Unveiling Africa's Top FDI Hotspots: Where Big Money Flows

The relative share of Africa’s FDI stock originating from Europe declined in the last decade, while Asia’s share increased—with China currently leading the pack.

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Foreign direct investment (FDI) is when a person or business from one country invests in and gains significant control over a company in another country, typically by owning 10% or more of its voting power.

FDI is crucial for connecting economies globally, as it establishes lasting ties between them. It’s a vital way for technology to move between countries, boosts international trade by providing access to new markets, and plays a big role in driving economic growth. 

As such, we discuss the top countries that account for the largest share of FDI flows into African markets. But first, why is FDI important to Africa, and what are the latest foreign direct investment trends on the continent?

Why Is Foreign Investment Important To Africa?

For Africa, FDI is crucial for several reasons. Firstly, it brings in much-needed capital for infrastructure development, job creation, and technology transfer, which are essential for economic growth. 

FDI also facilitates the diversification of economies by introducing new industries and enhancing existing ones. Moreover, it promotes trade and strengthens global economic integration by connecting African markets with international networks.

In addition, FDI often comes with expertise, managerial skills, and access to global markets, which can help local businesses expand and become more competitive. 

Furthermore, it fosters innovation and productivity enhancements through knowledge spillovers and technology diffusion. Lastly, FDI contributes to the stability of African economies by providing a stable source of external financing and reducing reliance on volatile sources like foreign aid or commodity exports.

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Latest Trends in FDI Flows to Africa

UNCTAD’s World Investment Report 2023 reveals that money invested from abroad into Africa dropped to $45 billion in 2022 from a record high of $80 billion in 2021. This made up 3.5% of the total global investment.

In North Africa, Egypt saw a big jump in foreign investment to $11 billion due to more companies buying and merging. The number of new projects announced more than doubled to 161. Deals for international projects also went up by two-thirds to $24 billion. However, investment in Morocco went down a bit by 6% to $2.1 billion.

In West Africa, Nigeria experienced negative foreign investment of -$187 million because some investors pulled out. But new projects increased by 24% to $2 billion. Investment in Senegal stayed the same at $2.6 billion, while Ghana saw a decrease of 39% to $1.5 billion.

In East Africa, investment in Ethiopia dropped by 14% to $3.7 billion, but it still received the second most foreign investment on the continent. Uganda’s investment went up by 39% to $1.5 billion due to investments in extracting resources. Tanzania saw an increase of 8% to $1.1 billion.

In Central Africa, investment in the Democratic Republic of the Congo stayed the same at $1.8 billion, mainly from investments in oil fields and mining.

In Southern Africa, foreign investment in South Africa was $9 billion, less than in 2021 but double the average of the last ten years. In Zambia, after two years of losses, foreign investment increased to $116 million.

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Over the past five years, foreign investment has increased in four of the economic groups in Africa.

Investment in the Common Market for Eastern and Southern Africa went up by 14% to $22 billion. It also increased in the Southern African Development Community (rising four times to $10 billion), the West African Economic and Monetary Union (doubling to $5.2 billion), and the East African Community (up by 9% to $3.8 billion).

Generally, the destinations of FDI in Africa have shifted over the last decade, with Northern and Southern Africa—which made up the majority of FDI stock in the mid-2000s—losing FDI share to Eastern Africa.

Sources of FDI Flows to Africa

European investors remain the most important source of FDI stock in Africa, led by the United Kingdom ($60 billion), France ($54 billion), and the Netherlands ($54 billion) over the past five years.

But the relative share of Africa’s FDI stock originating from Europe declined in the last decade, while Asia’s share increased—with China currently leading the pack.

We explore the leading sources of FDI flows to Africa, based on data from the Brookings Institute research from the year 2014 to 2018.

China

China is the world’s largest investor in Africa in terms of total capital. They invested more than $72 billion in the continent from 2014 to 2018. That investment created more than 137,000 jobs across 259 projects. 

France

France invested $34 billion in Africa over the same period, creating 58,000 jobs in 329 projects. France’s investments are crucial to its former colonies in Africa, such as Nigeria, Morocco, Algeria, and the Ivory Coast. 

The United States

American direct investment in Africa was nearly $31 billion from 2014 to 2018. The United States was responsible for a total of 463 projects on the continent, the most of any other country. These projects created 62,000 jobs. American companies continue to seek investment opportunities in Africa.

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United Arab Emirates

The United Arab Emirates (UAE) poured more than $25 billion into Africa over four years. This makes sense given the UAE’s proximity to eastern Africa as it sits on the eastern edge of the Arabian peninsula. 

The UAE’s capital investments in Africa are expected to rise sharply in the coming years: The government 2020 announced a $500 million initiative to help Africa’s youth and digitize resources. 

In late 2019, the UAE said it was finalizing a free trade agreement with a consortium of African countries, and last month, it signed a $35 billion deal with Egypt to develop a prime stretch of the North African country’s Mediterranean coast.

United Kingdom

The United Kingdom invested nearly $18 billion in Africa from 2014 to 2018, covering 286 projects and creating 41,000 jobs. Britain, like France, still has strong ties to its former colonies in Africa, such as Sierra Leone, Kenya, Zimbabwe, Uganda, Zambia, Tanzania, and Egypt.

Why More Countries Are Investing in Africa

Africa represents a significant untapped market for foreign investment. Its 54 countries are home to 1.3 billion people, many of whom are young and will need good jobs in the coming years, and an abundance of natural resources from oil and gold to diamonds and lithium.

In addition, the African Continental Free Trade Area (AfCFTA), which links 1.3 billion people from 55 countries, offers a big chance for Africa’s economy to grow and is poised to draw more foreign investment into its markets by cutting down rules and making it easier to reach new markets.

How can investors best position themselves to capture opportunities arising from these rapid developments in Africa’s investment landscape?

Reach out to us at Daba to guide you on the journey of investing in Africa, whether you’re an individual or institutional investor. Download our app, fill out this form on our website, or chat with our team on WhatsApp to get started.