Published on 18 Dec 2022

The outlook for FDI in Africa

Africa remains an attractive investment destination in the long run even if prospects in the short-run look dim

By Ronak Gopaldas

Stock market charts

Foreign direct investment (FDI) in Africa reached a record US$83bn in 2021, more than double 2020’s pandemic depressed figure of US$39bn. While the figure accounted for as much as 5.2% of global FDI, the sizeable jump was due to a single transaction in South Africa – the US$112 million crossholding share swap that Naspers did with its Netherland-based subsidiary Prosus in July to unlock the value in its holding of Chinese internet giant, Tencent. For the rest of the continent, the figures were less than sanguine.

With the global growth outlook muddied by high inflation and a rising rate trajectory, Africa’s growth outlook too has tempered. Compounding matters, the commodity rally is showing signs of losing steam. Mining investment is a major contributor to Africa’s FDI inflows.

In this article, we examine the drivers behind continental investment flows over the past two years and which countries are best positioned to attract FDI over the coming five years. We will also look at what sectors stand to be the biggest investment drivers, key among them energy and renewables. Finally, where do the opportunities lie, both for the continent as well as the private sector looking to capitalize on Africa’s large investment needs.

1. The backdrop

Global FDI recovered 64% to pre-pandemic levels in 2021 reaching US$1.6trn from just less than US$1trn the year before. The 2020 figure was the lowest in 16 years (2005) when the global economy and merger and acquisition (M&A) activity was still recovering post the “dotcom” bust in 2000 (figure 1).[1]

Developed markets (DMs) showed the strongest inflow growth (134%) in 2021, but inflows to emerging markets (EMs) grew 30% in the year to US$837 and made up 53% of all investment flows. EM FDI inflows first surpassed that of developed economies in 2020 at the onset of the COVID-19 outbreak as flows into Asia were supported by M&A activity and corporate reconfigurations.[2]The distribution of inflows among developing economies, however, remains heavily skewed toward Asia - in particular East and South-East Asia.

Asian economies attracted US$619bn in foreign investment inflows in 2021, 40% of all global investment, while Africa attracted US$83bn, just over 5% of global investment. To contextualise the quantum of Africa’s investment inflows in the global picture, Singapore, a country with a population not much bigger than a large African city[3], has consistently attracted more FDI than the entire continent of Africa for nearly a decade (figure 2).

Despite FDI inflows to the continent surging 113% in 2021, FDI within Africa remains very uneven with South Africa making up 49% of the continent’s total investment inflows last year (figure 3).

Africa’s FDI landscape is highly concentrated. In 2020, the top 10 FDI recipient countries accounted for more than 70% of the continent’s total FDI. That number swelled to almost 90% in 2021 on the Naspers / Prosus share swap (figure 4). The top 5 investment recipients, however, remain relatively consistent, and include Congo, Egypt, Mozambique, Nigeria, and South Africa.

Primary investor countries too have remained stable over the past 5 years with the United Kingdom, France, Netherlands, the United States and China[4]responsible for the bulk of inflows (figure 5). The figures seem at odds with China’s dominant trade, lending, and investment activities on the continent. It is important to distinguish between the way UNCTAD quantifies net investment stock over time and how other publications (like EY’s Africa Attractiveness report and the FT’s FDI markets report) show total inward investment not set-off against investment outflows. By their measure, China’s investment in Africa between 2016 and 2020 was US$70.6bn, nearly three times the size of the next biggest capital investors, the United Arab Emirates, and the US.[5]What that figure doesn’t show is the net benefit of foreign direct investment over a longer period.

Nevertheless, by both measures, just three sectors, energy, and gas (29%), information and communications technology (13%), and extractive industries (8%) attracted half of all announced greenfield projects in 2021.

Clearly, a great deal more needs to be done to sustainably attract investment from a wider investor base and across a broader and more diverse cross-section of industrial sectors. This is even more important now as the global economic recovery once again begins to lose momentum after years of ultra-accommodative monetary policy, and in the face of changing geopolitical priorities and receding globalism.

2. Investment in Africa faces mounting headwinds

The recovery in 2021 of global FDI can be attributed as much to accommodative monetary conditions as it can to pent-up demand and a resumption of trade activity in the wake of COVID-19 lockdowns. To support economic and financial stability during the pandemic, global central banks (among them the US Federal Reserve[6], the European Central Bank, The People’s Bank of China, The Bank of Japan and the Bank of England) lowered interest rates to historic levels and provided extensive market liquidity[7] through quantitative easing policies[8] (figure 6).

The dramatic fall in the cost of borrowing spurred growth and investment and prevented what would have been a far deeper and more prolonged economic contraction. Central banks now, however, are having to contend with record inflation at a time when global growth is stalling.

To be fair, sustained, and hyper-accommodative monetary and fiscal policy are not solely to blame. The outbreak of the war in Ukraine was a “black swan” event that has supercharged global inflation by driving oil, gas, grain, and other commodity prices to multi-year highs. The resultant trade and logistical bottlenecks from Russian sanctions are adding pressure on global supply chains that had not yet recovered from Covid-19 lockdowns.

  • Global policy tightening

In a bid to contain near double-digit inflation in major developed markets, their central banks are being forced to raise interest rates faster and by more than markets had anticipated (figure 7). The impact on investment flows from DMs to EMs is already being transmitted via multiple channels.

Firstly, an environment of heightened uncertainty could prompt many companies to cancel foreign investment plans or at least defer them until the medium-term economic outlook becomes clearer (risk-off). Secondly, investors may opt to retain cash on their balance sheets as a safety net in uncertain times rather than deploy it for acquisitions or expansion in frontier markets.

Thirdly, the higher cost of borrowing, which is expected to push higher still, could make potential investments financially unviable with investors choosing to wait until the dust settles. Even the recent strength of the dollar, which would make FDI cheaper for US investors, will not be enough to unleash a wave of US driven investment on the continent over the short-term. At least not without US government impetus.

  • Africa must do more to merit investment

To truly attract sustained foreign direct investment, Africa will have to do far more than rely on its resource base and geo-strategic relevance. It must begin to decisively deal with structural reforms and shortcomings, and clearing bottlenecks that are strangling economic development, driving it into the arms of investors on less than favourable terms and compromising its independence.

Already, Africa’s growth projections over the medium-term have been adjusted lower after initial recovery optimism was thwarted by the outbreak of war in Ukraine[10] and the plateauing of commodity prices.[11] A low growth environment and policy uncertainty will do little to entice foreign investors. Frustratingly for many foreign firms, measures to unlock growth and investment can be achieved with policy reform and the development of a more attractive investment climate.

Instead, current conditions encourage speculative and volatile portfolio flows (both in and out) that add to currency, rate and economic uncertainty and deter fixed capital investment. This is crucial now more than ever as China refocuses its African priorities.

  • Chinese belt tightening

China has long been one of Africa’s largest investors, particularly in the infrastructure and development finance arenas having loaned billions of dollars to African states – US$126bn between 2001 and 2018 alone (figure 7).[12] By 2020, China was estimated to be Africa’s largest bilateral creditor, holding 62.1% of the continent’s debt.[13]

Their investments have been concentrated on rail, ports, and extractive industries to support China’s Belt and Road initiative (BRI)[15] but the once easy credit is beginning to slow. The financial and economic impact of the pandemic has dampened China’s investment appetite and the country is actively shifting its focus from large state-backed investments in infrastructure to smaller, private sector-led trade initiatives, particularly in agricultural and manufactured goods as well as services. While changing domestic priorities in China are a key motivation for the pivot, high levels of sovereign debt in Africa, a growing criticism of China’s lending approach on the continent and a softening of commodity prices has complicated lending agreements with countries like Angola, Zambia, and Ethiopia.[16] In 2021, more than 20 African countries were in or at risk of debt distress.[17]China can’t afford to have African defaults or restructuring compromise its domestic investment priorities.[18]

It is important to consider that state-backed loans to African governments have been gradually scaling back since 2013 after the commodity super-cycle had run its course. China’s new arc on the continent does not mean that FDI will halt altogether. Rather, it implies that the source (private) and focus (value added investment) of investment will change.[19] This diversification could ultimately be positive for Africa over the longer term as it encourages manufacturing sector development and exports aligned to the changing demands of a maturing Chinese economy.[20] It does, however, not solve the continent’s enormous and persistent infrastructure deficit which remains the foundation for a meaningful switch away from infrastructure and extraction to value added investment. With the government leaving much of Chinese inward FDI to Africa up to its private sector, Africa needs a new suitor. The recent diplomatic visit to Africa by US Secretary of State, Antony Blinken suggests US/Africa engagements are back on the agenda.

3. New suitors, same intentions

The timing of US Secretary Antony Blinken’s August tour of Africa is telling. It comes shortly after a trip by Russian Foreign Minister, Sergei Lavrov’s visit[21], at a time when the war in Ukraine has seen food and energy prices soar, and as China repositions its approach on the continent.

The constructive tone of Blinken’s engagements, even when pressed on uncomfortable topics, was in stark contrast to the often combative and patronising approach of the previous US administration.[22] Instead, the message was one of collaboration and the development of mutual economic and political interests. It also suggests that the US is laying the groundwork for greater investment on the continent over the medium-term. The strategic visit was in many ways designed to:

  • Head off Russia’s advances in Africa as the country looks to find allies amidst growing diplomatic and economic isolation,
  • Open channels in Africa that could supplement the US’s imports of goods such as grain, gas and oil, from Eastern Europe,
  • Make up political, economic, and geo-strategic ground lost to China on the continent over the past decade.

Russia’s invasion of Ukraine, and China’s lack of condemnation will also be a major concern for the US, particularly as China begins to flex its muscle over Taiwan’s independence.[23] China scaling back state-backed investment in Africa to focus on domestic imperatives has provided a useful entry point for greater US participation in African FDI.

It’s not just the US showing interest in improving its commercial and strategic interests on the continent. France has been trying to reinvent its image on in Africa with mixed results.[24] French President Emmanuel Macron made a three nation visit to francophone Africa as recently as July this year to address food supply and security issues on the continent.[25] To 2020, French firms had invested US$60bn in FDI stock on the continent across a broad range of sectors[26] (figure 8) and French companies in the energy (Total) and renewable (Schneider) space see significant growth opportunities over the medium term.[27]

Like France, the UK has long been one of the biggest investors in Africa having more than US$65bn in FDI stock on the continent in 2020. A January UK-Africa summit saw the UK commit 11.6bn pounds to help fund the continent’s response to climate change over the next five years.[29] Growing ties with Africa has become even more important for the UK post Brexit. Political developments in the UK, however, have distracted from efforts to grow the region’s presence in Africa, but these are sure to receive renewed impetus given the energy constraints the UK is currently facing in the wake of the Ukraine war.

While the outbreak of war in Ukraine has had a devastating effect on food and energy prices on the continent, it does present significant opportunities to attract new FDI flows in several key areas and diversify away from Chinese investment dependence.

4. The race for resources resumes

Just months after committing to stop financing fossil fuel projects at the United Nations Climate Change Conference (COP 26), European leaders are courting African economies to tap their substantial oil and gas deposits[30] as Russia cuts off deliveries to heavily dependent European countries in retaliation for sanctions. Mauritania, Senegal, South Africa, Mozambique, Nigeria, and several other African states have been approached by European governments and companies for gas and oil exploration rights.[31]

The investment in infrastructure this would require, both for extraction and transport, would be substantial and such exports would be a long-term source of revenue for these African states. It comes, however, when most African oil and gas producers are still not providing sufficient energy for their own citizens, creating a moral hazard for both the African states and their European suitors.[32]

More than just a moral hazard, it also compromises investment in Africa’s own energy transition to renewable sources such as solar, wind, and hydro power, the very transition the same developed nations are pushing them toward. Undoubtedly, the opportunity for Africa, if strategically structured (carbon offset programs through renewable energy investment), is enormous and bound to generate significant foreign direct investment over the next decade.


It is an unfortunate irony that Africa will likely once again have to fall back on its natural resources endowment to help drive its development and green transition. Nevertheless, the nuances of African FDI are shifting. For China, Africa is becoming an important trading partner rather than simply a provider of raw materials. While the US, UK and Europe are courting Africa as an energy and food security backstop, China is not leaving Africa and will continue to be a large source of continental FDI, albeit in a slightly different, more muted capacity.

Whether Western countries step in to fill the investment gap left by China’s pivot remains to be seen, but the reality is that despite all its challenges, Africa remains too big and too important to ignore. While Africa’s short-term investment horizon remains subdued, it has the capacity to unlock long-term, sustainable investment that generates considerable revenue to fund development and lessen its dependence on foreign donors. Africa, however, offers several examples of how enormous energy wealth and international demand can be squandered (Angola, Mozambique, Nigeria, Central African Republic among others) and it is up to each state, and the continent collectively, to ensure it extracts maximum economic and developmental value from the latest wave of investment interest. This time, it must be different.



[1] International Banker. The Dotcom bubble burst (2000). International Banker. [Online] September 29, 2021.

[2] UNCTAD. 2021 World Investment Report. UNCTAD. [Online] 2021.

[4] UNCTAD. 2022 World Investment Report. UNCTAD. [Online] 2022.


[8] IMF. IMF Policy Tracker. International Monetary Fund. [Online] July 2, 2021.

[10] World Bank. Sub-Saharan African Growth Slows Amid Ongoing and New Economic Shocks. World Bank. [Online] April 13, 2022.

[11] IMF. A new shock and little room to maneuver. IMF. [Online] April 2022.

[12] Carla Jones, Hermann Ndofor, Mengge Li. Chinese Economic Engagement in Africa: Implications for US Policy. FPRI. [Online] January 24, 2022.,invested%20%2441%20billion%20in%20FDI

[13] Pinto, Teresa Nogueira. How China-African trade may evolve. GIS. [Online] March 15, 2022.

[15] Miriri, Duncan. African nations mend and make do as China tightens Belt and Road. Reuters. [Online] November 22, 2021.

[16] Sun, Yun. FOCAC 2021: China’s retrenchment from Africa? Brookings Institute. [Online] December 6, 2021.

[17] Alex Vines, Creon Butler and Yu Jie. Addressing debt distress in Africa. Chatham House. [Online] January 17, 2022.

[18] David Pilling, Katherine Hille. China cuts finance pledge to Africa amid growing debt concerns. FT. [Online] 30 2021 November.

[19] Gbadamosi, Nosmot. What Is China’s Future in Africa? Foreign Policy. [Online] December 8, 2021.

[20] Business Standard. Big decline in China's BRI investments, cash grants to Africa: Report. Business Standard. [Online] December 13, 2021.

[21] Byaruhanga, Catherine. Russia-Ukraine crisis: Lavrov shows diplomatic clout in Africa. BBC. [Online] July 28, 2022.

[22] Gopaldas, Ronak. Blinken’s African charm offensive. Institute for Security Studies. [Online] August 17, 2022.

[23] Ben Blanchard, Martin Quin Pollard. China risks miscalculation with pressure on Taiwan, U.S. says. Reuters. [Online] August 18, 2022.

[24] Cohen, Corentin. Will France’s Africa Policy Hold Up? Carnegie Endowment for International Peace. [Online] June 2, 2022.

[25] France24. Macron embarks on African visit to 'renew relationship' with continent. France24. [Online] July 25, 2022.

[26] Economist Intelligence Unit. Africa and France: reshaping ties and renewing engagement. Economist Intelligence Unit. [Online] November 5, 2020.

[27] Gerits, Frank. France wants to fix its relations with Africa. But it’s going about it the wrong way. The Conversation. [Online] November 17, 2021.

[29] McBain, Will. UK-Africa summit closes with millions in investment . African Business. [Online] January 21, 2022.

[30] Halper, Danielle Paquette and Evan. Senegal sees opportunity and ‘hypocrisy’ in Europe’s search for gas. Washington Post. [Online] May 13, 2022.

[31] Ndukwe, Ijeoma. Ukraine crisis: Can Africa replace Russian gas supplies to Europe? BBC. [Online] May 16, 2022.

[32] Obisie-Orlu, Vincent. Exploring key implications of the Russia-Ukraine War on Africa’s energy policy. Africa Policy Research Institute. [Online] June 2, 2022.

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