Foreign investors return to African markets as reforms boost confidence

After years of debt distress, currency crises and investor flight triggered by the COVID-19 pandemic and rising global interest rates, several African economies are beginning to regain the attention of international investors.

• Foreign investors are showing renewed interest in several African economies after years of market turbulence.
• Reforms in countries including Nigeria, Ghana, Egypt and Zambia are helping improve investor confidence.
• Gulf investors, hedge funds, export credit agencies and development financiers are among those increasing their focus on Africa.
• Analysts say sustaining reforms and managing debt risks will be key to maintaining investor interest.

Governments across the continent have implemented a range of reforms aimed at restoring confidence, improving fiscal credibility and stabilising financial markets.

The changes are helping attract fresh capital from sources including Gulf investors, export credit agencies, development finance institutions, hedge funds and asset managers.

The renewed interest comes at a critical time for Africa as many wealthy nations reduce foreign aid spending and redirect resources towards domestic priorities and defence, shrinking a traditional source of development financing for the continent.

According to Dalu Ajene, Chief Executive and Head of Coverage for Africa at Standard Chartered, investor sentiment towards Africa has improved markedly compared with the immediate post-pandemic years, when many economies were grappling with deteriorating balance sheets and mounting debt burdens.

“The financial challenges after the COVID-19 pandemic were quite deep, and hence there was a risk-off mindset,” Ajene told Reuters.

“It’s now attracting both concessionary funding, but also real money investors to be able to now look at Africa in a much more serious way than they otherwise would have three years ago when a lot of African balance sheets were in a mess.”

Reforms help restore confidence

The shift follows a period of difficult economic adjustments across several African economies.

Nigeria removed its long-running petrol subsidy and introduced foreign exchange reforms, while Ghana and Zambia undertook debt restructuring efforts after falling into financial distress.

Egypt, meanwhile, secured major international support packages and implemented measures aimed at stabilising its economy and currency market.

These reforms have coincided with a gradual return of investor interest in some African markets, although many countries continue to face challenges including high borrowing costs, debt vulnerabilities and pressure on public finances.

The continent’s sovereign debt market has also shown signs of reopening after years in which many African governments were effectively priced out of international capital markets because of elevated global interest rates and investor caution.

Development financiers remain active

Ajene said export credit agencies and development finance institutions have played a key role in sustaining investment flows during difficult market conditions.

He cited the United Kingdom Export Finance-backed financing package supporting the refurbishment of Tin Can Island Port in Lagos, a project valued at approximately $1 billion.

Such institutions have increasingly helped bridge financing gaps while private investors gradually return to African markets.

At the same time, hedge funds and asset managers have become more active in selected African sovereign debt markets, particularly in Egypt, Nigeria, Zambia, Uganda and Ghana.

Gulf interest grows

Investment from Gulf countries is also expected to increase as economic ties between African nations and the United Arab Emirates deepen.

Several African governments, including Nigeria, Kenya, Morocco and Mauritius, have signed or are pursuing comprehensive economic partnership agreements with the UAE aimed at boosting trade and investment.

Ajene said such agreements could pave the way for larger investments in strategic sectors including mining, energy, logistics and food security.

“Once you have the cooperation frameworks, then you can now start seeing the kind of chunky investments that matter,” he said.

He added that the agreements could help unlock larger transactions that historically struggled to exceed $100 million.

While geopolitical tensions in the Middle East may increase pressure on Gulf governments to focus spending closer to home, investments linked to long-term strategic interests such as critical minerals, energy security and food supply chains are expected to remain attractive.

Debate over alternative financing tools

Ajene also defended the growing use of total return swaps (TRS), a financing structure used in recent years by countries including Angola, Nigeria and Senegal.

The instruments have attracted scrutiny from the International Monetary Fund and transparency advocates, who argue that they can make it more difficult to assess the full extent of government liabilities.

However, Ajene said the criticism is overstated.

“It’s actually unfair to say they’re not transparent, and I think it’s also unfair to classify them as more or less risky,” he said.

He argued that TRS arrangements can provide governments with faster and more flexible access to funding during periods when traditional capital markets are expensive or largely inaccessible.

Standard Chartered confirmed that it participates in total return swap transactions but declined to discuss specific deals, citing client confidentiality.

As African governments search for new sources of capital amid a changing global financing landscape, the return of foreign investors offers a potential boost.

Whether that momentum can be sustained will largely depend on governments’ ability to maintain reforms, manage debt burdens and preserve macroeconomic stability.