Africa

FDI in Africa Faces Sharp Decline Amidst Regional and Sectoral Disparities: Insights from the 2025 Report

FDI in Africa in Decline, with Regional and Sectoral Divides – Report

Overview

Foreign Direct Investment (FDI) to Africa has experienced its most significant drop in years during the first quarter of 2025. According to the GlobalData Strategic Intelligence: FDI Trends in Africa (2025) report, this decline is reflective of a wider trend observed globally, yet it is marked by substantial regional and sectoral disparities.

Despite this downturn, there are some positive developments in the continent’s economic landscape as nations pursue opportunities for greater collaboration and trade. Notable among these is the ratification of the African Continental Free Trade Area (AfCFTA), which was signed by nearly 50 nations in January 2025, signaling a pivotal step toward establishing a unified market across Africa’s 54 countries. Additionally, a Comprehensive Economic Partnership Agreement was inked between the United Arab Emirates (UAE) and Kenya, aimed at enhancing economic ties across various sectors.

Ollie Brown, an FDI economist at GlobalData, underscores the importance of international credit access and equitable investment as key drivers of economic development prospects. He insists that FDI holds the potential to bridge existing gaps created by such barriers.

“While the African Union continues to wrestle with inequality and bureaucratic obstacles, the ratification of AfCFTA on behalf of 48 African nations in January 2025 marks a historic step towards economic independence,” Brown emphasizes.

Africa’s FDI Landscape in 2025

The GlobalData FDI database indicates that Africa’s share of global greenfield FDI projects has decreased from 3.8% in 2024 to just 3% in 2025. This trend is troubling and is projected to persist due to an amalgamation of geopolitical and financial circumstances that create a risk-averse environment for investors.

Capital expenditure (capex) in open greenfield FDI projects in Africa has seen a significant reduction, plummeting from $17 billion in 2021 to just $6 billion in 2025. There are expectations that Africa’s ability to attract FDI later this year will significantly hinge on maintaining global investors’ confidence rather than being influenced by local factors.

Doha Ahmed, an emerging markets economist at GlobalData, notes that Africa’s FDI landscape is currently undergoing a structural transformation, with a shift in focus toward strategic realignment over mere expansion. Several key areas are witnessing drastic changes: volume, sectoral composition, and diversification of sources.

“Greenfield FDI inflows have declined sharply, reflected not only in capex continuously dropping from $17 billion in 2021 to a projected $10 billion in 2024, but project volumes plummeted from a peak of 615 in 2022 to just 448 in 2024,” Ahmed remarks.

Regional and Sectoral Variability

FDI distribution across the continent reveals substantial regional discrepancies. Egypt and Morocco lead as the top destinations for FDI within Africa. Egypt’s strategic alliances, particularly a joint megaproject with the UAE valued at $35 billion, have substantially bolstered its FDI portfolio. On the other hand, Morocco’s strong showing can be attributed to its status as a nearshoring hub for Europe, stable political climate, and a conducive business environment.

Middle-income economies have leveraged the reshoring and nearshoring trends triggered by increased global protectionism to attract investments. Following Morocco, South Africa ranks as the third top destination for inward FDI based on project volume.

Countries like Kenya, Tanzania, and Tunisia have struggled to attract investments due to escalating debt levels coupled with regulatory uncertainties.

Sector-wise, the software and IT sector garnered 19% of FDI investments between 2022 and 2024, particularly concentrated in Kenya, Nigeria, and Egypt. The communications and media sector accounted for 8%, while renewables and alternatives constituted 7%, and metals and minerals made up 5%.

A notable gap emerges within the renewable and alternative power sector, where 32% of announced projects contrast sharply with just 7% of actualized projects. This lag can be attributed to unique sector-specific challenges, such as high capital expenditures, lengthy project cycles, and excessive bureaucratic hurdles. Conversely, sectors like software, IT services, communications, media, and logistics boast higher conversion rates due to relatively friendly execution environments.

Changing Sources of Investment

Even as the global economic landscape shifts, the United States remains Africa’s largest investor, having announced 137 projects between 2023 and 2025—primarily driven by strategic competition with China. Historical initiatives, such as Prosper Africa and the Development Finance Corporation, have also played significant roles in funding. However, these organizations are subsidiaries of the U.S. Agency for International Development (USAID), which has recently experienced substantial funding cuts, indicating a potential decline in available resources.

Ahmed points out, “Amidst an increasingly volatile geopolitical landscape, Africa’s donor base has diversified, with non-traditional players such as the UAE becoming increasingly involved.” This evolving dynamic signifies the weaponization of FDI, where investments increasingly serve as geopolitical instruments, often blurring the lines between economic partnerships and strategic influence. Investments from sovereign wealth funds such as Mubadala and EDQ support this growing trend.

Conclusions

Analysts at GlobalData anticipate a paradigm shift in Africa’s FDI trajectory, moving away from traditional extractive primary commodities toward a renewed focus on renewable energy, technology, and manufacturing sectors. They predict that African leaders will increasingly recognize the transformative power of FDI, which in turn should prompt efforts to enhance and liberalize their investment climates. These improvements will likely include dedicated investments in infrastructure aimed at fostering supply chain efficiency and resilience.

The evolving landscape of foreign direct investment to Africa presents both challenges and opportunities. While the decline in overall FDI inflows is concerning, the regional and sectoral diversifications illustrate the complexity of the continent’s economic environment. With strategic initiatives such as the AfCFTA and greater regional cooperation on the horizon, there remain significant prospects for accelerating economic growth and attracting foreign investment in the coming years.

By addressing the existing barriers and harnessing cooperation among nations, Africa can create a more favorable investment climate, positioning itself as a viable destination for FDI and uplifting its economies in the wake of current challenges.


This article, titled “FDI in Africa in decline, with regional and sectoral divides – report,” was initially created and published by Investment Monitor, a brand owned by GlobalData.

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