Volatility and insecurity seems to currently be the order of the day for global economies – which undoubtedly has consequences for investors. Andrew Tunnicliffe speaks with global investment experts Mike Pfi ster and Erik Peterson to gauge the current climate and asks what we can expect in coming months, especially if Africa could be the next big thing.


It wasn’t until 1999 that global inward foreign direct investment (FDI) breached $1trn annually – just a decade earlier it wasn’t even a fifth of that. World Bank data shows continued substantial growth over the first few years of this century, peaking at more than $3.1trn before the financial crisis hit in 2007.

Since those heady days of unbridled financial buoyancy, FDI has been far more volatile, standing at a mere $1.58trn in 2021, according to work by Statista. That volatility is evidenced in annual Chinese and US inward FDI since the financial crisis. China peaked at $291bn in 2013 – dropping for the next five years – but was as low as $131bn in 2009. In the US, the picture was even more stark. Since 2007, it has ranged between $149bn and $511bn, dropping a staggering $297bn between 2015 and 2018. Nowadays, China and the US continue to lead the world, recording FDI of $101bn and $67bn respectively in the first quarter of 2022. Australia is hot on their heels – recording investment of $59bn over the same period.

From Covid to conflict

Although investment is bouncing back from the pandemic, Investment Monitor’s Global FDI Annual Report 2022 warns that instability persists. It notes that though greenfield FDI projects are at pre-Covid heights, rising 18% in 2021 alone, investment will almost certainly fall again in 2022. “Covid has really impacted everybody in various shapes and forms,” says Mike Pfister, a former senior advisor at the OECD, now speaking in a personal capacity ahead of taking up his new role as head of development at the International Committee of the Red Cross. Not that the picture is totally gloomy. As Pfister notes, some countries, especially in East Asia, have responded better thanks to their experience of SARS. “They’ve learned considerably from that,” he explains. “They had systems in place for tracing, for example, which were extremely useful, particularly during the early stages of the pandemic.” Pfister adds that the pandemic had some “silver linings” too, especially in terms of productivity and digitalisation, both of which could be a “foundation for future growth”.

Of course, Covid-19 isn’t really the main worry anymore. Since its February invasion of Ukraine, Russian FDI has essentially collapsed, with some global brands pulling out of the country entirely. The OECD, for its part, says the impact on FDI and other capital flows to and from both Ukraine and Russia was “immediate and profound” – with predictable consequences for the economic prospects of both states. The conflict, supply chain issues and a global skills shortage are combining, meanwhile, to ensure some of the worst inflationary pressures for a generation or more, dramatically altering the global economic outlook. Erik Peterson, managing director of Kearney’s Global Business Council, and co-author of its 2022 Foreign Direct Investment Confidence Index, says inflation has proved more stubborn than previously thought and remains at more than 7% year-over-year. “The threat of slowed growth and persistent price pressures looms in the coming years if inflation fails to come under control.”

More to the point, this uncertainty looks set to impact FDI over the coming months. ”When you have economies that are not doing well,” says Pfister, “they’re not going to attract as much foreign investment as they would when they are.” In particular, Pfister explains that this is having an impact on the EU. With the continent reeling from rising prices and a lack of energy, investment flows have invariably suffered. Unlike the EU, however, the Chinese market remains attractive. That’s largely due to its size and relatively strong economy – even though GDP isn’t where the government might want it to be right now – as well as a plentiful workforce and a strong domestic supply chain. In the seven months to July 2022, indeed, Chinese government figures showed that the mainland attracted $123.9bn in FDI, a rise of 21.5% year-on-year. Peterson, however, says a large amount of inward investment is coming from Hong Kong, adding that China proper is facing significant challenges to its investment climate. “Foreign investors are showing increasing concern over China’s persistent zero- Covid policy,” he says, “which has slowed the economy and made it highly difficult to attract and bring foreign talent to China.”

China survive

These societal worries are shadowed by political challenges to China’s FDI supremacy. In the UK, for instance, Huawei Technologies first came to prominence in 2018 when a government report said it had exposed the country to security risks. What followed ultimately led to Britain banning all involvement of the Chinese telecoms provider in the UK’s 5G network. A year later, in 2021, news emerged of a concerted effort to restrict China’s involvement in the UK’s nuclear power renaissance.

Yet if Western countries have the ability to limit Chinese FDI, less wealthy places may have to accept whatever they’re given. That’s especially true when it comes to Africa. The continent has been littered by Chinese FDIs and financial arrangements since the beginning of the century, allowing it to gain significant influence over the last 15 or so years. At the China-Africa Economic and Trade Expo, a four-day event held in China last September, insiders inked a total of 135 projects, together valued at almost $23bn.

Yet it isn’t just FDI that China has brought to the continent. In earlier years, it was more actively pursuing loans – a proposition Pfister says will eventually bite. “There’s an emerging debt crisis,” he warns, “particularly in Africa.” He believes the continent, for generations exposed to chronic societal and economic disadvantage, will be one of the hardest hit when the bill finally arrives. Suffering most during the pandemic and in today’s evolving food emergency, he argues Africa will once again be plunged into poverty and acute inequality, arguably rooted in “the Chinese investment development model”.

Pfister adds that debt could become crippling for many countries, citing the likes of Zambia as an example, where a recently elected pro-investment, pro-business government has had to grapple with the arrangements it inherited.

Bless the gains down in Africa

All the same, the continent’s future is perhaps as bright as it’s ever been. Among other things, Pfister says it is making headway in repositioning itself economically. “There’s no coincidence that President Macron, Chancellor Schultz and now even US Secretary of State Antony Blinken, are focused on Africa right now. Africa is interesting because when you’re looking at investment policy, you see it’s very much a mixed bag of countries which are liberal and open to foreign investment and others that take more of a protective stance. African governments have got a massive opportunity right now, because the West wants to work with them more than ever.” Pfister adds that it isn’t just the obvious economic appeal – it’s the interest from Chinese and other Asian investors that has alerted the West to act for fear of becoming irrelevant. “If African governments are clever they could really play out the two sides and get the most out of it,” Pfister says. “Investors from OECD countries could add considerable value in promoting sustainable investment models, particularly in the natural resources sector.”

Erik Peterson, managing director of Kearney’s Global Business Council.

Peterson, for his part, is fairly optimistic too. Among other things, he notes recent announcements by the G7 to raise up to $600bn to finance infrastructure projects in developing countries. Even so, he concedes that there is a “significant amount of catching up that must be done before these projects can match the levels of support seen in the Belt and Road Initiative.” It remains to be seen, Peterson adds, whether governments can mitigate the risks that often prevent investors from entering emerging markets – though support from the powers-that-be could help reduce jitters.

Mike Pfister, head of development at the International Committee of the Red Cross.

Such a move by the West must be carefully plotted, though, and not just because of the risk of playing out a proxy conflict, with Africa acting as the battleground. As Peterson puts it: “Should the G7 initiative achieve success, we could certainly see this adding somewhat to already tense relations between the G7 members and China.” At the same time, there is also the danger of Western countries being seen as unethical in how they promote investments, developments that in turn could damage reputations and diplomatic relations for years to come. In short, both Pfister and Peterson agree that investors have to uphold the principles of sustainability, environmental, social and economic best practice – particularly now as African countries have wised up to their past mistakes.

Building resilience

There is hope, then, that the Southern African Development Community (SADC) – and the wider continent through the African Continental Free Trade Area – can enjoy a new age of development. SADC is an economic community with the aim of promoting sustainable and equitable economic growth and socio-economic development through efficient, productive systems, deeper cooperation and integration, good governance and durable peace and security.

Pfister argues that such relationships will be key if Africa, or indeed any other part of the world, is to attract investment. “It’s all about market size,” he says. “If you manage to increase your regional trade and investment this will attract investment. That’s one of the reasons South East Asia fared relatively well during the [pandemic], because it has a lot of intra-regional investment and trade. In a way, you create the market closer to home.” This is a critical element to success anywhere.

Regional markets that bring together stakeholders – who share trading ambitions and philosophies – and ultimately deliver a more stable, secure and resilient trading environment, backed by stronger supply chains and tools of governance. Such environments will prove to be attractive to outsiders and be efficient for those that move into them. For investors, these destinations offer regulatory stability and supply chain security – something we no longer take for granted. A word of caution though: the OECD itself warns that the benefits of FDI do not accrue automatically and evenly across countries or sectors, even when partners come together with the aim of economic affiliation.

A recipe for success, in other words, involves investors and governments partnering for sustainable development – with both making dedicated efforts. “Investors need to promote responsible business models and governments need to strengthen their policies to reap sustainable development results,” Pfister concludes. “It takes two to tango.” It’s a call to action that has never been needed more – even if success is far from certain.