KEY POINTS

• Africa secured $53 billion in FDI in 2023, driven by resource wealth, infrastructure projects, and green energy initiatives like Mauritania’s $34-billion hydrogen project.
• Nations like Egypt, South Africa, and Ethiopia topped Africa’s FDI destinations, while Europe remains the largest investor, with the UK holding $60 billion in FDI stock.
• Challenges such as unstable leadership, regulatory barriers, and climate impacts persist but are countered by regional trade initiatives and a thriving digital economy.

Africa has become an attractive location for foreign direct investment (FDI), fueled by its natural resource abundance, young demographic, and unexplored market opportunities (Trend Research & Advisory, 2024).

FDI refers to an investment made by a company or entity based in one country into a business or operation in another country.

In the past few years, Africa has drawn considerable investment in its promising sectors, boosting economic growth and development.

Despite 2023 being a tough year for worldwide investment, the region still offers significant opportunities for investors with its attractive returns.

In 2023, FDI to Africa remained nearly unchanged at $53 billion, representing just about a 1.9 percent decline against the $54 billion in 2022 (UNCTAD, 2024).

However, the continent has received a significant boost in clean energy, boosting sustainability momentum.

Africa drew an increasing portion of worldwide greenfield megaprojects, with six of them valued at over $5 billion.

At the top of the list was a green hydrogen initiative in Mauritania, a least developed nation located in Northwest Africa (UNCTAD, 2024).

This initiative is anticipated to produce $34 billion in investments, a figure that is multiple times larger than the national GDP.

Africa also secured over $10 billion in project funding for wind and solar energy generation, with the biggest projects situated in Egypt, South Africa, and Zimbabwe.

Value chains in electric vehicles have also attracted foreign investments. The biggest agreements revealed encompassed one to create a $6.4-billion electric vehicle battery production plant in Morocco.

The primary economies investing in the continent, based on FDI stock, include the Kingdom of the Netherlands, France, the United States, the United Kingdom, and China (UNCTAD, 2024).

Despite worldwide economic instabilities, the continent continues to attract investors looking for substantial returns, diversification, and involvement in its development narrative.

What’s driving FDI in Africa?

Several crucial factors contribute to the influx of FDI in the continent, including:

Abundant natural resources

Africa is rich in natural resources, hosting the largest arable landmass, major rivers like the Nile and Congo, and vast tropical forests.

According to the African Development Bank (AFDB), Africa holds 30% of global mineral reserves, 8 percent of proven oil, and 7 percent of natural gas, contributing 70 percent to exports and 28 percent to GDP.

Nations such as Angola, Nigeria, and Ghana continue to draw energy-focused investments, while the Democratic Republic of Congo (DRC) and Zambia lure investors in mining, especially for essential minerals utilized in green technologies such as electric vehicle batteries.

Demographic data and market opportunities

Africa, boasting a population exceeding 1.2 billion (about 17 percent of the world’s population), presents a youthful and expanding market of consumers.

The growth of its middle class has stimulated the need for consumer products, financial services, and technology.

Nations like Kenya and Nigeria have seen substantial FDI in fintech and e-commerce, capitalizing on their tech-oriented populations.

Infrastructure advancement

Africa’s lack of infrastructure has attracted considerable investment in transportation, energy, and telecommunications.

For example, China’s Belt and Road Initiative (BRI) has enabled multi-billion-dollar infrastructure developments throughout the continent, improving trade connectivity (World Economic Forum, 2023).

Likewise, the African Continental Free Trade Area (AfCFTA) is expected to enhance intra-African trade, drawing investments in logistics and industrial sectors.

Digital transformation

Africa’s digital economy, estimated to exceed $300 billion in 2025 (GSMA, 2023), ranks among the fastest-growing in the world.

Startups in fintech, agritech, health technology, and educational technology are obtaining unprecedented funding rounds.

Top destinations for FDI in Africa

In Africa, Egypt drew the most FDI in 2023, totaling $9.841 billion, although this represented a fall from $11.4 billion in 2022.

South Africa experienced a decline, receiving $5.2 billion in 2023, down from $9.2 billion in 2022.

This is followed by Ethiopia’s $3.263 billion, Uganda’s $2.886 billion, Senegal’s $2.641 billion, Mozambique’s $2.509 billion and Namibia’s $2.345 billion.

Whereas, Nigeria secured $1.873 billion and ranked 8th in 2023 followed by Côte d’Ivoire – $1.753 billion and Democratic Republic of the Congo – $1.635 billion.

European investors possess the most substantial FDI stock in Africa, with the United Kingdom at the forefront at $60 billion, trailed by France and the Netherlands, each holding $54 billion.

Challenges facing FDI in Africa

Despite Africa’s undeniable investment potential, various challenges continue to exist:

Frequent leadership shifts, corruption, and civil unrest in certain nations hinder investor interest.

For example, coups in Burkina Faso, Guinea, and Mali have raised concerns regarding the stability of the region.

While progress is being made, Africa’s gaps in infrastructure related to energy, transportation, and communication continue to impede business activities and investor trust.

Complicated regulatory frameworks, varying policies, and bureaucratic delays raise the costs and risks of conducting business in Africa.

Local enterprises frequently face challenges in obtaining credit, restricting their capacity to grow and draw in international partners.

Africa’s vulnerability to the effects of climate change, such as floods and droughts, threatens agricultural productivity and infrastructure development.

The path forward: Maintaining FDI expansion

To maintain and improve FDI inflows, Africa needs to tackle challenges while leveraging its advantages. Essential approaches consist of:

• Enhancing institutions and governance to secure political and economic stability.
• Committing resources to education and skill enhancement to utilize the capabilities of its young workforce.
• Enhancing digital infrastructure to foster innovation and entrepreneurship.
• Utilizing regional structures such as AfCFTA to enhance trade and economic cohesion.