Trends in foreign direct investment (FDI) have traditionally served as a barometer of existing and future demand for project cargo services.This is, however, changing, according to World Bank research. New investments have been increasingly diversifying from raw materials into manufacturing and services, according to researchers Christine Qiang, Peter Kusek, Victor Steenbergen and Brody Viney. They point out that, between 2006 and 2010, resource extraction, petroleum and coal processing projects made up more than half of the estimated $236 billion greenfield FDI projects announced in Africa. But, between 2016 and 2020, new projects in these sectors accounted for less than a quarter of the total. Sectors that have attracted significant new investment in the recent period include logistics, communications and IT services, chemicals, and renewable energy (which makes up more than half of utilities investment, up from around 20% in the earlier period).Covid has further dampened prospects for major projects requiring logistics support. According to the World Bank, in 2000 Africa attracted just 1% of global FDI inf lows. Announcements of new foreign direct investments in Africa were down 56% compared to 2019, with declines across nearly every major sector.In monetary terms, f lows to the continent declined by 16% in 2020 to $40 billion, from $47 billion in 2019.Unctad ’s World Investment Report 2021 shows that commodity-dependent countries were affected more severely than non-resource-based economies. “The challenging environment affected all aspects of foreign investment,” said Unctad’s director of investment and enterprise, James Zhan.Of direct interest to the project cargo sector is that greenfield project announcements, a measure of investor sentiment and future FDI trends, dropped by 62% to $29 billion, from $77 billion in 2019.International project finance announcements, especially relevant for large infrastructure projects, plummeted by 74% to $32 billion.Although Unctad forecasts FDI in Africa to grow in 2021, a tepid economic recovery and slow vaccine rollout programme threaten the scale of the investment recovery. FDI to the continent is projected to grow by 5% in 2021, lower than both the global and developing country projected growth rates.There may, however, be a light at the end of the tunnel.“Despite projections for only a weak investment recovery in 2021, there are some mitigating factors that signal FDI picking up momentum by 2022 and returning to pre-pandemic levels,” Zhan said.First, an expected rise in demand for commodities, especially in the energy sector as the global economy picks up steam in the second half of 2021, will result in higher resource-seeking investment.Second, the reconfiguration of global value chains (GVCs) and the increasing importance of regional value chains (RVCs) will open new opportunities for African countries.Third, the implementation of some key projects announced in 2021 and earlier, including those that were delayed due to the pandemic, may support FDI.Finally, the impending finalisation of the African Continental Free Trade Area (AfCFTA) agreement’s Sustainable Investment Protocol could give impetus to intra-continental investment.
