Supplementary memorandum submitted by
the Department for International Development, in reply to Q76
Q76 James Duddridge:
Coming back to something Mr Lowcock said in terms of investment
in Africa, both public and private sector, increasing year on
year, I would certainly find it helpful if you could provide us
with some figures of where that money is coming from and where
it is going to both in terms of geography and also sector.
Foreign Direct Investment (FDI) to Africa increased
significantly from $17 billion in 2004 to $31 billion in 2005—3%
of global FDI. However, geographical and sectoral distributions
were highly uneven. South Africa was the leading recipient, with
about 21% ($6.4 billion) of the region's total inflows. This was
mainly as a result of the acquisition of ABSA (South Africa) by
Barclays Bank. Egypt was the second largest recipient, followed
by Nigeria. With a few exceptions (eg Sudan), most of the region's
34 least developed countries (LDCs) attracted very little FDI.
FDI flows to Africa in 2005 went mainly into
natural resources, especially oil, although services (eg banking)
also figured prominently. Oil exploration activities increased
in a number of North African countries, and in Nigeria, Sudan
and Equitorial Guinea. Chinese Trans National Corporations (TNCs),
in particular, but also some from India and Malaysia, are increasingly
expanding into natural resources in Africa. Total FDI, into six
African oil producing countries, Algeria, Chad, Egypt, Equatorial
Guinea, Nigeria and Sudan—amounted to $15 billion, almost
half of inflows into the region in 2005.
Manufacturing attracted significantly less FDI
than natural resources and services. There are exceptions with,
for example, some automotive TNCs setting up export oriented production
facilities in South Africa, generating employment and export revenues.
On the other hand there has been some divestment in the ready
made garments industry in Lesotho. This was due to poor infrastructure
and a lack of skilled workers, coupled with the ending in 2005
of multi-fibre agreement quotas.
DFID recognises the importance of strengthening
the investment climate in Africa to attract increased and more
evenly distributed FDI, particularly to Sub-Saharan Africa. The
recently established joint donor/private sector Investment Climate
Facility, to which DFID has committed $30 million, represents
an important response to this challenge.
Private sector finance currently represents
10-15% of all infrastructure investment, with half going to South
Africa. More than half of the private investment goes to telecommunications
sector ($3 billion annually), with the balance to the power sector
($0.8 billion annually) and transportation ($0.3 billion annually).
Private sector investment has an important role
to play in filling the infrastructure funding gap. DFID, together
with like minded donors such as Sweden and the Netherlands, are
working to support private infrastructure investment in developing
countries that contribute to growth and poverty reduction through
the Private Infrastructure Development Group (PIDG).
PIDG has developed a number of project development
and capacity building programmes, and investment vehicles, to
provide financial, practical, strategic support to encourage private
infrastructure investment predominantly in Africa. PIDG has been
instrumental in funding 23 projects with a total donor investment
of US$136 million. These projects have mobilised in excess of
US$1.5 billion from the private sector and Development Finance
Institutions.
An example of a PIDG investment vehicle is the
Emerging Africa Infrastructure Fund, a US$305 million debt fund
which makes long-term loans to private sector infrastructure development
in Sub-Saharan Africa. Since its launch in 2001 the fund has financed
six projects. This has leveraged over US$1.3 billion of private
investment finance, which will result in new power generation
capacity of 83MW, 3.9 million new telephone subscribers, and the
creation of 3,600 new jobs.
November 2006
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