How Africa can protect, scale its $97bn FDI gains amid Middle East crisis

As geopolitical tensions in the Middle East cast uncertainty over Gulf-backed investments, Africa faces a critical inflection point: how to sustain—and grow—Foreign Direct Investment (FDI) inflows, which reached a record high in 2024.

With billions of dollars in pledged capital now at risk of delay or repricing, experts say the continent must quickly recalibrate its investment strategy to remain competitive in an increasingly fragmented global economy.

A record year now under pressure

Africa’s investment story turned a corner in 2024. According to UN Conference on Trade and Development, FDI inflows surged by 75 percent year-on-year to $97 billion — far exceeding global averages — largely driven by capital from Gulf Cooperation Council (GCC) countries.

A standout deal was Egypt’s $35 billion Ras El-Hekma development backed by ADQ, which helped push the country’s total inflows to $46 billion, making it the continent’s largest FDI destination.

This surge came despite macroeconomic strains. The Arab nation’s currency depreciated — nearly 40 percent — even as inflation moderated briefly before ticking up again to 13.4 percent in February. The country’s exposure to global shocks now makes it particularly vulnerable to the ongoing Middle East conflict.

The war which started last month — involving the United States, Israel and Iran — has already pushed crude prices to almost $100 per barrel and disrupted shipping through the Strait of Hormuz, a chokepoint for roughly a fifth of global oil supply. The implications for the continent are immediate: higher inflation, tighter financial conditions, and delayed investment decisions.

Before the attacks, preliminary UNCTAD estimated that FDI inflows could fall by as much as 38 percent in 2025 to between $56 billion and $59 billion — sharply diverging from a projected 14 percent global rebound.

The Gulf factor: Opportunity and risk

Gulf capital has emerged as a cornerstone of Africa’s investment landscape. Over the past decade, GCC countries — led by Saudi Arabia, the UAE and Qatar — have significantly expanded their footprint across the continent, filling gaps left by retreating Western donors and a more cautious China.

Last year August, Qatar’s Al Mansour Holdings announced plans to invest $103 billion across six African countries, including the Democratic Republic of Congo, Mozambique, Zambia and Zimbabwe — one of the most ambitious regional investment drives to date.

The Gulf’s growing role is driven by strategic imperatives: food security, supply-chain resilience, and economic diversification away from hydrocarbons. Africa, with its vast arable land, mineral wealth and young labour force, offers a complementary growth frontier.

According to the International Monetary Fund, GCC investment stock in Africa rose to nearly $50 billion in 2023, up from just $3.2 billion in 2009, spanning energy, logistics, agriculture and infrastructure.

Yet this dependence also introduces concentration risk. Heightened geopolitical tensions could slow deal execution, reprice risk, or redirect capital flows to safer markets.

A shifting global funding landscape

Beyond the Gulf, Africa is grappling with a broader retreat in traditional funding sources.

US financial assistance to the continent fell last year. BusinessDay analysis shows disbursements declined by 35 percent year-on-year to $7.86 billion — the steepest contraction in at least a decade — extending a downward trend that began in 2022.

This pullback underscores a larger structural shift: The continent can no longer rely on concessional funding and should compete more for private capital.

At the same time, global financial conditions remain tight.

“Rising inflation, driven (in part) by fuel price spikes, could place pressure on interest rates upward, increasing the cost of financing transactions,” said Marylou Greig, editor of DealMakers Africa. “At the same time, major African economies face heightened exposure to currency volatility, a factor that can complicate deal structuring and valuation.”

The perception problem — and pricing Africa’s risk

For investors, Africa’s challenge is not just fundamentals — it is perception.

“One key point I often make is that investment is ultimately about perception — specifically, the perception of risk,” said Ismael Adam Cisse, founder of Infinity Africa Group. “Even across African countries, outcomes differ: some have seen FDI rise, while others have recorded declines.”

This disparity, he argues, reflects how global investors price African risk — often disproportionately.

“There is a strong case for deepening local capital markets and establishing African-owned rating agencies,” he added. “While global rating agencies play a critical role in helping countries access funding, they may not always fully capture the nuances of risk within African economies.”

Unlocking new pools of capital

Reducing dependence on traditional financing sources is now imperative as Cisse points to underutilised channels such as Islamic finance, green finance and impact investing as viable alternatives.

“Islamic finance holds enormous potential. There are hundreds of millions of people globally who remain outside the formal financial system due to a lack of compliant investment options. Similarly, green finance and impact investing present additional avenues to mobilise capital that are still underutilised.”

Expanding these channels could help Africa tap into new investor bases while aligning capital flows with sustainability and development goals.

FDI and the development ladder

The role of FDI evolves as economies grow.

For low-income countries — 22 of which are in Africa, according to the World Bank — growth is primarily driven by human capital. But as countries transition to middle-income status, capital accumulation becomes critical, particularly for manufacturing expansion.

In upper-middle-income economies, technology and high-value services take centre stage — often enabled by sustained investment inflows.

This makes FDI not just a funding source, but a catalyst for structural transformation.

The Institute for Security Studies underscores this point: access to capital enables countries to invest in infrastructure, education and healthcare, diversify away from commodities, and build resilient, manufacturing-led economies.

Winners, laggards and the structural gap

Africa’s FDI landscape remains uneven.

Countries such as Senegal, Rwanda, Côte d’Ivoire and Benin — which have implemented reforms and maintained relative stability — are attracting higher inflows and are projected to grow above six percent, according to ISS.

But Nigeria continues to underperform. Despite its size, FDI remains around 0.5 percent of GDP, contributing to modest growth of 3.87 percent in 2025 — below population growth.

Other economies, including South Africa, Tunisia and Angola, are also struggling with weak or declining inflows.

Much of the continent’s FDI still flows into extractive sectors, limiting linkages to the broader economy. While this is gradually changing, the transition remains slow.

The AfCFTA advantage

One of Africa’s strongest levers lies in regional integration.

The African Continental Free Trade Area (AfCFTA) is expected to significantly boost investment flows. The World Bank estimates it could increase FDI by up to 120 percent, while intra-African investment could rise by 85 percent.

Already, regional players from Kenya, Nigeria and South Africa are expanding across sectors such as fintech, manufacturing and logistics.

A more integrated market reduces fragmentation, improves scale, and enhances Africa’s attractiveness to global investors.

Policy priorities: From capital attraction to retention

Experts agree that attracting FDI is only part of the equation — retaining and deploying it effectively is equally critical.

Jakkie Cilliers, founder of the Institute for Security Studies, emphasises the need for stronger domestic foundations.

“African governments must improve conditions to absorb and retain capital by offering a favourable investment climate, policy stability, and ease of doing business,” he said. “Investments should align with national priorities and structural transformation goals, following the East Asian example of leveraging FDI for technological upgrading and industrialisation.”