How geopolitical tensions will impact FDI flows

Foreign Direct Investment (FDI) flows have experienced a rebound in 2021, with the United Nations Conference on Trade and Development predicting that project finance and infrastructure sectors will be the driving force behind this momentum. However, recent geopolitical tensions in Europe are causing concerns about the outlook for investment flows, particularly in African countries. Victor Aluyi, the Head of Investment at Sankore Global Investments, shed light on the potential impact of these tensions in a recent interview with CNBC Africa. Aluyi discussed the trends in FDI flows across various African nations, highlighting the contrasting situations in countries like Nigeria, Ghana, Kenya, South Africa, and the Democratic Republic of Congo. He noted that countries with weakening fiscal positions have seen a decline in FDI inflows, while those with improved economic conditions have experienced growth in investment. The geopolitical tensions in Europe, particularly the conflict between Russia and Ukraine, are expected to further exacerbate the challenges faced by African nations in attracting FDI. Aluyi emphasized the importance of addressing fiscal issues and creating a conducive environment for investment to drive growth in FDI inflows. The interview also delved into the growing interest in fintech companies in Africa, with Aluyi highlighting the value creation potential of these innovative businesses. He noted that fintech firms are addressing complex challenges and making a significant impact on the market, attracting substantial funding from venture capitalists and private equity firms. Aluyi pointed out that Nigeria, in particular, has been a hotspot for fintech investments, with companies like Flutterwave raising significant funds. Despite the positive outlook for fintech investments, Aluyi stressed that FDI flows are driven by broader economic factors, such as commodity prices and global market trends. The conversation then shifted to the shift away from fossil fuel projects by global investment banks, posing a challenge for oil-producing countries like Nigeria. Aluyi highlighted the importance of energy transition and the need for strategic financing strategies to support green energy projects. He noted that underinvestment in the oil and gas sector has hindered production capacity, emphasizing the urgency for African countries to adapt to the changing energy landscape. Aluyi suggested that African nations could tap into the available funding for green energy projects but cautioned against 'greenwashing' and emphasized the need for a carefully planned transition to avoid supply shocks. Overall, the interview underscored the complex interplay of geopolitical tensions, economic factors, and industry trends in shaping FDI flows in African countries and the importance of strategic planning to navigate these challenges.