US-China trade tensions will fuel foreign investment inflows in Africa – PAMA
The Pan-African Manufacturers Association (PAMA) has predicted that the ongoing trade war between the United States of America and China will fuel the inflow of foreign direct investments to African countries.
This is contained in the January 2025 edition of the Association’s monthly bulletin.
The two biggest economies in the world are involved in a trade war characterised by the imposition of tariffs and counter-tariffs on one another.
Days into in inauguration as U.S. President, Donald Trump imposed a 10% tariff on all Chinese imports into the U.S. This is in addition to a 10% tariff earlier imposed on China by former President Joe Biden.
China responded with counter-tariffs including a 15% additional duty on imports of US coal, coke, and liquified natural gas, and a 10% additional duty on imports of US crude oil, agricultural machinery, large-displacement vehicles, and pickup trucks, among others.
PAMA projects that the tension between both economic giants as well as other economic disputes in the West will make Africa’s manufacturing and automotive sectors attractive to foreign investors.
“While Africa will remain among the least exposed to the emergence of the protectionism wave in US international trade policy, we strongly expect the US-China trade tensions to fuel foreign investment inflows in Africa, with a focus on automotive, textiles, and electronics manufacturing,” PAMA noted.
It also noted that Africa’s manufacturing sector will grow by 4% in 2025, noting that the continent’s economic climate is improving.
“FDI inflows into Africa’s manufacturing sector are projected to grow modestly by around 4% in 2025, as global investors seek opportunities amid improving economic conditions and the potential spillover effect of the trade shift in the West towards Africa.
“However, the geopolitical landscape and ongoing conflicts will still pose risks that could deter potential investors to key sectors of interest,”
PAMA advocates improved cross-border trade in Africa
The association has advised improved trade collaboration among African countries and the implementation of the Africa Continental Free Trade Act (AfCFTA).
It stressed that such collaboration in addition to innovations and bold adaptations are required to boost the performance of the manufacturing sector.
“There are signs of performance improvement and better strategic opportunities for Africa’s manufacturing sector in 2025, supported by growing investment in local production, deeper regional market integration through tighter implementation of initiatives like the AfCFTA, and broader adoption of human-machine collaboration.
“However, key risks remain as some persistent challenges from 2024 are expected to linger amid rising new hurdles like stricter sustainability regulations and escalating costs buoyed by factors including freight rate spikes, requiring bold innovation and strategic adaptation, and collaborative efforts to sustain growth and build resilience,” the report states.
How governments can strengthen regional integration and attract foreign direct investments (FDIs)
PAMA advised African governments to strengthen regional integration and attract foreign direct investments by doing the following:
- Address non-tariff barriers, improve customs procedures, and harmonise trade regulations.
- Provide incentives for manufacturers to invest in digital technologies, automation, and AI-driven production to boost competitiveness.
- Increase investment in cross-border infrastructure, such as roads, railways, and digital connectivity, to facilitate trade.
- Create a favourable investment climate by improving ease of doing business, offering tax incentives, and providing guarantees against political risks to attract global investors.
- Diversify trade routes and invest in alternative transportation infrastructure to reduce dependence on high-risk sea routes like the Red Sea. Also, scaling up the regional air freight and rail networks to complement sea freight.
- Prioritize infrastructure improvements, particularly in transportation and energy, to support efficient manufacturing operations.
- Pool resources together to provide targeted support to countries facing severe conflict, such as the Democratic Republic of Congo (DRC), to stabilize their economies and revive manufacturing activities.
- Provide export subsidies and tax rebates for key manufacturing sectors and offer incentives for companies relocating production facilities to Africa.
