Global management consulting firm Kearney released its “2023 Foreign Direct Investment Confidence Index” this week, a well-known indicator of market expectations for countries attractive to invest in. While no African countries populated the top 25 of the Index, with 19 of the top 25 countries most attractive to investment being considered “developed,” an additional “emerging markets” index was introduced by Kearney for the first time, and index in which among the top 25 emerging markets most attractive for investment includes Egypt, Morocco, South Africa, and Ghana. This comes as 63% of investors, according to Kearney, hold a “more optimistic” view on how “the global economy changed” relative to last year, the same as last year’s poll but down from a high of 72% in the pre-pandemic months of 2020.
In the case of emerging African markets, those deemed promising for investment include those with relatively stable political and economic institutions and a greater sense of the rule of law, as well as strong property rights and a reliable framework for investment and business transactions. South Africa and Ghana are ranked 5th in 7th in Sub-Saharan Africa in the WJP Rule of Law Index, while all four countries are within the range of 48th through 70th place of the 126 countries in the International Property Rights Index, rankings that although at first may seem unimpressive, actually show the emphasis the countries place on property rights when considering how developed nations with better access to technology dominate the upper rankings of the index.
South Africa and Ghana also rank 4th and 13th of 48 Sub-Saharan African countries in the Ease of Doing Business Index, while Morocco ranks 3rd in the Middle East and North Africa. Egypt, meanwhile, is an outlier residing in 12th of the 20 countries in its regional rankings, as well as its straddling towards 70th place in the International Property Rights Index. Although the importance of institutions is definitely painted by the other three countries’ high placements on a variety of indexes, Egypt’s commitment more towards the deliberate attraction of foreign investment has likely earned its spot on Kearney’s list. As Victor Oluwole writes for Business Insider Africa, “Egypt has also made strides to improve its investment climate, such as introducing a new investment law aimed at improving transparency and predictability for investors.” Nonetheless, the very prevalence of inclusive political and economic institutions that preserve the incentive for wealth creation may not serve as the be-all and end-all for investment opportunities over the next year. Given that the Index mainly ranks countries based on short-term prospects of investor return, other factors such as what’s actually being produced by said countries may be of equal prevalence. Egypt is largely a rentier state with over half its exports comprising petroleum-related products, while the agricultural produce that Morocco and Ghana specialize in have seen major increases in value on the global food market and South Africa’s absolute advantage over gold and diamonds has always remained strategic.
In total, however, an inclusive and open institutional framework may be necessary to translate natural resource abundance to actual economic output through the incentivization of wealth creation. South Africa, Ghana, Morocco, and Egypt’s placement on the Foreign Direct Investment Confidence Index should indeed serve to show other African countries the importance of free markets, and their underlying institutional environment.