does not mean inventing a fake reality -it means emphasizing the processes of change that are actually happening.

As the Roving Bandit wrote last week, ignorance about the country-specific contexts in Sub Saharan Africa had negative consequences in terms of foreign direct investments:

due to lack of knowledge about the countries in the continent, investment decisions are often not guided by country-specific conditions but rather based on inferences from the environment of neighbouring countries. Thus, to some extent, foreign investors evaluate African countries as if the countries in the continent constitute “one big country.”

… after controlling for the main determinants of foreign investment; including openness to trade, infrastructure, and average returns to capital, sub-Saharan African countries still have FDI/GDP ratios 1.3% lower than comparable countries

Moreover, in my experience in the Kariobangi Industrial cluster in Nairobi, the issue of “rebranding” the area comes up nearly every week. I wrote a few weeks ago about how development research could be bad news for businesses. Since I wrote that post, I realized that entrepreneurs in the area are trying VERY hard to change the image of the cluster. For example, more than a hundred entrepreneurs joined forces and bought land in a nearby neighborhood. Their dream is to start a new industrial park and get the rid of the “jua kali” reputation (i.e. being informal). I’ll write more about it in future posts. In another interview, the owner of a shoes-manufacturing business told me that the quality of its boots are so high “that people don’t even realize we are from Kariobangi”. I laughed when another entrepreneur told me that the problem is with the word “bangi”, which means marijuana is Swahili, “people think we are all stoners”.

So, to conclude, I believe that rebranding is very important when sticky old reputations represent an obstacle to change. If it means only hiding the bad news, then I’m all against it.