Foreign firms and investors in African cities can play a catalytic role in the development of the continent, according to a new report released on Friday.“The State of African Cities 2018” report stated: “The geography of African Investment, Foreign Direct Investment (FDI) if guided wisely can provide credible solutions to urban poverty and unemployment alleviation by supporting Africa’s shift from growth dominated by the primary sector to one led by manufacturing and knowledge-intensive industries.”
Cities account for around 70 per cent of global GDP and UN-Habitat’s New Urban Agenda (2016) stresses their role as vehicles for inclusive and sustainable economic growth, said the report by UN-Habitat and the IHS-Erasmus University of Rotterdam and co-financed by DFID, the African Development Bank and the government of Norway noted.
Currently, Africa attracts just five per cent of global FDI, despite being home to 15 per cent of the global population.
However, the recent FDI growth rate is the second highest in the world – and FDI makes up a third of foreign financial resources flowing into Africa.
The four major FDI centres in Africa are identified as Cairo, Lagos, Johannesburg and Nairobi and the report suggests both West and East Africa are likely to experience sustained investment growth, primarily in manufacturing.
The report explores four industrial sectors – manufacturing, services, Hi-tech and resources. Hi-tech has the highest FDI growth rate although still on a small scale, and in limited locations.
Manufacturing FDI has the largest share of investment in Africa and areas such as machinery, building, car parts, consumer products, food and textiles are currently the most important in terms of employment generation.
Western Europe is the largest investor followed by Asia, North America and Africa itself, with geographic proximity being an important factor. North Africa receives most of its FDI from Europe and the Middle East while Eastern Africa’s mostly originates from Asia.
The research shows that investment by Chinese firms has made contributions to African development, particularly with job creation in the manufacturing and infrastructure sectors.
The report suggests that the growth in African economies and decline in extreme poverty along with improvements in economic policies, advancing political stability and enhanced business environments have all made Africa increasingly attractive to foreign direct investment.
“The report shows that African governments need to connect FDI attractions to sustainable urbanization by underpinning it with robust national urban policies, urban planning and financial and legal systems,” UN-Habitat Executive Director Maimunah Mohd Sharif said in the report issued in Nairobi.
The report sounds a warning bell on how FDI can exacerbate inequality and calls for African governments to have clear policies on areas that will benefit cities and aim for investments most likely to foster economic growth such as IT and manufacturing, rather than those with limited value addition like resource extraction.