Foreign direct investment in SA at highest levels since 2016

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JIMMY MOYAHA: Now we’re taking a look at the latest report by EY around foreign direct investments. We know that this has been quite a contentious topic since we were greylisted and since we’ve had global factors hampering the risk sentiment around the world. I’m joined on the line by Sandile Hlophe, who is a partner and Africa region government and infrastructure leader at EY, to take a look at this report.

Sandile, good evening. Thanks so much for taking the time. What does the latest report suggest from an FDI perspective on the continent?

SANDILE HLOPHE: Good evening, Jimmy, and thanks for having me on your show. Our latest study shows there’s a bit of a rebound and pivot to growth into foreign direct investment into Africa post the Covid slowdown slump, and we have seen a massive investment coming into Africa – a 64% rise of a prior year investment.

Investment worth $194 billion has flowed into the continent, into key projects across the continent.

JIMMY MOYAHA: Sandile, where – in terms of sectors – is this investment predominantly going? Is it going into infrastructure? Is it going into tech development? What are we seeing in terms of patterns here?

SANDILE HLOPHE: That’s a great question. We’ve seen three key sectors feature prominently in terms of investment.

The first, which leads all the sectors, is what is defined as ‘clean tech’ – and that’s all your renewable energy investments, the likes of solar PVs, hydro and wind-type investments into generating renewable energy, which speaks to the energy transition we are seeing not only in SA but across the continent as more and more countries try to decarbonise in terms of energy generation from traditional coal into renewable energy.

The second sector has been in technology, and in technology it’s mainly the data centres investment on the continent as the advent of cloud-based technology deployment takes root, ensuring that we can store data locally – sort of in offshore data centres. That’s been the big investment. We’ve seen quite a lot of data centres being deployed in South Africa, Cape Town, Joburg and Nairobi, as well as in Lagos, which actually bodes well.

The third and final sector that brings up these two is what we call business services, which is related to supporting the first two sorts of sectors in deploying more renewable energy projects and then also deploying more cloud-based technology on the continent.

JIMMY MOYAHA: Who’s putting in all this money, Sandile? Where’s the money coming from?

SANDILE HLOPHE: Great question. I think in terms of sources of investment we have seen quite the traditional flows coming in from the US and Europe.

But interestingly we’ve seen about $50 billion coming out of the UAE, which is a new entrant into providing funding into Africa.

And I think we are seeing that that part of the world is obviously trying to diversify where they deploy investments, looking for growth-area type sectors. As I said, clean-tech sector technology and services have seen a bit of investment on that side.

But in terms of that side, which was quite a nice feature – seeing investment coming out of the EU, from that side.

We also saw Indian investment rising into Africa, which is really great and Indian investments contributed $150 billion – [and] in 2030, we expect that to continue to grow to 2030.

Chinese investments are still there but have declined slightly. This is to be expected with the slowdown in the Chinese domestic economy. A lot of focus has been on stimulating that, which then obviously led to new entrants emerging.

So traditionally our big investors in continents, typically Europe, the US and, as I say, India are beginning to feature, as well as the UAE.

JIMMY MOYAHA: Sandile, you touched on South Africa a little earlier. Despite load shedding, despite greylisting and all the other things that we’re having to contend with, South Africa tops the list as the most attractive of the African countries. What are we doing right? Is it having the right environment [or] ecosystem? What’s counting in our favour here?

SANDILE HLOPHE: I think that the main thing with South Africa and its infrastructure and platforms – I know we’ve got our challenges in various sectors – is if you think about capital markets they typically look for a stable stock exchange through which to generate capital and drive a stable banking environment in which to put cash and then deploy your pan-Africa strategy. But also we still do have good port entries and rails on that level.

So I think South Africa is attractive from the perspective of having a very mature and well-established stock exchange and banking systems which allow corporates to put their head offices in SA and then use that as a platform to venture into the rest of the continent.

Secondly, I know we’ve got our challenges around education and unemployment, but we’ve got some very good key skills in the continent. Particularly as we shift towards technology and coding, we’ve seen quite a big investment in various cities and so forth. So I think the African youth tend to be very nimble.

Thirdly, our use of English is very common and you tend to find that a lot of companies are looking for English-speaking, primarily, countries from that sense to be able to service most of the European continent.

So I think our youth dividend continues to begin to pay off. And then traditionally historical investments into stock exchanges, banks and infrastructure have given us good platforms that still happen to attract investment.

I think lastly of our big push around the Just Energy transition. As you saw, there’s been quite a lot of investment into solar PVs in the country, which has attracted a lot more investment and a lot more winners of green energy being driven into the market.

JIMMY MOYAHA: The benefits of being able to maintain tier-one banking infrastructure amid a greylisting – wow. Sandile, which other countries are the foreign direct investors or the investment community looking at on the continent? You mentioned that South Africa becomes the setup or the base point before expanding. What countries are starting to gain popularity on the continent?

SANDILE HLOPHE: There are three other countries that have emerged, particularly up in North Africa – Egypt, Morocco [and Kenya], with quite a lot of foreign direct investment.

If you remember, post the Arab Spring, Egypt has been doing quite a lot of reinvestment into infrastructure, changing economic policies to attract more investment. In addition to renewable energy and tech, they’ve seen quite a bit of investment into infrastructure, construction and tourism – particularly the construction of hotels and tourism type of attractions – which has obviously seen quite a bit of return of travel into North Africa. I’m not sure how that will continue with some of the geopolitical Chinese coming in, but there has been quite a big pickup into that space.

Morocco is another one that continues to attract investment. And then interestingly Kenya seems to be back [in] the market as well.

So I would say those are the top four – South Africa, Egypt, Morocco and Kenya.

JIMMY MOYAHA: Well, foreign direct investment is always welcome from our perspective. It’s [at the] highest level that it has been [since] 2016. Hopefully it continues to grow higher. We need that to be able to add to our economy because the local side of it might not be doing too well at this point.

Thanks so much, Sandile. That’s Sandile Hlophe, partner and Africa region government and infrastructure leader at EY, giving us a sense of the latest foreign direct investment report that they put out.