Whereas the amount of overseas direct funding (FDI) in Africa has seen a spurt during the last 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 largest 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 traders prepared to navigate the complexities and challenges of the African market stand to Reap vital rewards from this untapped potential.
Harvest Group SA is a administration firm based mostly in Switzerland, encompassing a Swiss buying and selling firm with intensive expertise in worldwide commodity buying and selling. Harvest is actively increasing its belongings for commodity processing, storage, transportation, and transshipment.
The shifting patterns of overseas direct funding (FDI) provide a window into future alternatives in each area for world traders. 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 subsequent large alternative for world traders. 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 tendencies, macroeconomic influences, and strategic coverage interventions.
Overseas direct funding in Africa has been steadily rising during the last decade, albeit from a comparatively low base. In 2024, the continent attracted roughly $91bn in FDI, a major enhance from earlier years, in opposition to the backdrop of an 8% world decline in FDI.
Egypt performed a pivotal position, accounting for roughly one-third of the continent’s complete FDI, with $35bn inflows, largely pushed by the Ras El-Hekma Peninsula Growth undertaking. 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 corporations, 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, as an example, has invested roughly $110bn over the previous decade, surpassing conventional traders 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. Nonetheless, agriculture, regardless of its potential, has been comparatively underfunded, receiving lower than 5% of total FDI into Africa.
It is a missed alternative. The continent is house 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 may 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 vital drivers for funding in Africa. The latest 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 unstable, and this volatility creates uncertainty for traders.
Whereas Africa has a number of the world’s most fertile land, it’s also one of many area’s most susceptible 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 susceptible 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 significant concern for traders wanting on the continent. Nations like Ethiopia, Mozambique, and Libya have seen latest 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 troublesome environments, deal-by-deal alternatives are completely different to longer-term investments. Corruption, inconsistent authorized frameworks, and weak governance could make it troublesome for traders 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 surroundings, 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 turned operational in 2021, is a game-changer. By creating the most important free-trade space on the planet, AfCFTA may take away obstacles to intra-African commerce, entice FDI, and increase regional economies. Nonetheless, a lot work stays to be accomplished to harmonise insurance policies and make sure that the settlement delivers on its guarantees. Efficient implementation would require continued and constantly robust political will, ample infrastructure, and a talented workforce.
China has been Africa’s largest buying and selling accomplice 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 traders have for a while seen China’s dominance with skepticism, elevating considerations about debt-trap diplomacy and useful resource extraction practices that will not 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 surroundings. Decreasing corruption, making certain the rule of regulation, and defending property rights will assist cut back perceived dangers for overseas traders. Multilateral organisations such because the World Financial institution can play a job 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 traders ought to be inspired to accomplice with native farmers and governments to create sustainable farming practices that profit each native communities and world markets.
As well as, African nations have to concentrate on constructing the required infrastructure, akin 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 possibility 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 change into extra self-reliant and entice larger-scale investments. Governments ought to concentrate on harmonising commerce rules, bettering cross-border infrastructure, and decreasing commerce obstacles. By facilitating intra-African commerce, the continent can provide overseas traders entry to a extra cohesive and enticing market of over 1.5bn shoppers.
Past conventional FDI, there’s a have to 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 perfect for progressive agricultural applied sciences or sustainable farming tasks. African governments can stimulate this by creating tax incentives or matching funds for traders prepared to make the leap.
In conclusion, Africa’s commodities and agriculture sectors current an unlimited, but underexplored alternative for overseas direct funding. Whereas macroeconomic and geopolitical challenges stay, the area’s potential for development, all fueled by world demand for assets, fertile land, and an increasing inhabitants, can’t be overstated.
With the appropriate 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 traders and native economies alike.
Buyers prepared to navigate the complexities and challenges of the African market stand to learn drastically from the untapped potential this continent gives. The query shouldn’t be whether or not Africa will entice extra FDI, however how quickly.
