This Is How To Retain Investors In African Markets

June 30, 2024


Africa saw a decline in foreign investor interest in 2023, with finance deals dropping by 50% to $64 billion for the year, according to the latest World Investment Report, issued by the UN Trade and Development (UNCTAD) in June.

Despite promising opportunities, the report attributed this drop in Africa’s investment landscape to the global economic slowdown and rising geopolitical tensions.

The investment landscape in Africa also faces a significant challenge due to inadequate financing. For instance, Africa receives only $30 billion annually for climate change adaptation, despite needing $277 billion per year—a substantial financing gap of $247 billion, as reported by the African Development Bank (AfDB) in April.

Why investors leave?

“While Africa’s investment landscape holds immense potential, investing in the continent presents formidable challenges such as weak local currencies, high interest rates, elevated inflation, corruption, and civil conflicts,” said Sherine Shohdy, member of AmCham Egypt and Head of Egypt & Coverage Director North Africa at British International Investment (BII), in an interview with Business Monthly. Speaking about Egypt’s economy in North Africa,  Shohdy highlighted the country’s efforts to bolster the role of the private sector and attract foreign investors.

Egypt is currently implementing an Extended Fund Facility (EFF) loan program with the International Monetary Fund (IMF)  valued at $8 billion until FY2026/2027. A primary objective of this program is to create ample opportunities for the private sector to drive economic growth and generate employment. It also aims to balance the playing field between the public and private sectors and reduce the state’s involvement in state-owned assets.

“The State Ownership Policy adopted by Egypt provides a framework for investor and private sector participation in the economy. Having a clear plan and ensuring transparency in investor relations are crucial,” emphasized Shohdy.

Shohdy also highlighted the challenge of tax rates in Africa, particularly for foreign investors. She emphasized the importance for African countries, including Egypt, to maintain clarity and transparency regarding tax rates and to provide incentives that attract investors.

Ali Metwally, an economic Consultant at IBIS Consultancy, blended with Shohdy on the challenges that cause the exodus of investments from the African market, which negatively affects the foreign investor’s confidence.

He noted the rapid changes in economic policies in some African countries, such as Nigeria, which complicate investors’ ability to forecast the country’s economic direction in the medium and short terms.

Further, the challenge of weak infrastructure across the continent continues to hinder investors, despite ongoing improvements.

“These challenges significantly impact logistics and supply chains in Africa. Currently, for example, 400 million Africans lack access to electricity, which also hampers industrial growth,” Metwally elaborated.

How to retain them?

Shohdy and Metwally emphasized that retaining investments in Africa hinges on several key factors. These include establishing a clear and transparent roadmap, addressing political instability, and simplifying investment regulations and business practices across African countries. These measures are essential to attract and retain investor confidence in the continent’s diverse markets.

Metwally emphasized the need for “clear, applicable, and transparent bylaws that enable investors to make informed decisions.”

Metwally also stressed the importance of substantial investments in improving infrastructure across the continent, noting the advancements made in Egypt over the past decade. Additionally, he underscored the necessity of allocating resources to enhance education and training systems. A skilled and educated workforce, he argued, is essential for sustainable business operations globally.

Africa’s youthful population, expected to reach working age by 2035 with 375 million youth, presents a significant opportunity for economic growth. However, this demographic dividend can only be realized with adequate education, skills development, and job opportunities, according to the Organisation for Economic Co-operation and Development (OECD).

The OECD also highlighted Africa’s infrastructure needs, estimating an annual requirement of $130-$170 billion to bridge the infrastructure gap and achieve sustainable growth of 5% or more. Despite this opportunity, private sector investment in infrastructure remains relatively low, with African governments predominantly driving infrastructure development.

In light of the COVID-19 pandemic’s impact on government revenues, the OECD emphasized the urgency of reforming existing models to attract more private investment into African infrastructure projects.