By Business Insider Reporter
Though Tanzania is reputed as East Africa’s leader in attracting Foreign Direct Investment (FDI) but a wider picture show that the East Africa region is still lagging compared to its global peers.
A recent report by UN Trade and Development (UNCTAD) show that global foreign direct investment staged a headline comeback in 2025, rising 14 percent to an estimated US$1.6 trillion after two subdued years.
Yet behind the recovery lies a more sobering reality for East Africa: most of the rebound was driven by financial flows moving through global hubs rather than fresh, productivity-boosting investment flowing into developing regions.
According to the latest Global Investment Trends Monitor by UNCTAD, more than US$140 billion of last year’s increase came from financial transactions routed through international financial centres. Strip those out, and global FDI grew by only about five percent – a reminder that the investment activity most critical for job creation and industrialisation remains fragile.
Developed markets surge, developing regions lag
The divergence between developed and developing economies widened sharply. FDI flows to developed economies jumped 43 percent to $728 billion, fuelled largely by Europe, where large cross-border mergers and acquisitions returned in countries such as Germany, France and Italy.
By contrast, investment into developing economies slipped by two percent to US$877 billion, despite these countries still accounting for over half of global FDI. Least developed countries were hit hardest, with nearly three-quarters recording stagnant or declining inflows.
For East Africa – where governments are banking on foreign investment to drive industrial growth, energy expansion and infrastructure delivery – the trend underscores a persistent challenge: global capital is increasingly bypassing regions that need it most.
East Africa: resilience without momentum
While UNCTAD’s global figures do not yet provide a detailed East Africa breakdown for 2025, regional patterns from recent years point to cautious investor sentiment. Kenya, Tanzania, Uganda and Rwanda have all undertaken regulatory reforms, improved investment promotion frameworks and expanded special economic zones.
Yet these efforts are colliding with a global investment environment that favours scale, certainty and capital-intensive sectors – often at the expense of frontier and emerging markets.
International project finance, which underpins major infrastructure in transport, power and water, declined for a fourth consecutive year globally. This is particularly worrying for East African economies that still rely heavily on cross-border financing to close infrastructure gaps. Renewable energy – once a bright spot – saw a sharp pullback worldwide as investors reassessed regulatory risks and revenue certainty.
Domestic investors have stepped in to partially fill the gap in some markets, notably in Kenya and Tanzania. But UNCTAD warns that this shift risks widening financing shortfalls in countries where local capital markets lack the depth to support large-scale projects.
Data centres and the new geography of capital
One of the clearest global trends reshaping investment flows is the rise of data centres. In 2025, data centres accounted for more than a fifth of global greenfield investment values, with announced projects exceeding US$270 billion, driven by demand for artificial intelligence, cloud computing and digital infrastructure.
However, these investments remain heavily concentrated in a handful of countries – led by France, the United States and South Korea – with only a few emerging markets such as Brazil, India and Thailand breaking into the top tier.
For East Africa, the digital economy presents both an opportunity and a risk. Rapid growth in mobile connectivity, fintech and data usage suggests long-term potential.
Yet without reliable power, competitive energy pricing and clear digital regulation, the region risks missing out as global investors cluster around markets with ready-made infrastructure.
What this means for East Africa’s policy choices
The uneven recovery in global investment highlights the limits of relying on headline FDI figures. For East Africa, the priority is not simply attracting more capital, but attracting the right kind of investment — projects that build productive capacity, integrate local suppliers and create decent jobs.
That will require sharper industrial policy, predictable regulation and targeted incentives aligned with regional strengths such as agro-processing, logistics, light manufacturing and renewable energy. It also reinforces the importance of regional integration under the East African Community (EAC), where a larger, more unified market could help de-risk investment decisions.
A fragile outlook, but room to act
UNCTAD expects global FDI to increase modestly in 2026 if financing conditions ease further. Still, geopolitical tensions, policy uncertainty and economic fragmentation are likely to keep real investment subdued.
For East Africa, this is a moment for strategic clarity. As global capital becomes more selective and concentrated, countries that can demonstrate stability, scale and clear development pathways will be best placed to compete. Without deliberate action, the risk is that the global investment rebound will remain largely a paper recovery – visible in global totals, but absent on the ground where it matters most.
