Investing in Africa

Few parts of the world have been subjected to plunder on the scale endured by Africa, from the European geographical exploration in the 15th century, through the First Industrial Revolution in the 18th century, the accompanying market expansion, and the drive to secure raw materials and primary commodities through colonialism.

Even after the independence movements that swept across Africa in the 20th century, the continent was not spared from exploitation, as can be seen in today’s inequitable investment and trade terms, excessive borrowing, and the illicit financial flows channelled out of Africa to safe havens beyond the reach of scrutiny.

These episodes of plunder and exploitation came to mind when I was invited to deliver an address as part of the Alamein-Africa Business Forum that was held at the beginning of this week in New Alamein City and brought together heads of state, ministers, business leaders, investors, and the representatives of regional and international organizations and financial institutions, as well as various experts and media professionals.

Preparing the address provided an opportunity to examine critical issues concerning African investment, economic development, and the pursuit of sustainable development, which remains far from being on track.

It has long been customary for Africa to be invoked in economic forums in terms of its raw materials and primary commodities, the natural wealth yielded by its quarries and mines, and the opportunities its land offers for commercial crops that once fed Europe’s manufacturing industries and have since found their way to the East.

But Africa’s most valuable asset for advancing its prospects remains its human wealth. The continent’s population now stands at 1.5 billion, exceeding India’s 1.45 billion and China’s 1.42 billion. Africa’s demographic profile is also notably youthful, with a median age of 19, compared with 28 in India, 40 in China, and 43 in Europe.

Yet although Africans account for more than 19 per cent of the world’s population, Africa’s share of global output is no more than three per cent. Its share of global industrial output is lower still, while its contribution to advanced technological products is even lower.

In other words, Africa would need to increase its output sixfold to secure a commensurate share of global output. Achieving this would require massive investment in human capital through education, training, and healthcare, alongside greater investment in infrastructure and technology.

The dilemma lies in the scale, quality, and cost of the investment needed to drive growth. Economic growth in Africa averaged no more than five per cent, compared with nine per cent in China and seven per cent in India, during the two decades preceding the Covid-19 pandemic, and some African governments have cited the aftershocks of this to explain their countries’ deteriorating economic performance.

Yet the shortcomings of their performance cannot be attributed to such shocks alone, any more than they can be explained by the long-term effects of the former colonial era. Instead, they are rooted in economies that are characterised by a lack of sophisticated management, coherent policies, robust institutions, and disciplined priorities.

Africa needs massive investment in infrastructure, including energy projects, of no less than $155 billion annually if it is to double its GDP by 2040. Yet actual investment has amounted to no more than $83 billion, meaning it needs twice that amount, according to the “Africa’s Development Dynamics 2025: Infrastructure, Growth and Transformation” report, jointly produced in 2025 by the African Union Commission (AUC) and the Organisation for Economic Co-operation and Development (OECD).

Making matters worse is the rising cost of investment directed towards Africa, not only because of the higher risks associated with projects and political volatility in a number of African countries, but also because risk assessments continue to be shaped by outdated perceptions and bleak assumptions that reality has long since surpassed. Even so, investors continue to cling to these outdated perceptions and exploit them to their advantage.

The cost of capital in Africa is more than 13 per cent, compared with eight per cent in the OECD countries. This is despite the fact that defaults on African infrastructure debt account for no more than two percent, and default rates in general are low, and recovery prospects are improving, according to the database on the credit performance of developing countries and emerging markets updated annually by the international financial institutions.

We should also not ignore the fact that Africa is not a single country but a continent of 54 nations with widely varying opportunities, returns, costs, and risks. To attract domestic, regional, and international investment, African governments should therefore have convincing answers to seven key questions.

What are the barriers to entering and exiting the economy of each African state?

How robust is each state’s regulatory and supervisory framework, and does it adhere to the highest international standards? What is the cost of doing business, and how competitive is the investment climate? What is the real growth rate, inflation rate, and degree of economic stability and diversification?

How flexible are the markets and pricing mechanisms in each African country? How well are rights protected, and is the rule of law upheld? How far has the African country in question progressed in terms of AI readiness, which depends on human capital, technological infrastructure, labor-market flexibility, and governance?

Africa’s ability to attract investment will undoubtedly be strengthened by expanding its markets and increasing intra-African trade, which currently accounts for no more than an average of 15 per cent of its total trade with the rest of the world. Its prospects for improvement will also be enhanced by the frameworks already in place, including the African Continental Free Trade Area (AfCFTA).

However, these frameworks will deliver the desired results only if the cost of economic activity is reduced, competitiveness enhanced, and administrative complexity, corruption, and institutional weakness eliminated. Africa also needs to develop the capacity to lead through digital transformation and the establishment of a green economy.