In recent years, despite growing political instability across Africa, statistics show that Africa is rapidly emerging as a high potential investment destination globally. Notwithstanding a global decline in Foreign Direct Investment (FDI), Africa succeeded to attract a record $97 billion an 75% increase from 2023, even though FDI in developing economies fell by 2%. in 20024, Africa’s appeal as an investment destination stems from global trends and its rich natural and human resources. The increase in FDI in Africa in 2024 was greatly influenced by the tepid or nearly stagnant growth observed in advanced economies such as the United States and parts of Europe, which consequently redirected investments towards the continent. UNCTAD reported a 45% decrease in FDI inflows to Europe in 2024, excluding conduit economies. Germany experienced declines of up to 60%. This contraction was driven by geopolitical tensions, high inflation, and weak industrial output, which made investors wary of committing capital in the region. As a result, global investors sought alternative, higher-growth destinations—and Africa stood out.
As the recession brought interest rates close to zero in Europe, investors seeking higher returns began shifting capital from low-yield bonds to frontier markets like Africa, where interest rates exceed 16% in some regions. The fragile growth also highlighted vulnerabilities in concentrated supply chains. Western companies are diversifying manufacturing from Asia to Africa, especially given the current trade tariffs imposed by the Trump administration on China and other Asian countries. As Western firms aim to reduce dependence on manufacturing in Asia, Africa’s low labour costs, improving infrastructure such as ports, and the opportunity for trade access through Africa Continental Free Trade Area (AfCFTA) are positioning it as an alternative hub.
Why Africa despite political instability and crisis?
The continent has experienced political changes recently, including in the Sahel Region, which has witnessed five coups since 2020, leading to regional fragmentation in West Africa. There was also a coup in Gabon in Central Africa region in 2023. Additionally, we must consider the ongoing civil conflicts in Ethiopia, Sudan, Cameroon, and the Democratic Republic of Congo (DRC), as well as the persistent post-electoral crises and protests in Nigeria, Kenya, and Zimbabwe.
Despite some countries experiencing crises, investors continued to seek opportunities in relatively stable nations across the vast African continent. Data indicates that 70% of FDI was directed towards Egypt, South Africa, Ethiopia, and Morocco. According to the African Development Bank (AfDB), other countries such as Nigeria, DRC (despite the political instability), Ghana, Senegal, Tanzania, and Rwanda are also receiving business-focused FDI in sectors including mining, agriculture, energy, Fintech, logistics, renewables, manufacturing, and pharmaceuticals.
Many experts perceive Africa as a continent with the next generation human resources and natural resources. The abundance of natural resources including oil, gas, minerals and arable land makes Africa a hotspot for energy, agriculture, and mining investments. The green energy transition demands cobalt (70% of global supply), lithium, graphite, and rare earths—all abundant in Africa. This explains why the EU’s Critical Raw Materials Act and U.S. Inflation Reduction Act have prioritize African partnerships. Also, sanctions disrupted grain and fertiliser supplies, highlighting Africa’s agricultural potential (uncultivated arable land = 60% of global total).
Another factor contributing to Africa’s appeal is its advantageous demographics. As the continent with the youngest population globally and the fastest rate of urbanization—currently at 45% and expected to reach 60% by 2050—Africa’s working-age population is anticipated to grow by 450 million by 2035. This presents a stark contrast to the aging population observed in Europe, North America, and Asia. Eventually, urbanisation creates demand for housing, retail, education, technology, health, and financial services. In 2023, household spending reached closed to $1.7 trillion, a 9.56% increase from 2022.
Transforming Potential to real worth
Despite decades of discussions Africa’s potential to become an economic powerhouse like Four Asian Tigers in the early 1990s, is yet to be fully realised. Although Africa received a record $97 billion in FDI in 2024, this only accounts for 6% of global FDI compared to Asia’s 45% ($585 billion) and Europe’s 20% ($260 billion). While Africa is making progress, it remains significantly behind.
Africa was in similar situation in the early 2000s. The continent experienced a period of rapid economic growth and innovation, leading to the emergence of the slogan “Africa rising.” Despite high commodity prices, increased foreign investment, and expanding consumer markets, the private sector, particularly Small Medium Size Enterprises (SMEs), encountered several organisational, structural, and institutional constraints. These limitations hindered their ability to fully capitalise on this period of growth.
SME at the heart of all Economic Transformation
SMEs are crucial for generating wealth, driving innovation, and boosting economic development. Poorly organized SMEs can hinder sustainable growth and societal impact. This was evident when countries with rapid growth from the early 2000s to mid-2010s faced economic shocks due to unproductive debt and poor governance. Falling commodity prices and tight global conditions exposed vulnerabilities, causing several African nations to seek IMF support again. For instance, Ghana saw an average growth of over 6% annually, peaking at 14% in 2011 with oil production but still returned to the IMF in 2017 and 2022.
It is true that the main problem with African countries is its lack of structural reform, but SMEs must be at the heart of every economic transformation to trigger pro-growth economies creating a favourable business climate, investment in infrastructure and human capital, supporting innovation and entrepreneurship, open trade and regional integration. However, this situation becomes difficult to create if a majority of businesses in Africa remain informal.
Even though access to finance is always the major reason SMEs in Africa give for their limited impact, but the reality is that African economies are still dominated by the informal sectors. One of the reason Africa missed the opportunity in mid-2000s was greatly due to its informal and fragmented economy. A large proportion of African SMEs operate informally, which limits their access to formal financial services, government support, and international markets. The International Labour Organisation (ILO) reports that 83% of employment in Africa and 85% in Sub-Sahara are informal, which hinders resilience and sustainable growth. According to AfDB, many SMEs lack managerial capacity, technical skills, and innovation readiness, preventing them from scaling or integrating into value chains. This vulnerability makes it hard for SMEs to access finance, seen as their major handicap. Even with formal operations and financial access, SMEs often struggle to compete, survive, or avoid bankruptcy, challenging their role in economic transformation in African countries.
In this regard, as the tides of global geopolitics and geo-economics shift, a window of opportunity is opening for Africa. Businesses, particularly SMEs, in Africa are central to capitalise on these opportunities being uniquely positioned to leverage FDI to transform Africa’s potential to wealth and propel the continent’s economic transformation and sustainable development.
Yet, a critical challenge persists: many African businesses remain informal, and even among the formalized, many lack the structural strength and competitiveness needed to access finance or attract meaningful investment. Without readiness, opportunity becomes a missed chance. For this reason, we invite African businesses to prepare for the forthcoming opportunities in order to capitalise on them and play an active role in the sustainable development of African nations. Leading this initiative is Amani Transformational Services (ATS), working in partnership with prominent financial and investment firms, to provide businesses with the tools, insights, and strategies necessary to leverage these developments and contribute to Africa’s economic progress.
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