RENEW Strategies

Africa Investment Index 2018

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Erin O'Connor
| May 1, 2018

The Africa Investment Index (AII) developed by Quantum Global aims to integrate tools to measure "multidimensional concepts for assessing the investment attractiveness of African countries over time" (pg. 4). Developed in April 2017, Quantum Global tries to provide investors with a full view of the current investment climate in all 54 African countries. The Index is meant to show the overall attractiveness of each country in the short and medium term.

This report can help investors to see the ever-changing opportunities and risks from country to country. The AII gives a full view of the country and allows investors to make decisions based on an overall macroeconomic outlook. If using this from a business point of view, it can be used as a tool to identify well performing economies. From a policy standpoint, it can help understand where Foreign Direct Investment typical goes, and how to attract additional capital based on benchmarking and monitoring (pg. 4).

Using the AII, Quantum Global provides a ranking of all 54 countries based off six criteria: Economic Growth Factors, Liquidity Factors, Risk Factors, Business Environmental Factors, Demographic Factors and a measure of Social Capital. Here is a breakdown of what each factor includes:

  • Economic Growth Factors: GDP growth, domestic investment, size of economy
  • Liquidity Factors: level of domestic real estate interest rates, excess money supply
  • Risk Factors: credit rating of the country, risks of currency depreciation, import-cover ratio, current account balance and external debt levels
  • Business Environment Factors: based off a micro-institutional index developed by the World Bank
  • Demographic Factors: size of the population, potential market
  • Social Capital Factor: level of networks, knowledge and connections

As of their 2018 report, the current top 10 countries include: Morocco, Egypt, Algeria, Botswana, Côte d'Ivoire, South Africa, Ethiopia, Zambia, Kenya and Senegal (pg. 3).

One theme the report touched on was foreign direct investment (FDI) to Africa. They've found that FDI's are typically declining (as of 2016), but there are reports which indicate that inflows of capital will likely increase in the next few years. Currently, the United States is the largest contributor of FDI's to the continent, followed next by the United Kingdom, France, China and South Africa (pg. 6).

A few of the findings from the report focused on Ethiopia include:

  • Ethiopia topped the individual ranking for the Economic Growth factor, followed by Algeria, Mozambique, Tanzania and Côte d'Ivoire.
  • Ethiopia sustained an average GDP growth rate of 8.4%. This was bolstered by public infrastructure investment.
  • Domestic investments reached 40% of the country's GDP. (pg. 10).
  • Ethiopia ranked in the top four for most populous countries, scoring highly on demographic factors.
  • Over the past four years, Ethiopia had the following ranking based off the AII: 15 in 2015, 15 in 2016, 21 in 2016 and 7 in 2017 (pg. 13).

Read the full report here Africa Investment Index 2018

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