A report by African Economic Outlook has said that “external financial flows to Nigeria and other African countries are projected to increase by 9.5 per cent to a new record of $203.9 billion by end of 2013, compared with $186.3 billion in 2012.”
It also states that, “the expected $17.6 billion increase, over the 2012 figure would be boosted by projected contributions of remittances, Official Development Assistance (ODA) and investments respectively.”
“As in 2012, investment growth is expected to underpin external flows. In 2013, however, almost the entire projected increase in external financial flows to Africa is expected to be in sub-Saharan Africa, while in 2012 Northern Africa absorbed half of the increase in financial flows.
“Upper-middle income countries in Africa have a larger share of foreign investment as external flows. Portfolio inflows represented 47% of total external finance in 2012, followed by 29% for FDI and 14% for remittances. This large portfolio share was directed almost exclusively at South Africa.
“In other economies, direct investment represented the largest share of external flows. According to the United Nations Conference on Trade and Development (UNCTAD), portfolio flows tend to increase in relative importance once a country reaches upper-middle income status. They can help to strengthen financial infrastructure and liquidity. They also pose a risk in terms of increased volatility and the risk of a sudden reversal of capital flows, as witnessed in South Africa in 2008.”
“The second quarter of 2012 saw a drop in some commodity prices due to lower demand in emerging economies. A new deceleration of global economic activity could bring down commodity prices again. This may in turn affect investment into commodity exporting economies. Low-income countries are exposed to adverse shocks as their economies and export base tend to be less diversified.
“Countries which have not replenished fiscal and foreign exchange reserves following the 2008 global economic recession are at particular risk. As spending pressures in major donor countries are likely to result in a stagnation of ODA at best, low income countries will have an increased reliance on domestic sources of financing.”
