Financial services FDI to South Africa surges despite pandemic

Financial services foreign direct investment (FDI) into Africa over the past decade has been dominated by South Africa and, more recently, Nigeria.

The Covid-19 pandemic has hit South Africa hardest of any country in the African continent, with 1.5 million cases recorded despite tough lockdown measures. Nonetheless, financial services and fintech investment into South Africa rose sharply last year.

Financial services and fintech capital investment into South Africa increased 41% from $83.3m to $117.5m in 2020, according to greenfield data monitor fDi Markets. The country attracted 13 financial services and fintech projects last year, compared with the six projects in 2019.

Across the whole of Africa, South Africa’s market share in FDI grew to 28%, having only achieved an 8% market share in 2019. Financial Services represented 13% of all projects into the country for 2020; an increase of 8% from 2019.

“All South African banks have digitalisation at the heart of their strategies, and even more so post-Covid-19. Such initiatives are encouraged by the phenomenal growth in Africa’s mobile and internet users over the past decade, and rising pressures on banks’ profitability,” said Constantinos Kypreos, an analyst focused on South Africa at Moody's Investors Service.

“The use of technology and data helps reduce costs, scale the business and protect clients; these are also the reasons why we are seeing an acceleration of digital adoption. Banks are using new technology to: onboard clients electronically; as an additional and cheaper channel; and to create new products.”

Nigeria: fintech and fallout

Nigeria has one of Africa’s most dynamic tech start-up scenes, including many fast-growing fintechs. In a country where 40% of people remain unbanked, gaps in the market have been met fintech start-ups.

However, the double whammy of the pandemic combined with last year’s steep oil price crash has destabilised Nigeria’s economy. The oil and gas sector accounts for more than 85% of Nigeria’s export receipts and at least half of fiscal revenue, according to S&P Global. Nigeria’s economy contracted by 1.9% in 2020, the steepest downturn since 1993, while unemployment rose to 33.3% in the fourth quarter.

The weak economic picture, compounded by rising inflation, has discouraged foreign investment. After a very strong performance in 2019, Nigeria, saw a 57% drop in in total financial services projects (from 14 to six) and a 50% drop in capital investment (from $353m to $176.2m) in 2020. Nonetheless, Nigeria market share by capital expenditure stood at 31.7% in 2020

Elsewhere, the pandemic led to a 57% drop in total financial services projects (from seven to three) and a 85% drop in capital investment (from $110.7m to $15.8m) in Kenya.

In Namibia, however, financial services capital investment rose 19.7%, from $32.4m to $38.8m. The country’s market share in FDI now stands at 6.9%.