Despite a promising investment climate in many countries, Africa continues to struggle to attract enough foreign direct investment (FDI) to support economic transformation. African countries captured only an average of 3.5 percent of global FDI between 2010 and 2023—far below Asia’s 34 percent and Latin America’s 11 percent—highlighting the continent’s inability to attract adequate investment for industrial transformation and sustainable development.
Investment, whether domestic or foreign direct investment (FDI), drives economic growth by boosting productivity through new capital, advanced technologies, and enhanced managerial skills in host countries. FDI tends to be directed at sectors with current and potential comparative advantages, as well as at key infrastructure development, which can have broad spillover effects. However, nearly three-quarters of Africa’s FDI inflows is concentrated in the extractive sectors, while the continent is still heavily reliant on the production and export of primary commodities. Despite political rhetoric around attracting FDI into manufacturing, actual political commitment appears to be lacking or inconsistent across the continent.
As a result, such resource-induced investments have contributed to short-term growth devoid of the kind of economic transformation needed for sustained development and inclusive growth. This has raised concerns about Africa’s economic transformation—as well as the effectiveness of development finance sources like FDI—in helping the continent catch up with the early transformers.
Using Ghana and Senegal as case studies—in addition to data from 49 African countries—this study explores the impact of different types of FDI in Africa. It offers recommendations and provides insights into how FDI contributes to economic growth, industrialization, and structural change in various regions. It represents one of the few studies to investigate the impact of sector-specific FDI on Africa’s economic transformation.
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