Africa attracted less FDI capital than any other region in 2018, and the investment level per project has also fallen. That reflects the shift away from extractive-sector investments, which are typically the most capital-intensive. “The underlying drivers of investment are more diverse now,” says Wolfenden.
Mobile phones are one of the most powerful of these new drivers — the number of mobile-phone subscribers in Africa surged by 2,500% from 2000 to 2012.12 Africans use them for commerce as well as communication, creating a new value chain in the process. Of the 729 new FDI investments in Africa in 2018, according to EY calculations, 18% were in the technology, media and entertainment and telecommunications (TMT) sector, the largest share for any single sector.13
The first and most famous example of telecommunications creating a value chain is M-Pesa, the Kenyan mobile-money platform. It was created to send money between people and has blossomed into a marketplace. Kenyans can use it to buy insurance, pay a barber, borrow money, or finance a pay-as-you-go solar-power system.
“It has impacted each and every sector of the economy,” says Francis Kamau, a partner at Ernst & Young LLP, Kenya. “The bankers use it, and the president uses it. My mother-in-law is 85 and she uses it.”
While these new tools are helping to broaden investment rationales, the destinations of choice for FDI are mostly familiar, according to an EY blended ranking incorporating the overall number of jobs invested, capital expenditure and job creation: South Africa, Nigeria, Ghana, Kenya and Ethiopia.14 They stand out for different reasons and types of opportunity.
South Africa is the most developed of sub-Saharan economies, with its deepest capital markets and understanding of the continent because, in addition to being a favored target for FDI, it is the fifth-largest source as well.15 South African retailers are among the most visible brands across the continent, such as MTN, the telecommunications provider, or Shoprite, the supermarket chain.
Nigeria and Ethiopia are the two countries in sub-Saharan Africa with 100 million people or more. Nigeria is also a known investment destination for oil and gas and hosts an emerging technology hub and start-up culture. Ethiopia is home to Ethiopian Airlines, the continent’s largest airline, which makes Addis Ababa an emerging transportation hub.
Ghana and Kenya stand out for their relative political stability and economic diversification. Both export natural resources but aren’t dependent on any single one. Their challenge is to develop more domestic supply chains to generate economic value before exporting. Côte d’Ivoire, on Ghana’s western border, is another example of diversification. Together, the two countries produce about two-thirds of global cocoa output.
“Investing in Africa is sometimes like taking three steps forward and then one step back,” says Justin DeAngelis, a partner at Boston-based Denham Capital, which has invested in power generation across the region. “But as long as there are governments focused on sustainably growing their respective countries, it will be a good place to be.”