AfCFTA and Foreign Direct Investment (FDI)

In this episode, we shall be discussing the impact of the AfCFTA on Foreign Direct Investment and how this can potentially affect individuals, businesses, and governments across Africa.

As you probably know already, the AfCFTA is a continental-wide agreement that allows for free movement of goods and services across Africa by seeking to eliminate the tariff and non-tariff barriers to intra-Africa trade. The agreement connects about 1.3 billion people across 55 countries with a combined GDP of $3.4 trillion in Africa.

The AfCFTA has many objectives, benefits, and opportunities that it aspires to achieve for Africa, key amongst which is to boost growth, reduce poverty and broaden economic inclusion in Africa. It is estimated by the world bank that the AfCFTA has the potentials to lift about 30 million people out of extreme poverty by the year 2035.

To achieve this feat, it is important for the AfCFTA to attract quality foreign direct investment that will be able to deliver the sustainable development needs of the continent and support the continuous and full implementation of the AfCFTA.

In recognition of the importance of investment to the success of the AfCFTA, a protocol of the AfCFTA is dedicated solely and entirely to Investment to enhance cooperation and coordination of investment policy at the continental level.

What is Foreign Direct Investment (FDI)?

Foreign Direct Investment is a form of international business investment where a party from one country invests into a business or corporation in another country with the intention of creating a lasting business relationship with the business or corporation.

In more simple terms, FDI is when foreigners come into a country with financial resources from their country to invest in a business in the destination country either by expanding their business into the foreign country or by funding a new or already existing business in the foreign country.

Foreign Portfolio Investment (FPI) is the alternative form of foreign investment which rather involves a foreigner investing in another country through the purchase of securities form the country’s stock and bond market.

Foreign Direct Investment guarantees that inflow of capital into the destination country while the foreigners have ownership and controlling interests in the business.

How does this affect Individuals, businesses and government in Africa?

Owing to the large market size to be created by the AfCFTA, it potentially increases Foreign Direct Investment in Africa, and there will be numerous positive impacts and opportunities open to individuals, businesses and government to tap into and benefit from immensely as a result of this.

For individuals, foreign direct investment increase facilitated by the AfCFTA would mean that there will be increase in demand for skills and labor by the new businesses that would be established with the foreign direct investment. This translates into more jobs opportunities in key sectors that are expected to be impacted the most by the AfCFTA such as the Construction and Building industry, Information Technology industry, Manufacturing and Production industry, Agriculture and Agribusiness industry, Logistics and Transportation industry etc. It is important that individuals acquire the requisite knowledge and skills ahead so as to be able to tap into these opportunities as soon as they present themselves.

For businesses, foreign direct investment increase facilitated by the AfCFTA would mean that there will be increase in funding and finance for businesses as foreign investors may require existing business to invest in, enter into a partnership with or create a joint venture agreement with. This translates into opportunities for growth and expansion of these businesses, and of course generate more revenue.

For governments, when there are more jobs and more businesses in the country, by necessary implication, there are more tax payers. This translates into more state revenue generation relevant through taxes, levies and fees. As such, it is important that governments create enabling business environment to further attract the foreign investors to their state and develop the country’s taxation system to be able to support and tap into the revenue generation opportunity that comes along with the increase in Foreign Investment facilitated by the AfCFTA.

In conclusion, the AfCFTA is expected to boost foreign investment in Africa owing to the large market it creates which is very enticing for investors seeking to maximize profits. It is important that individuals, businesses, and governments are aware of the opportunities presented by the increase in Foreign Direct Investment and are adequately ready to tap into it.

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