Rethinking risk in African investment

As myths about risk fade, Africa is rewriting its investment story, coupling an average project loss rate of just 1.7 %, with a US $3.4 trillion free-trade zone that spans 1.5 billion people, yet turning this new narrative into lasting capital will still depend on transparent data, solid risk cover, and investors ready to partner for the long haul.

Investors often hear that Africa is a risky place to put money. But the real story on the ground is changing. African economies have grown about 5% a year for two decades. During the 2020 COVID slump, Africa’s GDP fell only about 2%, versus a 5.5% contraction in rich countries. In other words, many African markets have shown steady growth and resilience.

Still, many global investors stay on the sidelines. Surveys show a big gap in perceptions: people already investing in Africa see it as the most attractive region, but those with no operations see it as the second-least attractive. This split view is driven by old assumptions. In reality, Africa’s actual investment losses have been low. An African Development Bank study found that over 14 years the loss rate for African projects was just 1.7%, versus 13% in Latin America and 10% in Eastern Europe. So African investments have actually performed better than many people think.

Some business leaders note big returns in Africa. Nigerian entrepreneur Tony Elumelu says: “There’s nowhere else we get the kind of returns on investments as what we make in Africa”. The key, he explains, is seeing opportunities instead of just risks. He argues that when investors structure deals carefully and address challenges up front, they gain a competitive edge.

Meanwhile, African governments and institutions are helping manage risks. For example, Africa now has its own risk insurance agencies. The African Trade and Investment Development Insurance (ATIDI) offers coverage for climate and other project risks, which makes loans more likely to be approved. And the African Development Bank is setting up a new investment guarantee agency to cover political, currency and equity risks. These tools help protect investors against shocks and make projects more bankable.

Demographics and demand in Africa also look strong. About 75% of Africans are under age 35. A young, growing population means more workers and more consumers. Cities across the continent are expanding, and a rising middle class wants phones, electricity and other goods. Homegrown tech hubs – like Nairobi or Lagos – are also growing fast. All this points to long-term growth: more people means more demand for housing, shops, factories and services.

Certain sectors stand out. Renewable energy, fintech (digital finance) and light manufacturing are booming. African exporters are moving from raw materials to processed goods and tech services. The continent is also rich in minerals needed for clean technology – things like copper, lithium and graphite used in electric-vehicle batteries. In fact, as AfDB President Akinwumi Adesina points out, “what Africa actually does with its resources will shape the future of the world”.

Integration across Africa is another plus. The African Continental Free Trade Area (AfCFTA) now links about 1.5 billion people in a single market. This $3.4 trillion regional market lets companies sell across borders more easily. By tapping into this larger market, investors can spread their risk. For example, if demand dips in one country, exports can shift to neighbors.

In short, risk in Africa can be managed with sound planning and local insight. Many of the challenges – political changes, currency swings, or infrastructure gaps – are familiar in emerging markets everywhere. With the right partners, those hurdles become just part of doing business, not insurmountable barriers. In fact, many analysts now say the bigger risk is not investing in Africa. As one African leader put it, “the risk is not in investing in Africa, but in missing out on its opportunities”.

Today’s data and stories suggest it’s time to update the old narrative of “Africa = high risk.” When investors and analysts use clear facts and local knowledge, they often find Africa’s true opportunities outweigh the fears. In other words, smart investors are rethinking risk — and seeing Africa as a chance for solid growth, not just a gamble.