Expected to kick off next year, the African Continental Free Trade Area (AfCFTA), will be a game changer for investment on the continent, which in recent years has seen foreign direct investment (FDIs) continuing to weaken, Economic Commission of Africa’s (ECA) Regional Integration and Trade Division Director, Stephen Karingi, has said.
Karingi said this while presenting for discussion the ECA reports on investment issues during the Annual Investment Meeting (AIM2020) Africa regional-focused session advancing ideas for action on the AfCFTA.
“African economies continue to punch below their weight in terms of attracting foreign direct investment. Moreover, FDI to the continent continues to weaken. While FDI inflows reached $56.6 billion in 2015, they had fallen to less than $42 billion by 2017. This figure represents less than three percent of the global investment flows,” he said.
The contribution of FDI to Nigeria’s economic growth recorded a major setback in the six months period ended June 2020 (H1’20), as inflows dropped by 29.7 percent to N137.6 billion ($362.84 million) from N178.6 billion ($470.51 million) in the corresponding period of 2019 (H1’19).
Investment flows to all African regions fell in 2017 to different degrees. This was largely attributed to the end of the commodity super-cycle. Many African economies remain dependent on exports of primary commodities which are particularly prone to shocks.
“Foreign direct investment is a catalyst of economic growth, structural transformation and regional integration on the continent. African economies need FDI as a means to build productive assets, a vector of positive spill over-effects and an additional and relatively stable source of development finance,” said the ECA Director.
Karingi said African countries can surmount a number of policy and regulatory challenges through the AfCFTA to attract greater investment by linking individual chapters of the agreement and achieving coherence on the various policy areas they cover. These include harmonizing heterogeneous approaches to investment regulation in Africa; clarify the relationship and precedence of the AfCFTA Investment Protocol and IIAs; pool resources to strengthen domestic and regional institutions and the business climate.
His presentation summarized the main elements and key findings of two ECA publications on investment and regional integration in Africa which came out earlier this year. These are the “Drivers for boosting intra-African investment flows towards Africa’s transformation” and “Linkages between double taxation treaties and bilateral investment treaties.”
Karingi said African regional integration has gained momentum with the current efforts to establish the AfCFTA.
“Intra-African investments in particular can be conducive to structural transformation and regional integration in that they can underpin African trade and its industrial contents, enable economies of scale and can facilitate entry into regional and global value chains,” he said.
Karingi added that the knowledge generated by the ECA enables member states to become informed and position themselves to review, negotiate, renegotiate or terminate investment agreements with careful consideration of the legal, policy, economic and social implications of such agreements to ensure that a balance is struck between protecting investment and preserving policy space for development objectives; and contemplate opportunities for expanding intra-African investment in the context of the AfCFTA.
The Africa Regional Focus Session engaged with the Guinean Minister of Investments and Public-Private Partnerships, Gabriel Curtis, and Yofi Grant, the Chief Executive Officer of the Ghana Investment Promotion Centre on critical issues to shape investment strategies through the AfCFTA.
Curtis said he sees digitalization as a major opportunity of the AFCFTA with the advancement of an e-commerce protocol to support digital and mobile trade.
“E-barriers are even more cumbersome than barriers to physical trade because they are technology driven and can be addressed through the AfCFTA e-commerce protocol,” he said.
Grant said reforming business practices and regulations are key actions to support the private sector in realizing the benefits of the AfCFTA.