Africa is facing a stark reversal in foreign direct investment (FDI) fortunes. According to UNCTAD, the continent saw FDI inflows decline by 42% in the first half of 2025, tumbling to just $28 billion, a sharp contraction that dwarfs the modest 3% global decline during the same period. This drop is not merely a statistical anomaly; it signals a growing challenge for African policymakers and business leaders alike, as the continent navigates an increasingly uncertain global investment climate.
North Africa bore the brunt of the pullback, with inflows falling by nearly 59%, from $27 billion in early 2024 to $11 billion. Analysts attribute the steep decline to the absence of the megaprojects that buoyed last year’s figures, notably Egypt’s Ras El-Hekma development. Sub-Saharan Africa, by contrast, experienced a more moderate decline of 23%, highlighting that the continent’s FDI landscape is unevenly distributed and highly sensitive to large-scale investment projects.
The sectoral impact is equally pronounced. Infrastructure projects, especially greenfield developments, have slowed considerably, with water and sanitation initiatives particularly hard-hit many regions saw no new projects at all in the first half of 2025. Manufacturing and sustainable development-linked investments have also faced headwinds, reflecting both tighter global liquidity and investor caution. Yet, amid the downturn, pockets of resilience exist. Healthcare projects, for instance, saw a notable rise in investment value, underscoring the growing appetite for socially impactful sectors that promise long-term returns even in a volatile environment.
Global economic headwinds have compounded these trends. Rising borrowing costs, geopolitical tensions, and shifting supply chain strategies have prompted investors to reassess exposure to emerging markets, and Africa, despite its growth potential, has not been immune. UNCTAD notes that investor sentiment is particularly sensitive to political and macroeconomic instability, and African nations must contend with the dual challenge of maintaining investor confidence while addressing pressing development needs.
The outlook remains cautiously optimistic. Analysts suggest that a modest recovery may materialize by year-end, particularly if interest rates ease and mergers and acquisitions activity accelerates. Sovereign wealth funds could also play a stabilizing role, bridging the gap left by cautious foreign investors. Yet, risks linger. Without concerted policy action and structural reforms, the continent risks a protracted period of muted FDI, potentially slowing progress on critical infrastructure and sustainable development goals.
For Africa, the 2025 FDI slump is both a wake-up call and an opportunity. Governments must reinforce regulatory stability, create predictable investment frameworks, and leverage regional initiatives such as the African Continental Free Trade Area to attract capital. At the same time, domestic investors and development finance institutions have a pivotal role to play in stepping into the space left by cautious foreign investors.
