Welcome to the February Edition of the Best Practices Monthly Feature. In this feature we highlight the different variables and recommendations that Africa can adopt to attract and maximise the benefits of Foreign Direct Investment (FDI). According to the State of African Cities Report, Africa’s share of total world FDI remains small at roughly 5%. This compares poorly to the continent’s 15% share of the global population and constitutes over 30% of the world poverty. If business is to continue as ‘usual’ the existing GDP per capita gap, compared to other continents, will widen. Therefore, this presents the need for increasing FDI in Africa.

Urban poverty is a major challenge in African cities mainly due to the absence of economic growth. This has also become directly proportional to the rate of urban-rural migration and natural urban growth. Urban economic development can lift millions out of poverty, as it has done in East Asia over the past three decades, with African cities becoming hubs of productivity that accelerate economic growth and general well-being.

FDI in Africa can help position the continent in a prominent position in the world economy by enhancing its accessibility, connectivity, markets, and urban attractiveness. In addition to the provision of financial resources, FDI promises to bring new technologies, knowledge, and expertise. Such investments will promote employment, productivity and competitiveness through entrepreneurship in investment destinations. This, in turn, will help to close Africa’s huge gap in physical infrastructure, improve the quality of the built environment and make the continent more attractive to FDI. It can also promote to rapidly build workers’ skills and productive capacity knowledge and technology levels, as well as inclusive institutional and business capacity.

In Northern Africa, nearly half of all foreign direct investment originates from Western Europe. This is because of geographic proximity which helps to reduce transaction costs. Europe also invests strongly in Southern Africa which has strong linguistic and historical ties to the UK. Asian investment is spread evenly across the continent whereas North America invests mostly in Central and Western Africa due to commodities like oil.

In terms of leading cities, Cairo (in Northern Africa), Johannesburg (in Southern Africa) Lagos (in Western Africa) and Nairobi (in Eastern Africa) are the leading attractors of FDI in their respective regions. The report includes a special case study on the top two cities for FDI –Cairo and Johannesburg–as well as examining two growing centres in the Abidjan-Lagos Corridor and Kigali, the capital of Rwanda.

How to attract FDI to drive Sustainable Development

  1. Africa needs to move from resource-led FDI to FDI in manufacturing and knowledge-intensive industries
  2. Governments must improve their human capital
  3. Governments must improve their institutions
  4. Governments must improve their ICT infrstracture
  5. Food FDI needs to be geared towards value addition & serving local markets
  6. Provision of favorable policies such as feed-in tariffs

To achieve this, there are some variables which need to be factored in. These include:



Cairo has a diversified economy, which includes wholesale and retail trade, manufacturing, construction, transportation, education and health services and public administration. Wholesale and retail trade and related activities are the main source of employment in Cairo (19%). Proximity to highly populated markets and a dense distribution outlet system and proximity to transportation networks, ports and to academic research centres and decision-making centres are key factors to locating manufacturing activities in the country. The manufacturing Sector is responsible for about 16% of the total employment in Egypt, which includes around 30 industrial centres. In addition, 17% of the total industrial areas in Egypt are in new towns of the Cairo region.


A key aspiration to attract FDI inn Rwanda was to develop a services-based economy. One way was by strengthening its links with its neighbours and the wider region. The other was by exploiting the opportunities offered by the Information Communication and Technology (ICT) revolution, and to make the private sector the engine of development. Over time, Rwanda has invested heavily in ICT, making advances that no other country of similar size and circumstances has made, including wiring up its entire territory with fibre-optic cabling to enable widespread internet connectivity. In all the priority domains for investment, including services, logistics and tourism, ICT is indispensable as a central enabler. Investors in search of a stable business environment with easy communication and connectivity are setting up regional offices in Kigali.


South Africa is viewed as one of the gateways to Africa and especially the Southern African region. It has been described as a vibrant commercial and investment hub, given its high level of international accessibility with a world class international airport, a good roads network linking it to ports and other parts of the country. In Johannesburg, proximity to regulatory institutions such as the South African Revenue Service (SARS), the South African Reserve Bank (SARB), commercial banks among others were also cited as important in the consideration to locate their head offices in the city. Proximity to customers, sources of raw material and also availability of skilled workers formed the basis for the argument. Today, Johannesburg contributes over 16% of South African GDP (HSRC, 2014), more than any other city in South Africa, and hence weighs favourably as an ideal location when it comes to the influence of agglomeration.


Electricity and water supply for industries are quite stable in Abidjan, but the countryside experiences a notable scarcity in both services. Though the new Ivorian industrial zones seemed attractive to FDI in terms of both space and services to be provided, further enthusiasm among foreign investors will rapidly decline if current electricity and water supply problems are not addressed in an adequate manner. Out of a total of USD672 billion of investments registered in 2016, Abidjan captured USD491 billion, accounting for 73%. Foreign respondent companies operating in manufacturing, transport and logistics said they were keen to expand their facilities in the other areas of Côte d’Ivoire. From Abidjan’s sea port, goods are distributed by air, road or rail.

Creating an attractive environment for FDI in Africa across all levels


Gender Parity - In order to attract FDI, the participation of gender parity in the labor market is important. Equal participation of both women and men promotes more knowledge, skills and value addition to the labour market. In Africa, women represent a relatively high share of the total workforce but remain underrepresented in the formal economic sectors.

Food Security - At the global level, international organizations need to make African food urban food security a key priority. They can help promote the governance required to attract multinational firms in the food sector.

Agricultural revolution - The potential for producing food in Africa is high due to the availability of high arable land. Africa should focus on feeding other parts of the world to stimulate export revenues and overcome the existing international food exports and land exploitation.

Continental Level

Favorable Policies - Policies play an important role in ensuring that the benefits of FDI in all sectors are evenly distributed. In the manufacturing and services sectors, the high economic growth spin-off is only available in select countries.

Target different FDI sources - Investments between cities and countries is highly encouraged to foster diversification and become more complementary to each other. This should be based on local advantages, interregional cooperation, and preferences of investors. To coordinate this, the Africa Union could set up a strategy for FDI attraction across the continent.

Economic diversification - to help position cities as regional and international investment hubs for FDI, diversifying the economic sectors is needed. This also increases the resilience of cities against volatile global investment changes across different sectors.

Regional Level

Interdependence between countries and cities for FDI corridors - to build a stronger intra-regional market, regional blocs should try to join forces. To achieve this, better regional infrastructural interconnections should be established to foster customs agreements. For example, across the Gulf of Guinea there consists of five adjacent countries namely: Côte d’Ivoire, Ghana, Benin, Togo and Nigeria. Abidjan in Nigeria has engaged in FDI corridor through a regional programme facilitating road transport and transit among Economic Community of West African States (ECOWAS) and West African Economic and Monetary Union (WAEMU) countries. Together with regional cooperation institutions and provisions, the Regional tax and tariff harmonisation

Regional Integration - To attract multinational firms, regional trade barriers should be lifted because FDI correlates with the trade.

Effective road and rail networks - City, country and regional linkages through road and rail transport help to expand the market reach and in turn attract FDI. This is especially important for connecting landlocked countries with port cities. In Cairo, well developed infrastructure, good road networks, availability of skilled workers and a conducive foreign investment environment ease the way of doing business in the country which makes it a desirable location for investment. A network of highways connects Cairo to all other major cities in Egypt such as Alexandria in the North, Port Said and Suez to the East.

Country Level

Tapping into renewable energy - In addition to promoting ‘green growth’ this sector generates more job opportunities as compared to the traditional energy sector. This is increasingly becoming a concern for multinational firms as many seek to comply with targets for reducing carbon gas emissions.

Define the roles of cities - In order to utilize FDI, cities need to be assigned with specific roles such establishing industrial sites and hosting technology valleys with the goal of building economies of scale.

Geographic Proximity - An important consideration for multinational firms is the geographic proximity to Africa. In North Africa, most of the FDI is received from Europe and the Middle East while in East Africa, FDI originates from Asia. If countries want to retain and strengthen their position as key destinations for investments, they need to accommodate the locational preferences of multinational firms and factor in the origin of most FDI.

City Level

Creation of technological hubs - Hi-tech FDI is a promising growth sector that can address challenges to unemployment, poverty, and inequality. With good capacity skills and better-quality institutions, hi-tech FDI ensures a positive impact on reducing inequality and promoting income distribution.

Reliable mobile networks and internet access - This creates an attractive environment for knowledge-based FDI to help promote the hi-tech sector. This attracts knowledge-based FDI and are important for the growth of the hi-tech sector. Emphasis on inclusive technologies and education also importantly requires the promotion of gender parity in the labor market, and public authorities should ensure the promotion of women in all formal sectors of employment.

Political Stability - A political environment in which there are no violent contestations and disruption, are key attractions to potential investors and important in investment decisions. A stable political environment makes investors feel more secure and confident that their money is not overly at risk. Political stability and predictability go hand in hand. For businesses to thrive and prosper, they must operate in an environment where they are able to model their growth paths and expansion strategies over the medium and long term.



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