Whereas the quantity of overseas direct funding (FDI) in Africa has seen a spurt over the past decade, for instance registering $91bn in 2024, the FDI movement to the continent stays low at round 4-5%. Many of the funding is into hydrocarbons and minerals however funding into the continent’s greatest potential, its agricultural merchandise, stays largely disappointing. Almaz Alsenov, founding father of Harvest Group SA, a Switzerland-based worldwide dealer and distributor of agricultural merchandise, argues the buyers prepared to navigate the complexities and challenges of the African market stand to reap vital rewards from this untapped potential.
The shifting patterns of overseas direct funding (FDI) provide a window into future alternatives in each area for world buyers. Once we discuss the way forward for FDI, notably within the commodities and agriculture sectors, one area stands out: Africa.
With its wealthy pure assets, huge arable land, and younger and rising inhabitants of 1.5bn, Africa is usually heralded as the following large alternative for world buyers. Nonetheless, whereas the potential is plain, each alternatives and challenges have to be addressed to understand this imaginative and prescient, requiring a nuanced understanding of present funding traits, macroeconomic influences, and strategic coverage interventions.
Overseas direct funding in Africa has been steadily rising over the past decade, albeit from a comparatively low base. In 2024, the continent attracted roughly $91bn in FDI, a major improve from earlier years, towards the backdrop of an 8% world decline in FDI.
Egypt performed a pivotal position, accounting for roughly one-third of the continent’s whole FDI, with $35bn inflows, largely pushed by the Ras El-Hekma Peninsula Improvement challenge. But, Africa nonetheless solely accounts for a small fraction of worldwide FDI, round 4-5%. With regards to commodities and agriculture, the story is much more blended.
On one hand, international locations like Nigeria, South Africa, and Angola proceed to draw substantial funding of their oil, fuel, and mineral sectors. Overseas firms, notably from China and India, but additionally from new and bold world gamers just like the UAE and Saudi Arabia, have closely invested in these industries to safe the uncooked supplies wanted to gas their quickly rising economies.
The UAE, for example, has invested roughly $110bn over the previous decade, surpassing conventional buyers just like the US, with investments into farmland, ports, and renewable vitality. This highlights a strategic shift in the direction of sustainable and diversified tasks. However, agriculture, regardless of its potential, has been comparatively underfunded, receiving lower than 5% of general FDI into Africa.
It is a missed alternative. The continent is residence to about 60% of the world’s arable land and but imports greater than $35bn value of meals yearly. With rising world meals demand and rising stress on agricultural assets in different areas, Africa may emerge because the world’s subsequent breadbasket. However to unlock this potential, far more funding is required—not solely in farming but additionally in infrastructure, know-how, and provide chain logistics.
A number of macroeconomic and geopolitical components presently have an effect on the movement of FDI into Africa’s commodities and agriculture sectors, which might both act as tailwinds or headwinds, relying on how they evolve.
International commodity demand and the costs of oil, fuel, metals, and agricultural merchandise are crucial drivers for funding in Africa. The current surge in world demand for commodities, spurred by post-pandemic financial restoration and vitality transition efforts, has put African assets within the highlight. Nonetheless, commodity costs are notoriously risky, and this volatility creates uncertainty for buyers.
Whereas Africa has a number of the world’s most fertile land, additionally it is one of many area’s most weak to the impacts of local weather change. Unpredictable climate patterns, droughts, and creeping desertification can severely disrupt agricultural manufacturing, deterring long-term funding.
The UN’s World Meals Programme, for which my firm, Harvest Group SA is a provider, is an important participant in countering meals insecurity throughout a number of the most weak international locations.
On the similar time, the rising world concentrate on sustainable agriculture and carbon credit may create new alternatives for FDI in Africa. The area has the potential to play a key position in offsetting carbon emissions by reforestation, regenerative agriculture, and renewable vitality tasks.
Political danger stays a serious concern for buyers trying on the continent. International locations like Ethiopia, Mozambique, and Libya have seen current conflicts which have eroded investor confidence, whereas coups throughout the Sahel have highlighted the dangers of regime change. Though merchants are used to conducting enterprise in tough environments, deal-by-deal alternatives are completely different to longer-term investments. Corruption, inconsistent authorized frameworks, and weak governance could make it tough for buyers to really feel safe of their ventures, particularly if there’s a danger of being ‘tainted’ merely due to who was in authorities on the time the funding was made. Furthermore, Africa’s fragmented regulatory atmosphere, with every nation having its personal algorithm and procedures, provides complexity and uncertainty to cross-border investments.
The African Continental Free Commerce Space (AfCFTA), which grew to become operational in 2021, is a game-changer. By creating the most important free-trade space on the earth, AfCFTA may take away boundaries to intra-African commerce, entice FDI, and increase regional economies. Nonetheless, a lot work stays to be finished to harmonise insurance policies and make sure that the settlement delivers on its guarantees. Efficient implementation would require continued and constantly sturdy political will, enough infrastructure, and a talented workforce.
China has been Africa’s largest buying and selling companion for over a decade, and its affect on the continent is plain. Whereas Chinese language funding has largely centered on infrastructure, there was a rising curiosity in African agriculture and commodities.
Nonetheless, Western buyers have for a while considered China’s dominance with skepticism, elevating issues about debt-trap diplomacy and useful resource extraction practices that won’t profit native communities.
Whereas the challenges are vital, there are a number of steps that African nations and the worldwide funding neighborhood can take to enhance ranges of FDI within the area.
African governments should prioritise making a secure and clear regulatory atmosphere. Lowering corruption, guaranteeing the rule of legislation, and defending property rights will assist cut back perceived dangers for overseas buyers. Multilateral organisations such because the World Financial institution can play a task by providing political danger insurance coverage or supporting reform efforts that promote good governance.
On the similar time, Africa’s agriculture sector must embrace fashionable applied sciences, together with precision farming, genetically modified crops, and irrigation options, to enhance yields. Overseas buyers ought to be inspired to companion with native farmers and governments to create sustainable farming practices that profit each native communities and world markets.
As well as, African nations must concentrate on constructing the mandatory infrastructure, similar to roads, ports, and storage services, to facilitate environment friendly transport of products to world markets.
With sure Western monetary establishments more and more specializing in ESG standards, African nations might even see a chance to safe overseas funding to develop tasks that meet these requirements, notably in renewable vitality, sustainable farming, and reforestation.
The event of carbon markets and inexperienced bonds may additionally assist entice overseas capital whereas addressing the area’s vulnerability to local weather change.
AfCFTA gives an unimaginable alternative for Africa to turn into extra self-reliant and entice larger-scale investments. Governments ought to concentrate on harmonising commerce rules, enhancing cross-border infrastructure, and decreasing commerce boundaries. By facilitating intra-African commerce, the continent can provide overseas buyers entry to a extra cohesive and enticing market of over 1.5bn shoppers.
Past conventional FDI, there’s a must diversify the kinds of funding into Africa by attracting non-public fairness and enterprise capital into the commodities and agriculture sectors. These types of capital are sometimes extra nimble and risk-tolerant, making them excellent for modern agricultural applied sciences or sustainable farming tasks. African governments can stimulate this by creating tax incentives or matching funds for buyers prepared to make the leap.
In conclusion, Africa’s commodities and agriculture sectors current an enormous, but underexplored alternative for overseas direct funding. Whereas macroeconomic and geopolitical challenges stay, the area’s potential for progress, all fueled by world demand for assets, fertile land, and an increasing inhabitants, can’t be overstated.
With the fitting insurance policies, investments in sustainable agriculture, improved governance, and enhanced regional integration, Africa can emerge as a number one vacation spot for FDI in commodities and agriculture, driving prosperity for each buyers and native economies alike.
Buyers prepared to navigate the complexities and challenges of the African market stand to profit vastly from the untapped potential this continent gives. The query isn’t whether or not Africa will entice extra FDI, however how quickly.
Harvest Group SA is a administration firm primarily based in Switzerland, encompassing a Swiss buying and selling firm with in depth expertise in worldwide commodity buying and selling. Harvest is actively increasing its property for commodity processing, storage, transportation, and transshipment.
