By Andrea McKaiser-Walbrugh, Senior Associate, Banking & Finance, CMS South Africa
As the African Continental Free Trade Area (AfCFTA) shifts from vision to implementation, its success is increasingly judged not by ambition, but by whether it can unlock capital at scale across the continent.
Despite steady economic growth in parts of Africa, intra-African foreign direct investment (FDI) remains low relative to potential. The constraints are less visible than headline macroeconomic risks. They are legal, regulatory, and structural—embedded in the way African markets are governed and connected. Until these frictions are addressed, African capital will continue to find it easier to invest abroad than within the continent.
Evidence from the African Development Bank and UNECA shows that intra-African FDI is generally more resilient and employment-intensive than external investment flows. Yet it is held back by fragmented legal systems, inconsistent enforcement, and uneven integration of markets. The African Integration Report (2025) confirms progress in institutional alignment, but persistent gaps remain in trade facilitation, infrastructure connectivity, and capital mobility.
This disconnect between policy ambition and implementation is central to the AfCFTA challenge. While tariff barriers are gradually falling, investment flows remain constrained by deeper structural issues.
One of the most significant barriers is regulatory fragmentation. Investors operating across African jurisdictions face differing investment codes, sector restrictions, licensing thresholds, and approval timelines. This creates what industry practitioners describe as compliance fatigue—where legal complexity increases transaction costs and slows down deal execution.
The impact is particularly acute for African mid-sized firms driving regional expansion. Unlike global multinationals, these firms often lack large legal teams or the financial buffers to absorb regulatory delays or uncertainty. As a result, even viable cross-border opportunities can become commercially unattractive.
Capital mobility is another key constraint. Exchange controls, unclear repatriation rules, and underdeveloped cross-border payment systems continue to restrict the movement of funds. Institutions such as Afreximbank have consistently identified currency convertibility and settlement risk as major deterrents to intra-African investment, especially in infrastructure, energy, and fintech sectors.
Investors also face uncertainty in dividend repatriation, offshore borrowing structures, and shareholder loan treatment. These frictions raise the cost of capital and disproportionately affect African investors who rely on regional financing rather than hard currency inflows.
At the same time, protective regulatory measures such as local content rules and national security screenings—while legitimate in principle—often lack transparency and consistency in application. Research suggests that non-tariff measures affect nearly 30% of intra-African trade, particularly in agriculture, energy, and manufacturing. Where approval criteria are unclear or discretionary, investors struggle to price risk effectively, reducing long-term investment appetite.
To address these challenges, legal and institutional reform must accelerate.
First, the transition from fragmented bilateral investment treaties toward a unified AfCFTA Investment Protocol would reduce duplication and harmonise investor protections across the continent.
Second, dispute resolution mechanisms must be strengthened. While international arbitration remains relevant, expanding regional arbitration centres and commercial courts in jurisdictions such as South Africa, Kenya, and Morocco would improve speed, accessibility, and cost efficiency for African investors.
Third, investment facilitation needs modernisation. One-stop digital investment platforms with binding timelines are essential to reduce uncertainty and improve execution in strategic sectors such as renewable energy and financial services.
Ultimately, Africa’s investment challenge is not a lack of capital or opportunity, but a misalignment of legal and regulatory systems. If these structural barriers are addressed, African capital will no longer be pulled outward by necessity. It will be able to scale efficiently within the continent—where its impact is most needed.