Advisory and professional services firm, EY, recently published its eleventh Africa Attractiveness Report, revealing that clean technology has taken the lead in foreign direct investment (FDI) into Africa.
This development comes against the backdrop of a substantial overall recovery of FDI across the continent. Here’s an overview of the key findings:
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Clean Technology Takes the Top Spot
EY’s Africa Attractiveness Report found that clean technology emerged as the leading sector in attracting foreign direct investment in Africa. The continent is experiencing a green revolution, which is driving FDI into clean technology. This sector is crucial for Africa’s sustainable development.
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Following clean technology, technology services secured the second-highest amount of FDI, while business services ranked third in terms of investment attractiveness. This demonstrates that technology and innovation are critical drivers of economic growth in Africa.
The overall report noted a remarkable increase in foreign direct investment in Africa. The continent attracted 733 projects, marking a 64% surge from the previous year. These projects were valued at $194 billion and played a pivotal role in creating job opportunities. In total, these FDI projects generated 154,000 jobs across Africa.
Africa’s Renewable Energy Potential
According to EY partner and Africa region government and infrastructure leader Sandile Hlophe, “Clean technology FDI is being driven by a green revolution sweeping across Africa.” While Africa is making progress in harnessing renewable energy, fossil fuels continue to dominate the continent’s power generation. South Africa, Egypt, Morocco, and Kenya account for nearly 75% of all renewable energy investments in Africa since 2010, totaling $46 billion.
Additionally, the International Renewable Energy Agency (Irena) and the African Development Bank (AfDB) estimate Africa’s renewable energy potential to be substantial, with solar photovoltaic, hydropower, and wind energy capacities reaching thousands of gigawatts.
South Africa Leads in FDI Projects
South Africa emerged as the top destination for foreign direct investment projects in Africa, representing 23% of the continent’s total with 157 projects. This marks the highest number since 2016. These projects brought an estimated $26.8 billion in FDI and generated approximately 15,000 jobs. South Africa also ranked as the third-largest recipient of clean technology FDI in Africa, following Egypt and Morocco.
The energy crisis in South Africa has expedited the shift away from the national grid, emphasizing the need for alternative energy sources. The EY report predicts that South Africa will increase its share of renewable energy to 41% by 2030.
Foreign Investors in Africa
The largest sources of foreign direct investment in Africa were the United States and the United Kingdom, followed by Switzerland and Germany. The United Arab Emirates (UAE) has also increased its presence by investing in capital-intensive clean technology projects worth $50 billion, accounting for three-quarters of its total investments in the region. This FDI from the UAE resulted in the creation of 3,000 jobs in the country.
EY’s Sandile Hlophe explained, “Business services, along with technology, dominate South Africa’s FDI, with the real estate sector generating the most capital and employment.”
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Continued Growth in North and Southern Africa
The report highlighted that FDI in Africa experienced a substantial decline in 2020, making it the hardest-hit region globally. However, the continent has since rebounded, particularly within the North and Southern African regions.
Hlophe noted, “North Africa attracted more FDI than any other region in Africa, led by Egypt. North Africa attracted the most investment projects, with record capital investment of $130 billion, creating 89,000 jobs.”
In Southern Africa, Zimbabwe attracted $5.2 billion in FDI, and Zambia received $1.7 billion in foreign direct investment. These investments are critical for the economic development of these nations.
Foreign direct investment, particularly in clean technology and technology services, plays a pivotal role in Africa’s sustainable development and economic growth. The continent’s increasing focus on renewable energy and the contributions of international investors are propelling Africa towards a more sustainable and prosperous future.