“Money makes the world go around,” sang Liza Minnelli, and while she didn’t specifically mention foreign direct investment (FDI), I’m sure she’d agree it’s the best form of money for developing economies. So it is dispiriting that 2024 is likely to be another tough year for FDI in Africa and the Middle East. Big business doesn’t invest heavily when gross domestic product (GDP) growth is forecast at just 1% in the US, eurozone, Japan and Canada, as is the case next year.

Moreover, high interest rates globally mean acute debt challenges continue from Kenya to Tunisia and Ethiopia. This means austerity, tax rises and currency depreciation can, and do, deter potential foreign investors.

Meanwhile Africa and the Middle East are not obvious beneficiaries of near-shoring, or China+1 strategies that see supply chains diversify away from Asia’s biggest economy. Vietnam, Poland or Mexico are more obvious winners than countries further afield from US or European markets.  

Yet distance can be a blessing too. Europe’s efforts to cut its energy dependence on Russia has benefited many in Africa. According to Unctad, Senegal saw FDI quadruple to nearly 10% of GDP in 2021 and 2022 — mainly in the hydrocarbons sector — which will pay off with 9% GDP growth in 2024. Unctad also notes that liquified natural gas investments in Mauritania and Mozambique pushed FDI inflows into both countries well above 10% of GDP in those same years. Namibia’s offshore energy discoveries are creating heavy investment, too. 

Geology is not just favourable for hydrocarbons. Africa’s copper belt crossing Democratic Republic of the Congo and Zambia is already recognised as essential to the world’s energy transition, and copper bulls are quick to mention the inadequate supply expected into the 2030s, suggesting much higher FDI to come. Mining in other sectors like gold and phosphates is seen as a key diversification play by governments in Nigeria and Saudi Arabia, too. 

Then there are the idiosyncratic stories. The most surprising is from the rising power, Saudi Arabia, which is pushing hard to attract FDI to support its Vision 2030 reforms. Its recently agreed $500m joint venture with Korea’s Hyundai to assemble cars is one of many projects we should expect to see in coming years. Historically, Saudi was seen only as a source of financing to other countries — a role that will no doubt continue. Privatisation and FDI will be an essential part of Egypt’s efforts to reduce its debt burden, and billions of pre-financing has already been placed in Egypt by Gulf countries. Unlike the offshore gas focused FDI of recent years, future investments are more likely in banks and hopefully export sectors.

For most of Africa and the Middle East, it is still natural resources that will attract tens of billions of FDI in 2024 thanks to the three ‘geos’ — geography, geology and geopolitics. 

Charlie Robertson is head of macro-strategy at FIM Partners, and author of The Time Travelling Economist.

This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence

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