Covid-19 to squeeze Africa’s FDI  

THE African Union (AU) says it expects the continent to see a considerable decline in foreign direct investment (FDI) in 2020 and 2021 due to the Covid-19 pandemic.
It also comes as the Organisation for Economic Co-operation and Development has said there are early signals of a possible impact on FDI “reinvested earnings in developing countries”, and most African countries — including Zimbabwe — have long relied on seriously affected partners such as Asia, Europe and the United States for external
financial flows.
“With scenarios of the spread of the pandemic ranging from short-term stabilisation to continuation throughout the year, the expected drop of FDI flows will be between five percent and 15 percent,” AU said last week in a paper on the impact of the virus on the African economy.
Most multinational enterprises (MNE) in the United Nations Conference on Trade and Development (Unctad)’s Top 100 — a bench march for investment trends — have issued statements on the impact of the virus signalling slowing down capital expenditures.
On average, the top 5 000 Unctad companies, which account for a significant share of global FDI, have seen downward revisions of 2020 earnings by an aggregate nine percent due to Covid-19.


And profits of MNEs based in emerging economies are proving to be more at risk than those of developed countries. According to the United Nations, developing countries MNE profit guidance has been revised downwards by an average 16 percent. Furthermore, there have already been large-scale capital withdrawals from the continent, for example, in Nigeria the All Share Index registered its worst performance for a decade in early March as overseas investors pulled out.
This also comes as Zimbabwe has been struggling to attract FDI due to its deteriorating country risk.
According to the Reserve Bank of Zimbabwe, FDI into the country declined from US$717,1 million in 2018 to US$259 million in 2019. Similarly, net portfolio investment inflows declined significantly from US$54,7 million in 2018 to US$3,7 million in 2019.
Meanwhile, the AU has projected that the continent’s economy will decline by between 0,8 percent and 1,1 percent this year due to the Covid-19 pandemic.
“The disruption of the world economy through global value chains, the abrupt falls in commodity prices and fiscal revenues and the enforcement of travel and social restrictions in many African countries are the main causes of the expected negative growth”.
Exports and imports of African countries are projected to drop by at least 35 percent from the level reached in 2019. The loss in value is estimated at around US$270 billion US dollars.
The AU also says Africa is expected to run into US$130 billion in unbudgeted expenditure due to the spread of the virus.

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