Investors flee to dollar, Swiss franc as Africa faces capital pullback

Africa is facing renewed pressure on its currencies and financial markets as global investors pull capital from riskier economies and shift funds into safe-haven assets such as the United States dollar and Swiss franc, according to the latest African Development Update report.

The World Bank noted that the portfolio reallocation—driven by escalating geopolitical tensions and rising global uncertainty—is exposing the continent to widening risk spreads, weaker currencies and the threat of renewed inflation.

“The ongoing conflict has prompted a flight to safety as investors respond to escalating geopolitical tensions, inflationary pressures stemming from higher energy prices, and renewed concerns about regional stability,” the report said.

It added that capital is moving away from riskier markets as investors seek stability amid heightened uncertainty. “The adequacy of the Gulf as a safe destination for global capital is being reassessed, particularly following attacks on critical infrastructure such as Dubai International Airport and desalination facilities in Kuwait and Qatar.”

This shift is expected to tighten financial conditions across the region, raise borrowing costs and potentially reverse some of the inflation gains recorded over the past year. According to World Bank, the scale and persistence of these effects will depend in part on how central banks in advanced economies respond to inflationary pressures arising from the supply shock.

Currency pressure, inflation risks rise

For many African economies—particularly those reliant on imported fuel—the consequences are already emerging. Since February, the escalation in tensions involving the United States, Israel and Iran has injected fresh uncertainty into global markets, with benchmark oil prices surging above $100 per barrel following the outbreak of the conflict in February.

Prices briefly eased below that level last week after a ceasefire announcement between the United States and Iran, but rebounded above $100 on renewed tensions after US.President Donald Trump signalled plans to impose a naval blockade on Iran.

For fuel-importing African economies, the impact has been immediate. Rising pump prices are feeding into higher transport, food and production costs, eroding purchasing power and threatening to reverse recent disinflation gains.

Beyond short-term portfolio outflows, Africa also faces potential disruptions to longer-term capital inflows, particularly from Gulf economies that have become key investors across the continent.

The World Bank noted that the United Arab Emirates, Saudi Arabia and Qatar have committed about $113 billion across 156 greenfield investment projects in Africa between 2022 and 2023. “These pledged funds are being channeled primarily into renewable energy (including hydrogen, solar, and wind projects), infrastructure (ports, warehouses, and data centers), logistics, mining, and agriculture.”

However, rising geopolitical tensions are prompting Gulf economies to reassess external investments.

“As a result of the conflict, major Gulf economies might review their investment pledges to offset domestic economic shocks. Five key projects in energy, ports, and technology may face potential delays or funding reversals,” the multilateral lender added.

Projects in early stages are particularly vulnerable, as governments redirect resources toward domestic stabilisation and defence priorities.