Africa’s US$210 billion opportunity lies in turning financial inflows into local growth

Africa could increase its gross domestic product (GDP) by US$210 billion above its current trajectory by 2043 if it combines higher external financial inflows with stronger domestic investment capacity, according to Dr Marvellous Ngundu, senior research consultant with the African Futures and Innovation programme at the Institute for Security Studies (AFI-ISS).

These projections are contained in his report “Financial Flows.Thematic Futures”, produced by the African Futures & Innovation Programme and points to the potential for infrastructure, institutional reform and stronger domestic production to amplify the impact of foreign investment and other external financing.

Higher external inflows alone would add about US$63.7 billion, or 0.8%, to Africa’s projected GDP by 2043. Combined with more efficient investment, stronger institutions, skills, technology absorption and productive linkages, the gain rises to US$210 billion, or 2.6% above the current trajectory which is more than three times the growth dividend.

This, in turn, would lead to about 21 million fewer people living below the international poverty threshold of US$3 a day.

“The policy question now is not simply how Africa attracts more capital, but it is also how Africa retains more productive value from the capital it attracts,” said Dr Ngundu during an online discussion on Africa’s changing financial landscape.

The findings place investment efficiency and domestic absorptive capacity at the centre of Africa’s financing outlook, as governments face pressure from rising debt-service costs, constrained development assistance and uneven foreign direct investment.

From isolated projects to industrial ecosystems

Several African economies are already testing parts of this formula.
Dr Olivia Gumbo, a senior policy officer at the African Development Bank Group, cited Morocco as one of the continent’s strongest examples of using foreign investment to develop “complete industrial ecosystems rather than isolated factories”. She pointed to automotive manufacturing and its supplier network, as well as aerospace and renewable energy.

Dr Gumbo also identified Ethiopia’s industrial parks and investment in textiles, garments, leather and agro-processing; Rwanda’s focus on agro-processing, digital services and tourism; Kenya’s efforts to connect remittances with technology and entrepreneurship; Nigeria’s technology sector; and Ghana’s use of diaspora engagement in agribusiness, small businesses, digital entrepreneurship and pharmaceuticals.

The location and structure of investment matter as much as its headline value.

“External finance has the greatest development impact when it supports production, when it supports jobs and value addition,” Dr Gumbo said. “For example, a manufacturing investment will have a strong impact if there is reliable power, skilled technicians, efficient ports and also local suppliers that can participate in the value chain.”

This aligns with the report’s finding that foreign direct investment is most valuable when it expands productive assets, exports, employment, technology transfer and domestic supplier networks. Investment concentrated in extractive enclaves, real estate or projects with few local linkages produces weaker multipliers.

The opportunity is particularly large in Africa’s lower-middle-income economies. The forecast assigns this group more than 70% of the additional FDI generated under its scenario. By 2043, they account for about US$20 billion of the additional annual FDI inflows and US$130 billion of the projected GDP gain. Their larger markets, broader productive bases and growing links to regional value chains give them more channels through which capital can circulate.

Low-income countries could still gain about US$50 billion in GDP above the current path, particularly where finance removes basic constraints in energy, transport, agriculture and human capital. Upper-middle-income economies gain less in aggregate but have an opportunity to direct capital towards innovation, advanced technology and higher-value production.

More partners and greater bargaining power

Dr Ngundu argued that the continent’s ability to absorb and use financing is central to its economic prospects which hinge not just on how much financing enters Africa, but how effectively it is used. Because foreign direct investment, aid, and portfolio investments operate through different channels, they cannot be treated as interchangeable.

To maximise returns, investments must target critical enablers like energy, transport, and digital infrastructure, alongside a robust domestic supplier base that prevents heavy reliance on imported inputs.

The financing landscape is also becoming more diverse with a range of potential partners beyond Europe and the United States.

Dr Stefan Mair, executive chair of the German Institute for International and Security Affairs, said this multipolar environment could strengthen African countries’ negotiating position.

“Africa has the chance for multi-alignment,” Dr Mair said. “They don’t depend on one actor, one external actor. They can negotiate on many issues.”

But more choice does not automatically produce better deals: “We need that capital to go beyond just investment, but also to have an impact on skills development, an impact on technology,” Dr Ngundu said.

The report’s projections suggest that strengthening domestic capacity could substantially increase the economic returns from external financing.

Making every flow work harder

The opportunity is not confined to conventional investment. According to the report, remittances have become one of Africa’s largest and most stable external financial flows, rising from about US$58.2 billion in 2010 to almost US$95 billion in 2025. The report projects that lower transfer costs, interoperable payment systems and wider access to regulated financial services could lift annual receipts to US$125.3 billion by 2043, US$17.7 billion above the current path.

Aid remains vital for low-income and fragile states, particularly for health, education, nutrition and humanitarian services while portfolio investment can deepen local financial markets, although it is more vulnerable to sudden reversals.

Each flow serves a different purpose and the report cautions against treating them as interchangeable.

Africa also has scope to retain more of its own capital. The report cites an estimated US$88.6 billion lost annually through illicit financial flows, while stronger tax administration, customs systems, ownership transparency and asset recovery could expand the resources available for development.

The continent’s annual development-financing gap remains at an estimated US$402.2 billion but Dr Ngundu’s report suggest closing that gap is only part of the task. The immediate opportunity is to make every dollar already entering African economies work harder – by connecting it to local firms, workers, technology and markets.

“Capital, we need it,” said Dr Ngundu, “but, it’s not enough.”

Written by Someleze Ndede for bird story agency