Foreign direct investment (FDI) in SA fell 43% to $5.2bn in 2023 in a weak global environment for FDI, but this mainly reflected a drop in new greenfields investment project announcements, which offset higher merger and investment activity.
This is according to the latest World Investment Report (WIR) from UNCTAD (the UN Conference on Trade and Development), which said global foreign investment fell 2% to $1.3-trillion amid global slowdown and rising geopolitical tension.
The picture the data gives differs slightly from that provided by the Reserve Bank, which reported that net FDI inflows to SA rose slightly to R116bn in 2023, though at this level were way lower than their peak of R592bn in 2021.
The Bank’s data is based on actual balance of payments flows, whereas the WIR also includes data on greenfields projects announcements, on which the investment may only flow over a number of years. It does, however, provide a global picture of real economy investment trends, which enables SA to compare itself with other countries in Africa and elsewhere.
The report shows FDI flows to Africa fell 3% to $53bn in 2023. The WIR data shows Africa still has the smallest share of global FDI inflows — about 4% in 2023, down from more than 5% at peak in 2021.
SA was second on the continent only to Egypt, where flows fell from $11bn to $9.8bn. The WIR said the number of international project finance deals in Africa fell by a quarter and their value by a half. But Unctad’s Diane Sayinzoga said on Friday that Africa was attracting a rising share of global megaprojects valued at more than $5bn, which was a bright spot. The largest of these in 2023 was a green hydrogen project in Mauritania. Africa also received more than $10bn in project finance for wind and solar electricity production, the largest projects being in Egypt, SA and Zimbabwe. Sayinzoga cited three separate green hydrogen projects in SA with an announced value of $7.1bn. Morocco also attracted new greenfields projects, including in electric vehicles.
Sayinzoga said that though FDI in Africa recovered since Covid, global financial conditions and macroeconomic tightening had driven the recent drop. WIR data show flows into Africa peaked at $82bn in 2021, when SA was the recipient of an estimated $40bn in inflows.
New projects
The lifting of SA’s licence cap for private electricity generation in 2021 prompted an explosion of new renewable energy projects. Many of those announcements would have reflected in the WIR data in 2021 and 2022, even though some of the larger, utility-scale private sector solar and wind projects are due to come online only in the next couple of years. Many of those involve investment by foreign renewable energy players.
Globally, Sayinzoga said that if the focus was only on real productive investment, the drop in FDI flows in 2023 would have been more than 10%, excluding investment in a few “conduit” economies, mainly in Europe. Developing countries still get 65% of global flows, but developing countries accounted for 40% of greenfields announcements in 2023, sending an important signal.
The report said a large share of FDI to Africa came from or through the Netherlands, the top investor on the continent (by FDI stock), with France, the US, UK and China. But economists say SA’s flows may have been distorted in the past couple of years by Naspers unbundling Amsterdam-headquartered Prosus.
UNCTAD said FDI prospects remained challenging in 2024 but modest growth for the year appeared possible, with financial conditions easing amid concerted efforts towards investment facilitation by many countries.
A recent PwC report said Reserve Bank data showed SA continued to receive a steady stream of FDI inflows over the past decade despite its challenges, though the more than R100bn that flowed in during 2023 was still only 1.4% of GDP.
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