Africa’s expanding workforce, trade integration and energy resources could position the continent as a major global growth market, with the African Continental Free Trade Area helping attract more productive foreign investment, according to the African Export-Import Bank.
Africa’s workforce of about 600 million people is projected to double by 2040, creating a growing consumer and production base that could strengthen Africa’s appeal to multinational companies and investors, Afreximbank said in its Trade & Development Finance Brief.
The bank said trade and investment will remain critical to Africa’s efforts to accelerate economic growth, industrialise and improve living standards, particularly as technological advances, artificial intelligence and changes in globalisation reshape international commerce.
“The free trade area has the potential to facilitate investment flows and reshape the composition, quality and direction of foreign direct investment, supporting economic transformation and strengthening long-term growth prospects,” Afreximbank said.
The AfCFTA, which seeks to establish a single continental market for goods and services, could allow companies to use Africa’s fragmented markets more efficiently by spreading investment risks across countries and benefiting from economies of scale.
That prospect is already reflected in increased interest from multinational manufacturers, including companies in the automotive industry that have established manufacturing centres or committed capital to expand processing capacity in Africa, according to the bank.
Afreximbank said the trend marks a shift toward more productive investments that add value locally rather than focusing primarily on extracting and exporting raw materials.
Investment recovery
African countries have increasingly pursued trade liberalisation, investment reforms and measures to improve the competitiveness of domestic industries as they seek deeper integration into global markets.
Investment flows to the continent recovered in 2021 and 2022 after a pandemic-related contraction in 2020, supported by the return of global economic activity and large-scale project financing, the bank said.
Continental initiatives including the African Union’s Agenda 2063, the New Partnership for Africa’s Development, the Forum on China-Africa Cooperation, special economic zones and the AfCFTA have contributed to efforts to strengthen regional integration and attract investment.
The bank said these policies can improve market efficiency, reduce the cost of doing business and make it more attractive for multinational companies to establish production and processing operations on the continent.
For African economies, the objective is increasingly to attract investment that contributes to industrial development, job creation and income generation rather than simply increasing the volume of capital inflows.
Energy as an investment magnet
Africa’s substantial energy resources could provide another major source of trade revenue and foreign investment.
The continent has significant reserves of both renewable and non-renewable energy, while growing demand for energy in Africa and abroad is creating opportunities for cross-border trade.
Algeria accounts for about 2.4% of global natural-gas production, according to the brief, giving the country a potential role in supplying African economies with limited domestic energy resources as well as markets outside the continent.
Afreximbank cited reports from BP and the International Energy Agency showing the growth of African natural-gas exports to Europe and other international markets.
The continent’s energy resources have also attracted major international oil companies, including Shell and TotalEnergies, which have invested in African energy projects and contributed to the expansion of the sector.
New drivers of growth
Afreximbank said Africa’s future trade and investment prospects will increasingly be shaped by several structural trends, including its energy potential, implementation of continental policies, pressure to accelerate economic development and the rapid expansion of creative and cultural industries.
The combination of a growing labour force and deeper regional integration could give companies greater incentives to establish production bases on the continent, while the AfCFTA could help them serve multiple African markets from those locations.
The bank said the experience of economies such as Japan, China and the US shows that well-designed trade and investment frameworks can increase productivity, create jobs and expand income opportunities.
For Africa, translating its demographic and resource advantages into sustained growth will depend on whether governments can continue improving investment conditions while implementing continental trade agreements and encouraging productive capital into manufacturing, energy and other value-adding sectors.
