Investments in Africa expected to grow, amidst unpredictable endogenous and external factors

By Danilo Desiderio

A new analysis of economic trends in 2025, published in Africa Confidential, predicts that the continent will experience faster growth this year, with inflation rates declining. This improvement is partly attributed to better growth prospects in larger economies like South Africa and Angola, as estimated by observers such as the World Bank.

However, Africa continues to lag behind other regions in key metrics, including poverty reduction, access to sanitation, clean water, electricity, secondary education completion, and mortality rates from noncommunicable diseases (NCDs).

The number of Africans facing significant challenges is also on the rise, while other regions are making gradual progress. According to World Vision, the food crisis in Africa is intensifying, with an increasing number of people suffering from hunger and starvation.

This trend is driven by a combination of factors, including the war in Ukraine, regional conflicts, extreme weather events, and the ongoing effects of the COVID-19 pandemic.

The article cautions that ongoing conflicts in the Sahel, the Horn of Africa, and Central Africa, along with climate shocks, strikes, protests in major African economies, and elections in several countries, could lead to economic disruptions that undermine growth forecasts for African economies. These factors may also negatively affect investment attraction.

The situation could be further complicated by external events beyond African governments’ control, such as a slowdown in China, changes in U.S. trade policies under the second Trump administration, renewed Middle Eastern hostilities, the outcome of the Russia-Ukraine conflict, and deteriorating global financing conditions.

Efforts to Attract External Capital

Current trends suggest that inflation on the continent will continue to decline from the highs of 2022. However, Africa Confidential notes that average inflation rates in Africa will still outpace those in other parts of the world.

In terms of industrialization, countries like Zimbabwe and Zambia are expected to be among the fastest-growing economies in Southern Africa this year, as they actively pursue initiatives to attract investments in the production of high-value “green transition” minerals for export, while maintaining bans on raw mineral exports like lithium ore. Other African economies, such as Nigeria, Kenya, Ghana, and Egypt, face a pressing need to increase revenues.

This goal must be carefully balanced with the need to maintain a business-friendly, non-punitive tax environment. Without this balance, the essential investments needed to drive industrialization and improve social services could be diverted to other regions.

According to Africa Confidential, most African governments recognize the importance of attracting external capital to meet critical investment needs.

However, fewer efforts are being made to reduce the size and expenditure of the public sector, which should be balanced with the need to avoid compromising essential public services like education, research and development, and infrastructure – key factors for driving long-term economic growth.

Many economists predict that overall investment in Africa will increase this year, with diaspora remittances continuing their upward trend. However, the risk remains that one or more of the aforementioned challenges could materialize, calling these growth estimates into question.

The financial gap for Africa’s climate adaptation costs remains substantial. Following the COP29 climate summit in November, the funds allocated by wealthy nations for the much-discussed “Loss and Damage Fund” (US$700 million) are still far below Africa’s actual needs.

Danilo Desiderio serves as the CEO of Desiderio Consultants Ltd in Nairobi, Kenya, specializing in African customs, trade, and transport policies. He is a customs and trade expert at the World Bank and a senior associate to the Horn Economic and Social Policy Institute (HESPI).