West African nations see strong returns, attract investor attention amid political challenges

Investors in West African countries are finding a profitable haven, as they enjoy some of the highest returns on the continent. Over the past year, Ivory Coast, Gabon, Senegal, Ghana, and Nigeria have yielded significant returns of 8.5%, 8.7%, 11.4%, 14.2%, and an impressive 28.2%, respectively. These returns outshine the 8.3% average for sovereign emerging and frontier countries in a Bloomberg index.

What’s driving this success? The Western region now boasts Africa’s fastest-growing economies, diversifying their funding sources and managing debt levels effectively. These factors make West Africa an attractive destination for investors seeking promising opportunities. Despite facing political challenges such as military coups and election delays, institutions in the region are demonstrating resilience, supported by international lending institutions like the International Monetary Fund (IMF).

China, too, has taken note of West Africa’s potential. In 2021 and 2022, China approved 16 loans amounting to $2.22 billion for African countries, with 86% of this investment directed towards West Africa. Countries like Senegal, Benin, and Ivory Coast are the primary beneficiaries of this increased Chinese investment, traditionally concentrated in Southern and East Africa.

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Beyond financial investments, West African countries are positioning themselves as manufacturing hubs, drawing foreign direct investment. For example, Ivory Coast is moving up the value chain in agro-processing, attracting interest from international investors.

However, the region is not without its risks. Recent coups in Gabon and political uncertainties in Senegal have led to volatility in bond markets. Burkina Faso, Mali, and Niger, now led by juntas, plan to withdraw from the regional economic bloc ECOWAS, adding further potential risks, according to S&P Global Ratings.

In contrast to West Africa’s buoyant market, Eastern and Southern Africa are facing economic challenges. Ethiopia, once the continent’s fastest-growing economy, is grappling with a civil war that led to default in 2020. The downgrade of Kenya, the largest economy in the East, has tempered investor enthusiasm for the region. Similarly, Southern Africa, with South Africa’s economic struggles, is expected to expand only 2.7% in 2024, according to the African Development Bank Group.

Despite these challenges, the promise of West Africa’s growth has captivated investors, showing that the region is well on its way to becoming a powerhouse of economic activity on the continent.