Journal of African Development

Introduction

The African diaspora comprises over 160 million people worldwide whose transnational ties with their countries of origin have significant economic, social, and cultural implications. Their collective resources, knowledge, and entrepreneurial spirit are transforming Africa’s economies by driving investment, innovation, and development at a scale surpassing aid and some forms of direct foreign investment. This article provides a comprehensive review of African diaspora contributions to investment and entrepreneurship in Africa, exploring key mechanisms, sectors, impact, and future trajectories.

The Scale and Channels of Diaspora Investment

Remittances: More than Family Support

• In 2023, Africans abroad sent an estimated $100 billion home, making the diaspora the continent’s single largest source of external finance^[1][2].
• These remittances account for roughly 2-3% of Africa’s GDP, and in countries like Gambia, remittances can be as high as 30%^[1].
• Beyond household support, remittances now finance education, healthcare, and increasingly, small businesses and startups^[3][4].

Diaspora Direct Investment (DDI)

• Diaspora Direct Investment refers to investments by people of African origin—formally or informally—in African businesses and infrastructure projects^[5].
• DDI supports both new ventures (startups, SMEs) and expansion of existing firms, especially in sectors where diaspora members possess expertise.

Knowledge, Skills, and Networks

• Diaspora engagement extends to knowledge transfer and skills-building. Collaborations with local universities, mentorship of entrepreneurs, and the introduction of new technologies by diaspora professionals are crucial for Africa’s innovation-driven growth^[6].
• Business networking across continents accelerates market access for African products and talent^[7].

Economic Impact of Diaspora Engagement

Financial Contributions at a Glance

Comparing Remittances, FDI, and Aid

Remittances to Africa have regularly surpassed both foreign direct investment (FDI) and official development assistance (ODA)^[1][3]. This growing trend underscores the diaspora’s importance not just as a cash resource, but as economic influencers who initiate grassroots investment and entrepreneurial ventures.

Key Sectors of Investment

Financial Technology and Digital Platforms

• Wave (Senegal) and M-Pesa (Kenya) revolutionized remittances and payments, attracting diaspora investors and users^[10].
• Diaspora-created or targeted fintech startups reduce remittance costs (traditionally 10-15%) and facilitate crowd-sourced investment^[11].

Agriculture and Agribusiness

• Crowd-funding and direct investment schemes allow diaspora members to support sustainable farming, agri-processing, and food exports^[12].
• Social enterprises like Biomanity and Bioprotect enable diasporans to address food security and sustainable development^[11].

Real Estate and Infrastructure

• Investment platforms such as Wizodia help diaspora buy or co-invest in real estate back home, fueling local urban development^[11].
• Projects in transport, energy, and digital infrastructure benefit from diaspora expertise and capital^[6].

Creative and Knowledge Industries

• Diaspora entrepreneurs in media, fashion, and tech have launched cross-continental ventures—e.g., TV and Lionesses of Africa—while also strengthening African cultural influence globally^[12][13].

Entrepreneurship: Diaspora-Led Startups and Success Stories

Table: Selected Diaspora Entrepreneurial Initiatives

• Success factors: Deep understanding of local and international markets, patient capital, leveraging personal networks, and cultural fluency.

The Link between Remittances and Entrepreneurship

Remittances do more than cover day-to-day expenses—they act as seed capital for business ventures and investments in education and skills-building^[3][14]. Studies show a positive correlation between remittance flows and the proliferation of micro and small enterprises in recipient countries. They also create a safety net, enabling recipients to take entrepreneurial risks^[8][15].

Barriers and Challenges

• Regulatory and Transfer Costs: High transfer fees and unfriendly regulations can diminish investment flows^[11].
• Information Gaps: Lack of transparent platforms and reliable information inhibits diaspora investment.
• Institutional Barriers: Complicated business registration, corruption, and weak property rights discourage both diaspora and domestic entrepreneurs.
• Fragility of Ventures: Many diaspora-led startups are vulnerable due to limited initial capital and fragile cross-border support systems^[11].

Policy Innovations and Ecosystem Building

• Establishment of dedicated diaspora engagement agencies (e.g., in Ethiopia, Ghana) to incentivize investment^[8][5].
• Creation of innovation funds (e.g., African Diaspora Innovation Fund) and business accelerators for diaspora-led startups^[16][7].
• Promotion of digital solutions for secure, transparent investment and mentorship channels^[11].

Visual Overview: Diaspora Contribution Channels

• Remittance Flows:
  • Direct household assistance
  • Small business capitalization
  • Social sector support (schools, clinics)
• Direct Investment:
  • SME/startup funding
  • Infrastructure projects
  • Real estate
• Skills and Knowledge Transfer:
  • University partnerships
  • Tech innovation
  • Professional mentorship

Graph: African Diaspora Remittances vs. FDI and Aid (2015–2023)

| Year | Diaspora Remittances (USD B) | FDI (USD B) | ODA (USD B) |
|------|------------------------------|-------------|-------------|
| 2015 |                    55        |     47      |     49      |
| 2018 |                    78        |     51      |     53      |
| 2020 |                    85        |     41      |     57      |
| 2023 |                   100        |     54      |     52      |

Diaspora remittances consistently outpace FDI and ODA flows to Africa^[1][2][3].

Future Outlook and Recommendations

• Leveraging New Digital Platforms: Continued development of secure, low-cost digital transfer/investment systems to unlock “diaspora goldmine” potential^[1].
• Ecosystem Support: Enhance access to business support, legal services, and networks for diaspora entrepreneurs^[7][13].
• Policy Harmonization: African governments should streamline regulatory processes and lower barriers to cross-border investment.
• Capacity Building: Invest in training and mentorship initiatives connecting diaspora professionals and local entrepreneurs for sustainable skill transfer^[6][7].
• Tracking and Transparency: Develop better systems and platforms to measure and report diaspora investments to inform smarter policymaking^[5].

Conclusion

The African diaspora is much more than a source of remittances or cultural ambassadors—it is an entrepreneurial powerhouse with the capital, expertise, and networks to drive Africa’s transformation. While challenges remain, the ongoing surge in diaspora investments and business ventures signals a dynamic new era for African economies. Building inclusive systems that nurture these flows, facilitate entrepreneurship, and connect skills across continents will be essential for realizing the continent’s potential through 2030 and beyond.

References

1. https://www.afriex.com/post/how-the-african-diaspora-is-powering-economic-growth-back-home
2. https://africandiasporanetwork.org/rethinking-remittances-a-call-to-action-for-the-african-diaspora/
3. https://panafricancouncil.org/our-work/diaspora-direct-investment-engagement/
4. https://www.taylorfrancis.com/chapters/edit/10.4324/9780203080665-6/diaspora-entrepreneurship-africa-elie-chrysostome
5. https://mo.ibrahim.foundation/sites/default/files/2020-05/africans-in-the-world.pdf
6. https://afrifundcapital.com/the-future-of-africa-how-diaspora-investment-can-shape-the-continents-trajectory/
7. https://africandiasporanetwork.org/able/
8. https://downloads.unido.org/ot/99/25/9925424/WP6.pdf
9. https://www.afriklens.com/success-stories-of-african-entrepreneurs/
10. https://www.icmpd.org/our-work/projects/african-diaspora-global-marketplace-adim
11. https://www.proparco.fr/en/article/entrepreneurs-diaspora-are-ramping-innovation-led-development-africa
12. https://www.weforum.org/stories/2024/03/global-black-economy-africa-innovation-prosperity/
13. https://www.lionessesofafrica.com/startup-stories
14. https://www.numberanalytics.com/blog/remittance-economies-african-diaspora
15. https://irjems.org/irjems-v3i8p157.html
16. https://africandiasporanetwork.org/african-diaspora-innovation-fund-afdif/