FDI flows to the continent are expected to contract by  25-40% based on gross domestic product (GDP) growth projections  as well as a range of investment-specific factors, according to the 2020 World Investment Report of the United Nations Conference on Trade and Development (UNCTAD).

"While all industries are expected to be affected, several service sectors, including aviation, hospitality, tourism and leisure, are being hit hard, a trend that is expected to continue for some time in the future," said UNCTAD's Director  of Investment and Enterprise , James Zhan.

High-intensity manufacturing industries in global value chains  are also heavily affected, a sign of concern for efforts to promote  economic diversification and  industrialization in Africa.

Overall, there was a strong downward trend in the first quarter of 2020 for announced investment projects, although the value of projects (-58%) fell more severely than their number (-23%) (Figure 1).

Similarly , by April 2020, the number of  cross-border M&A (M&A) projects targeting Africa had decreased  by 72% compared to the 2019 monthly  average (Figure 2).

However, two distinct factors offer hope for a recovery in investment flows to the continent in the medium and long term. The first is the greatest value placed on ties with the continent by the world's major economies, which promote investment in infrastructure, resources, but also industrial development.

Investments from these countries, which enjoy political support to varying degrees, although they are affected to some extent by the joint impact of COVID-19 and  low commodity prices, could be relatively more resistant.

The second is the deepening of regional integration due to the start of trade under  the African Continental Free Trade Area  (AfCFTA) after years of deliberations and the expected finalization of its investment protocol.

In the short term, it is essential  to reduce the extent of the investment slowdown and  limit the economic and human costs of the pandemic.

In the longer term, diversifying investment flows to Africa and exploiting them for structural transformation remains a key objective. Both goals will require a prudent, coordinated and rapid response from the countries of the continent.

The COVID-19 crisis  came at a time when FDI was already in decline, with the continent experiencing a 10% drop  in inflows in 2019, to $45 billion.  

The negative effects of weak global and regional GDP growth and  declining   demand for commodities  have dampened flows to countries with diversified and resource-based investment profiles, although a few countries have received larger flows of new large-scale projects  . 

North Africa 

FDI flows to North Africa fell by  11% to $14 billion  , with a reduction in flows in all countries except Egypt, which remained the largest recipient of FDI in Africa in 2019, with flows up 11% to $9 billion  . 

After a significant increase in 2018, FDI flows to sub-Saharan Africa declined by  10% in 2019 to $32 billion  .

Southern Africa is the only sub-region to have received larger flows in 2019 (up  22% to $4.4 billion  ), but only due to the slowdown in Angola's net  divestment.

FDI inflows to South Africa fell  15% to $4.6 billion  in 2019, despite key investments in mining, manufacturing (automotive, consumer goods  ) and services (finance and banking).

FDI in West Africa declined by  21% to $11 billion  in 2019. This decline is largely due to the sharp decline in investment in Nigeria, due to the new regulations on investment by multinational companies in the oil and gas industry.

FDI flows to East Africa also declined, by 9 per  cent, to $7.8 billion  . Inflows to Ethiopia fell by a quarter, to $2.5 billion  , due, to some extent, to political tensions in some parts of the country.

Similarly , inflows to Kenya fell by  18 per cent to $1.3 billion  , despite several new projects in the area of information technology  and health care.  

Central Africa received $8.7 billion  in FDI, a decrease of 7 per cent. The significant development in the subregion was the decrease in flows to the Democratic Republic of the Congo (from 9 per cent to $1.5 billion  ). 

Based on FDI stock data up to 2018, the Netherlands surpassed the France as the largest foreign investor in Africa.

The stock of investment held by the United States and France in Africa declined  by 15 per cent and 5 per cent, respectively, due to profit repatriation and divestment. At the same time, the investment stock of the United Kingdom and  China increased by  10% each.

FDI flows from Africa fell by  35% to $5.3 billion  . South Africa remained the largest outbound investor despite the reduction in outflows from $4.1 billion  to $3.1 billion  . 

Togo's outflows have increased significantly, from  just $70 million  to $700 million  , a tenfold increase. In North Africa , Morocco has also increased its foreign direct investment from  $800 million  in 2019 to about $1 billion  . 

Figure 1 - Average quarterly number of investment projects in new facilities announced, 2019 and Q1 2020 (number) Source: UNCTAD, World Investment Report 2020.

Figure 2 - Average monthly number of cross-border mergers and acquisitions, 2019 and January-April 2020 (number) Source: UNCTAD, World Investment Report 2020.

Figure 3 - Top 5 beneficiaries of FDI flows, 2018 and 2019 (in billions of dollars) Source: UNCTAD, World Investment Report 2020.