The African Business Review Jan-Feb 2014 | Page 22

SPECIAL REPORT 22 | The African Business Review African business monitor: Africa in 2014 T he 2013 African Economic Outlook highlighted the growing importance of investment, official development aid and remittances to a continent on the move. External financial flows into Africa hit a record in 2012 and were expected to top 200 billion dollars in 2013. It puts the spotlight on emerging financial trends that Africa can take advantage of and the risks they face. The report, a joint endeavour of the African Development bank, The OECD Development Centre, The United Nations Development Program and the United Nations Economic Commission for Africa, was launched at the AfDB’s Annual Meetings in Marrakech on the 27th May 2013. 2014’s edition, published later this year, will focus on structural transformation through natural resources. External financial flows – foreign investment, remittances and development aid – to Africa quadrupled between 2000 and 2012, amounting to an estimated USD 186.3 billion in 2012. In particular African countries south of the Sahara have been attracting an increasing share of external financial flows since the economic crisis in 2008. In contrast, financial flows to North Africa have not yet fully recuperated to their pre-crisis level. In particular foreign direct investment (FDI), with the notable exception of Morocco, suffered from the perception of lingering political instability and a lack of clarity on future economic policy. Looking at individual financial flows before and after the 2008 economic crisis, we find two major trends. The first is the confirmation of Africa’s increased integration with emerging economies. Not only through trade - as highlighted in the 2011 African Economic Outlook - but increasingly so through investment flows. Second, remittances have become a crucial source of finance to Africa and overtook aid and FDI for the first time. Remittances to Africa showed a strong FDI is an especially important source of investment to Africa and over the last decade has amounted to one fifth of Africa´s gross fixed capital formation. resilience to the impact of the 2008 economic crisis. Their compound growth rate for the past decade of 7.7% allowed them to outpace both aid and FDI inflows. South-south investment The past decade witnessed the ‘re-discovery’ of Africa as a profitable investment destination by international investors. FDI to Africa grew at an annual compound rate of 6.1% between 2000 and 2011. Both FDI and portfolio investment more than quadrupled from USD 17 billion to USD 70 billion between 2000 and 2012. In 2012 the IMF estimated FDI to Africa at nearly USD 50 billion, projected to reach a further USD 56.6 billion in 2013. This brings it close to its historic peak prior to the onset of the global economic crisis in 2008, after which it decreased by 12%. FDI is an especially important source of investment to Africa and over the last decade has amounted to one fifth of Africa´s gross fixed capital formation. These surging investment flows paved the way for the “emerging Africa” discourse which closes off the lost decade of the 1990s, when afro-pessimism was the tune. Several developments indicate that FDI to Africa is gradually diversifying: investors from non-OECD countries are on the rise; new