Business activity across several of Africa’s largest economies strengthened in July, providing a signal of macroeconomic resilience despite a persistent climate of investor caution driven by global monetary volatility and sovereign debt pressures.
Latest purchasing managers’ data indicates that output and new orders rose across key markets, suggesting that internal demand and trade recoveries are offsetting some of the headwinds caused by high inflation and currency depreciation. However, this operational growth has not yet translated into a broad return of foreign portfolio capital, as international investors remain wary of the risk-adjusted returns in the region.
The divergence in performance is most evident in the contrast between general regional strengthening and the specific struggles of oil-dependent economies like Angola. While diverse economies are finding footing through services and manufacturing, those heavily reliant on single-commodity exports continue to face structural bottlenecks that dampen their growth trajectories.
The July Growth Signal
The expansion in business activity is primarily reflected in the Purchasing Managers’ Index (PMI) readings for July. A PMI reading above 50.0 indicates expansion, and several major African hubs have pushed into this territory, driven by a rebound in the services sector and a gradual stabilisation of supply chains.
In markets such as South Africa and Kenya, the growth was underpinned by a recovery in tourism and a surge in domestic consumption. In Nigeria, the strength in activity is partially attributed to the correction of previous pricing imbalances and an increase in non-oil exports, although the cost of doing business remains high due to energy inflation and foreign exchange volatility.
The strengthening activity suggests that African firms are adapting to the “new normal” of higher interest rates and tighter liquidity. Many businesses have pivoted toward lean operational models and sought local financing alternatives as the cost of dollar-denominated credit became prohibitive. This shift toward domestic resource mobilisation has provided a buffer that allowed activity to hold up even as external funding slowed.
The Angola Contrast
While the broader trend is positive, Angola represents a critical point of caution. The Angolan economy continues to grapple with the complexities of oil production volatility and the heavy burden of external debt repayments. As a primary exporter of crude, Angola is hypersensitive to fluctuations in global oil prices and the efficiency of its state-owned oil company, Sonangol.
The struggle in Angola is not merely a matter of production volumes but of fiscal discipline. The government has faced significant pressure to balance the need for infrastructure investment with the necessity of servicing debt to international creditors, including China. This tension has created a precarious environment for private sector investment, where the lack of diversified revenue streams makes the economy vulnerable to external shocks.
For Angola to align with the broader regional trend of resilience, analysts suggest a faster acceleration of its economic diversification agenda. The reliance on oil currently acts as a ceiling on the country’s growth potential, limiting the expansion of its manufacturing and agricultural sectors which, in other African economies, are contributing to the July growth spurt.
Why Investors Remain Cautious
The paradox of strengthening business activity coupled with investor caution is rooted in the global macroeconomic environment. The US Federal Reserve and the European Central Bank have maintained a restrictive monetary stance to combat inflation, which has kept the “risk-free” rate of US Treasuries high.
For institutional investors, the spread between the yield on African sovereign bonds and US Treasuries is often insufficient to justify the perceived risks. These risks include currency devaluation, political instability, and the potential for sovereign defaults. When the cost of borrowing in the West is high and relatively safe, the incentive to move capital into emerging and frontier markets in Africa diminishes.
Furthermore, the memory of recent debt crises in Ghana and Zambia continues to cast a long shadow over the continent. Investors are now applying more stringent due diligence to the debt-to-GDP ratios and foreign exchange reserve levels of African nations. The lack of transparency in some bilateral loan agreements has further contributed to a “wait-and-see” approach among global fund managers.
Currency Volatility and FDI Gaps
Foreign Direct Investment (FDI) has also been hampered by extreme currency volatility. For a multinational company, the ability to repatriate profits is a primary concern. In countries where the local currency has experienced double-digit depreciation against the dollar, the real value of returns is eroded, making long-term capital commitments less attractive.
This has led to a shift in the type of investment entering the continent. There is a visible move away from portfolio investment (hot money) toward strategic FDI in sectors with inherent dollar-earning potential, such as critical minerals, energy transition projects, and telecommunications infrastructure.
The investment in “green minerals”—lithium, cobalt, and copper—remains a bright spot. As the global north accelerates its transition to electric vehicles and renewable energy, Africa’s mineral wealth is creating a floor for investment that is decoupled from the general macroeconomic caution. This strategic necessity is forcing a level of engagement that transcends typical market risk assessments.
The Debt Overhang and the G20 Framework
A significant hurdle to full investor confidence is the slow pace of debt restructuring under the G20 Common Framework. The mechanism was designed to provide a coordinated approach to debt relief for low-income countries, but its implementation has been plagued by delays and disagreements between traditional Paris Club creditors and newer lenders like China.
The uncertainty regarding when and how distressed debts will be resolved creates a vacuum of confidence. Until there is a predictable and transparent process for restructuring, African governments will find it difficult to access international capital markets at sustainable rates. This forces them to rely more heavily on multilateral lenders like the IMF and the African Development Bank (AfDB), which often come with stringent austerity requirements that can stifle the very business activity that strengthened in July.
What Happens Next
The short-term outlook for African economies depends on the trajectory of global interest rates. If the US Federal Reserve begins a sustained cycle of rate cuts, the resulting decrease in the dollar’s strength could trigger a rotation of capital back into emerging markets. This would lower borrowing costs for African governments and make regional assets more attractive.
However, internal reforms remain the most sustainable path to confidence. Investors are increasingly looking for “policy consistency”—the assurance that tax laws, trade regulations, and foreign exchange policies will not change abruptly. Countries that have successfully implemented orthodox economic reforms, such as unifying exchange rate windows and reducing fuel subsidies, are likely to be the first beneficiaries of returning capital.
The strengthening of business activity in July proves that the African private sector possesses a remarkable capacity for endurance. The challenge for policymakers is now to bridge the gap between this operational resilience and financial attractiveness. The goal is to move from an economy that is simply “holding up” to one that is actively attracting the long-term capital necessary for industrialisation and job creation.
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