A new analysis from the Institute for Security Studies models what a sustained increase in foreign direct investment could mean for Africa by 2043, finding that lifting FDI from 3% to 5.3% of GDP would add $243.5 billion to the continent’s economy and raise average income per capita by $160, but warns that most of the gains would bypass the countries that need them most.
The ISS African Futures Financial Flows research, led by Jakkie Cilliers, uses the International Futures forecasting platform to compare a business-as-usual scenario, where FDI modestly rises to 3.6% of GDP by 2043, against an accelerated Financial Flows scenario, where inward investment reaches 5.3% of GDP, equivalent to $351 billion annually versus $230 billion. The structural reason FDI matters so much at this moment is the USAID dissolution, which provided around 26% of aid to Africa. With that funding withdrawn, FDI, remittances and domestic revenue mobilisation must fill a widening gap. Yet Africa’s average tax-to-GDP ratio sits at just 16%, compared with 19.1% in Asia-Pacific, 21.5% in Latin America and the Caribbean, and 34% across OECD nations, limiting how much governments can self-finance development. The analysis identifies a clear two-speed problem on FDI performance. Countries attracting above-average inflows, including Senegal, Rwanda, Uganda, Ethiopia, Togo, Benin and Côte d’Ivoire, are projected to grow above 6% annually. Nigeria, Africa’s largest economy, grows at just 3.2% against a population increase of 2.6%, leaving income per capita effectively stagnant, partly because FDI is stuck at around 0.5% of GDP. The World Bank estimates that AfCFTA’s full implementation could boost FDI by up to 120% and lift intra-African investment by around 85%, and intra-African capital flows from Kenya, Nigeria and South Africa are already rising in IT, finance and manufacturing.
A critical structural constraint runs through the analysis: most FDI in Africa still flows to extractives, oil, gas and minerals, which have limited linkages to agriculture and manufacturing and disproportionately benefit upper-middle-income countries. Only one African country, Seychelles, has escaped the middle-income trap. The report argues that FDI specifically into agro-processing, renewables, manufacturing and digital infrastructure delivers more jobs, more technology transfer and more economic resilience, but that attracting it requires governance reform and policy stability that many governments have not yet achieved. On extreme poverty, even the optimistic Financial Flows scenario produces only a one percentage point improvement beyond business-as-usual, because FDI generally rewards skilled labour and stronger institutions that poorer countries have not yet built.
The Bigger Picture The ISS modelling puts hard numbers on a dilemma that African policymakers face daily: foreign capital is essential to escape the middle-income trap, but the countries most dependent on that capital are the least equipped to attract it on favourable terms. The geopolitical context is shifting in Africa’s favour. China, Gulf states and India are all expanding investment in energy, infrastructure and logistics, increasing competition among investors and giving African governments more leverage to negotiate terms that serve long-term structural goals. The East Asian template, using FDI to drive technological upgrading and industrialisation rather than simple resource extraction, remains the model. Countries like Egypt, Morocco, Senegal, Ethiopia and Zambia are following elements of it. Most of the continent is not, and the 2043 gap between those that do and those that do not will be measured in hundreds of billions of dollars and millions of people still in poverty.
Source: Institute for Security Studies
