Is the West gradually losing Africa?

UNCTAD Trade and Development Board, (UNCTAD Photographic library).

At a time when the West on both sides of the North Atlantic Ocean is consumed with its internal financial problems as in the European Union’s Eurozone or just exhausting the limits of government borrowing as the US does, the BRICS countries are expanding their presence in the world, taking advantage of their economic strength and the openness of global markets. Brazil, Russia, India, China and South Africa known collectively as BRICS, are now expanding fast in Africa according to the latest Global Investment Trends Monitor, published by the United Nations Conference on Trade and Development (UNCTAD). The BRICS in their last Summit staged on 26 and 27 March in Durban, South Africa, decide also to create their own development bank with global reach, to rival the relevant institutions controlled by the West.

It seems that Africa is now a primary expansion target for the BRICS for many reasons. For one thing this vast continent has a bitter experience with the West and secondly because a large number of African countries have now reach such an adequate development level and statehood, that can effectively attract, guarantee and support foreign investments. At the same time the West cannot override its multiple internal impediments which cripple the initiative to exploit investment opportunities in Africa in some key sectors of economic activities.

As a result the American and the European interests in Africa are exhausted in safeguarding existing investments in the traditional sectors of petroleum and minerals, which do not add value locally, cause a lot of security troubles and face growing criticism from many sides. For all those reasons the BRICS have found fertile grounds for their own direct investments in Africa.

Vast opportunities

According to UNCTAD Global Investment Trends Monitor (GITM) published on 21 March, foreign investment from the BRICS into Africa reached 25 per cent of Africa’s inflows in 2012.  Furthermore, most FDI projects in Africa funded by the BRICS are in manufacturing and services. Only 26 per cent of the value of such funded projects is in the primary-goods sector. In this way BRICS investments in Africa create more jobs and added value locally, than the traditional Western operations in mining and oil.

It is of crucial importance to note that also the absolute total volume of outward foreign Direct Investment (FDI) from BRICS has followed an exponential growth over the last ten years. Outward FDI from these countries, climbed from $7 billion in 2000 to $126 billion in 2012, rising from 1 per cent of world flows to 9 per cent.

According to GITM the overseas investment by BRICS countries is mainly in search of markets in developed countries or in the context of regional value chains.

*42% of BRICS outward FDI stock is in developed countries, with 34% in the EU.

*Some 43% of BRICS outward FDI stock is in respective neighbouring countries in Latin America and the Caribbean, East Asia, South Asia and transition economies.

BRICS and Africa

Although Africa accounts for only 4% of BRICS’s FDI outflows, BRICS countries have joined the ranks of top investing countries in Africa. The share of BRICS countries in Africa’s total value of greenfield projects rose from 19% in 2003 to almost one-quarter in 2012.

The rise in total FDI outflows from BRICS jumped from USD31 billion in 2005 to USD 93bn in 2006. BRICS investors remained resilient to the crisis, with outflows dropping by only 26% in 2009, compared to 41% for the world as a whole. As a result, the role of BRICS as investors increased significantly, now accounting for 9% of world outflows in 2012 – ten years before that share was only 1%. China and the Russian Federation account for the lion’s share of flows from the grouping, with 54% and 40% respectively.

The BRICS’ share in Africa’s FDI stock and flows reached 14% and 25%, respectively, in 2010. This trend is likely to be reinforced in the future. The rapid economic growth and industrial upgrading currently taking place in BRICS countries provide ample opportunities for their firms to seek opportunities to invest in Africa, including in manufacturing and services sectors. Indeed, the rise of FDI in manufacturing, which has positive consequences for job creation and industrial growth, is becoming an important facet of South–South economic cooperation.