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UN agency: Foreign investment in Africa drops; energy sector receives biggest deals 


FILE - German Chancellor Olaf Scholz, center, presides over the "Compact with Africa" investment summit in Berlin, Nov. 20, 2023. The German government pledged to invest 4 billion euros in African green energy projects through 2030.
FILE - German Chancellor Olaf Scholz, center, presides over the "Compact with Africa" investment summit in Berlin, Nov. 20, 2023. The German government pledged to invest 4 billion euros in African green energy projects through 2030.

Africa became less attractive to foreign investors last year and finance deals declined by 50 percent to $64 billion, according to a new report.

The World Investment Report, released Thursday by the U.N. Trade and Development, said foreign investment remains subdued by the global economic slowdown and rising geopolitical tensions.

On the continent, central African countries recorded the largest drop in foreign investment, 17 percent, and West Africa recorded the lowest dip, 1 percent.

Bruce Nsereko-Lule, a general partner at Seedstars Africa Ventures, a venture capital firm that invests in high-growth companies, said conditions in Western economies have contributed to the reduction in foreign direct investment in Africa.

“We have seen very high interest rates in Western economies," he said. "With the devaluation of the currency, we saw this is partially driven by the same factor. Investment in these developing markets, emerging markets, even became less attractive as the companies effectively had to work significantly hard to generate a return that would make a good return for Western investors.”

Researchers say that the lack of financial inflows to Africa and other countries affected sustainable development, with new funding dropping by 10 percent globally. Lack of financing for development programs will hinder countries from achieving the 2030 agenda, which covers economic growth, social inclusion and environmental protection.

The reduction of foreign investments is also blamed on protectionist policies by African governments and on regional realignments, which investigators say are disrupting the world economy, fragmenting trade networks, regulatory environments and global supply chains.

Some governments' actions have undermined the stability and predictability of global investment flows, creating obstacles and isolating opportunities.

Samuel Nyandemo, economics lecturer at the University of Nairobi, said the behavior of some African governments is turning away investors.

"There is corruption, there is bureaucracy in investments, the red tape bureaucracies, and then the marginal rates of returns from investments are not forthcoming," he said.

The fall of foreign direct investment in Africa is blamed on insecurity in some African countries, the weakening of local currencies, a harsh business environment, corruption and political uncertainty.

However, Africa has received investment in a growing share of greenfield mega projects worth $5 billion, plus wind and solar energy production worth $10 billion. And Morocco, a North African nation, is getting $6.4 billion to manufacture electric vehicle batteries.

Nyandemo said Africa needs to create an environment where investors feel safe with their businesses.

"They need to have investor confidence, create a conducive macroeconomic environment for investments and enable investors to repatriate their profits appropriately without any bureaucratic procedures, and minimize taxation," he said. "Create a tax regime which is conducive for investment."

The U.N. report predicted that despite challenges, financial conditions in Africa are expected to improve. Governments can address low investments by creating transparent and streamlined business environments.

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