A momentous growth of "green" foreign direct investment is expected in the coming period, with transition and developing economies grasping the lion's share, Sherine Nasr reports Despite global economic contraction, Egypt was the second largest recipient of foreign direct investment (FDI) in Africa in 2009 according to the World Investment Report 2010, Investing in a Low-Carbon Economy, launched recently by the UN Conference on Trade and Development (UNCTAD). According to the report, FDI flows to Africa declined by 19 per cent, to $59 billion, due mainly to a tightening in global demand for -- and a fall of commodity prices of -- African goods. UNCTAD pointed out that the top recipient of FDI on the black continent was Angola, followed by Egypt ($7 billion), Nigeria, South Africa and Sudan. "Egypt has made a tremendous effort in the past six years to attract FDI," said Astrit Sulstarova, an expert at UNCTAD's Investment Division, adding that a package of economic reform policies -- such as the establishment of economic courts and the easing of investment procedures -- have helped Egypt attract FDI during the time of the global economic crisis. "FDI inflow to Egypt is expected to go back to before the crisis peak when it hit an all time high of $13 billion in 2007," Sulstarova said. A look at the distribution of FDI by industry in Africa revealed a concentration in the mining industry in terms of value. While FDI in manufacturing was under severe strain, the manufacturing sector accounted for 39 per cent of the total number of Greenfield investment projects. According to the report, both the services and telecommunications industries attracted the largest share of FDI to Africa. The UNCTAD report indicated weak economic performance in most of the world's economies during 2009. FDI declined in different degrees across various regions; in developed countries, it shrank by 44 per cent ($566 billion), in transition economies of South-East Europe and the Commonwealth Independent States (CIS) by 43 per cent ($70 billion), and by 24 per cent ($478 billion) in developing countries. Remarkably, developing and transition economies attracted half of global FDI inflows for the first time ever ($548 billion). Meanwhile, they accounted for a quarter of global FDI outflows ($280 billion) in 2009. "These economies are leading the FDI recovery and will remain favourable destinations for FDI," commented Sulstarova, adding that transnational corporations (TNCs) from developing economies are making a rapid entry into Africa. UNCTAD forecasts FDI will gain a momentum in the medium term with prospects of $1.3 to $1.5 trillion of FDI inflows worldwide during 2011/12. "Only in 2012 do we expect to have the FDI levels of 2007/08." Prospects for Africa are equally promising. The report indicates that FDI to Africa will improve thanks to global recovery and strong performance by developing countries in Asia. "It is interesting to know that South Africa has been ranked the 20th top priority destination by investors while Egypt ranked 31st in the world. This is quite impressive," said Sulstarova, adding that Egypt has been rated as one of the countries with the largest number of international investment agreements (IIAs) during 2009. "Egypt signed 101 IIAs last year. As economic recovery is picking up, better prospects can be seen," said Sulstarova. Notably, this year's report put special emphasis on the need to move towards a low- carbon economy. Large companies are singled out as both part of the problem and part of the solution, as they can offer low-carbon investment and technology. "TNCs can contribute to reducing emissions by improving production processes and by producing and marketing cleaner goods. Transnational firms can bring much-needed capital and cutting-edge technology to global efforts to combat climate change," the report said. The report underlined that low-carbon FDI is already large and its potential is vast. "There is roughly $90 billion investment in only three sectors with low-carbon industries; namely, recycling, renewable energy and low-carbon technology," said Sulstarova. According to the report, some 40 per cent of low-carbon FDI projects, by value, between 2003/09 were in developing countries while about 10 per cent of identifiable low-carbon FDI projects during the same period were generated by TNCs from developing and transition economies, many targeting other developing countries. "Egypt is in a very good position to receive low-carbon investment. It has a wealth of new and renewable energy that can be made good use of," said Sulstarova, adding that although it is not as easy or as profitable to invest in low-carbon industries compared to investing in traditional natural resources, in the long- term it is expected that the trend will take over and will grow more profitable. UNCTAD proposes a "Global Partnership for Low-Carbon Investment" to promote investment in the field and to trigger climate change mitigation actions.
