Investors aren’t supposed to behave like this. Conventional wisdom says foreign investors will run from high inflation. In theory no one should be sending long term capital to countries where 30% price growth wipes out real returns before you’ve even taken off your jacket. Yet in 2025, as one analyst put it, Türkiye’s ‘sky high inflation’ should be a simple barrier to investment. The market’s inevitable question follow: ‘Which idiots are investing?’ The answer is that they aren’t idiots at all. They are just playing a different, strategic game.
Türkiye is the headline case but the same pattern runs through Egypt, Pakistan, Argentina and Nigeria. These are not pockets of stability. They are economies held together by capital controls, political choreography and a currency market where the official rate and the real one don’t always match.
So why is the cash still coming? The answer is simple but deeply misunderstood. This isn’t confidence. It is strategy!
What FDI really is
The first mistake most people make is assuming that foreign direct investment behaves like portfolio inflows. It doesn’t.
Portfolio investors are yield hunters. They worry about inflation, currency depreciation and political noise because those things eat returns.
FDI is different. It is strategic capital. It is not financial capital. It buys assets, access and positioning, not a rate of return.
Look at Türkiye. Inflation sits above 30%, the Lira is sliding in slow motion and the country’s capital controls are now a structural feature of the system. No rational financial investor is rushing into that environment. Yet strategic investors are.
FDI is rising sharply, driven by Gulf sovereign funds, Chinese infrastructure groups and European corporates re-shoring production lines. Not one of these actors is chasing consumer price index beating returns in Lira. They are chasing something else entirely.
Why inflation doesn’t scare strategic capital
Take the Gulf States for example. The UAE, Qatar and Saudi Arabia have all stepped up their strategic investments in Türkiye over the last two years. These flows have nothing to do with domestic macro conditions. They are about political alignment, energy corridors, trade influence and securing a foothold in a country that straddles Europe, the Middle East and the Black Sea.
Gulf sovereign wealth funds can afford to ride out macro volatility because they are not measured quarter to quarter. Their benchmarks are diplomatic leverage and long term regional shape, not real yields.
Egypt tells the same story. Even as inflation climbed and the Pound took repeated beatings, the largest new capital commitments came from Abu Dhabi and Riyadh.
Why? Because Egypt sits on the Red Sea, hosts the Suez Canal and anchors the Arab world’s political centre of gravity.
Gulf investors have something more durable than confidence in Egypt’s economic management. They have strategic reasons to stay.
Pakistan offers another variation. China’s continued role in CPEC and the revival of Gulf investment in ports and agribusiness reflect political and logistical interests that sit far above the inflation print.
Again the logic is not financial. It is structural!
Hard currency in, hard assets out
A second reason high inflation markets still attract investment is that the capital itself is not denominated in the domestic currency.
A multinational building a factory in Türkiye or Argentina invests in Dollars or Euros. Their costs may be in local currency but their balance sheets are in hard currency.
Inflation hurts domestic consumers. It doesn’t hurt global corporates who enter with foreign cash and receive tax breaks, incentives and guarantees on the way in.
There is also the valuation angle that rarely gets said out loud.
When a currency has lost half of its value, the cost of an asset collapses in hard currency terms. Ports, factories, logistics hubs, land and state owned enterprises suddenly look like fire-sale opportunities to a Dollar based buyer.
The investor isn’t chasing a Lira return. They are buying strategic assets at a steep discount, often knowing they will outlast the macro cycle.
This is why Türkiye remains a production hub for European suppliers even in the middle of a disinflation struggle it hasn’t- yet – won.
The country’s Customs Union with the EU allows seamless, tariff-free movement of industrial goods, giving European corporates a near-shoring solution without the bureaucratic hurdles or logistics drag they face elsewhere.
Labour is cheap in Euro terms, logistics routes are short and the market itself is large. Inflation is a problem for households. It is not a deal breaker for corporates who export half of their production abroad.
Argentina fits the same pattern. Even in the most turbulent years FDI into lithium and energy infrastructure kept flowing because investors were not pricing inflation. They were pricing the value of assets that cannot be relocated and the importance of positioning before the next commodity cycle. Again this is strategic behaviour, not market confidence.
The silent incentives
A third piece of the puzzle is the incentives governments offer.
High inflation states know that they need external capital and they are willing to pay for it. That payment rarely comes through direct subsidies. It comes through tax holidays, preferential access to land, regulatory carve outs and the kind of handshake guarantees that don’t appear in official data. These all matter enormously to investors.
It is also worth remembering that strategic investors rarely face the same rules as everyone else.
Many of these deals come with hard currency repatriation guarantees, Dollar indexed contracts or sovereign assurances that absorb the inflation risk entirely. In other words the macro volatility that punishes local firms is contractually ring fenced for the foreign partner.
This is regulatory arbitrage in real time and it is a key reason why strategic capital can move when portfolio investors cannot.
Türkiye has perfected this model. Selected corporates, typically state linked or operating in strategic sectors, receive easier access to FX loans, protected regulatory treatment or bespoke capital control exemptions.
The system is rigid for most, flexible for a few. Those few are often the ones bringing in hard currency.
Egypt has done it through land allocations, state asset divestments and tailored contracts for power, ports and logistics hubs.
Nigeria does it through foreign exchange windows for priority sectors.
Pakistan does it through sovereign guarantees tied to CPEC. None of these mechanisms reflect macro stability. They reflect political negotiation.
The confidence myth
The biggest mistake commentators make is assuming that FDI is a vote of confidence. It can be, in stable markets. But in high-inflation states it is more often a reflection of negotiation, geopolitics and supply-chain positioning.
FDI flows into Türkiye say nothing about inflation credibility. Instead, they say everything about the country’s strategic leverage.
The truth is that these inflows are insulated from the very risks that shape the domestic economic narrative.
Inflation matters to households, not to investors protected by dollar clauses. Currency weakness matters to importers, not to foreign buyers picking up assets at a discount.
What looks like confidence from the outside is often just cleverly structured risk removal on the inside.
A new map of global capital
There is a broader story here too. As the world fractures into regional blocs, strategic capital is becoming more powerful than portfolio flows.
Gulf sovereign funds are reshaping North Africa, the Horn, the Sahel and Türkiye. China is defining infrastructure patterns across South Asia and Latin America. Western corporates are redrawing supply chains around political risk rather than price stability.
In that environment inflation becomes less of a barrier to investment than it once was.
If you can secure access, influence or logistical advantage, inflation is a cost you can absorb.
If you are building for exports, the local consumer market doesn’t matter. And if you are a sovereign wealth fund with a political mandate, the macro narrative is noise.
Final take
High inflation still scares off financial investors but it no longer scares off strategic ones.
The FDI flowing into Türkiye, Egypt, Pakistan, Argentina and Nigeria isn’t chasing real yields. It is chasing position. Governments are facilitating it through incentives, carve outs and guarantees. And investors are betting on geography, access and political leverage, not macro stability.
There is, however, a cost.
The same mechanisms that attract strategic capital also mean that governments are often handing over their most valuable assets at steep discounts and taking on future currency risk in the process.
In many emerging markets FDI is no longer a sign that policymakers are doing well. It is a sign that geopolitics is doing the heavy lifting and that immediate hard-currency relief is being prioritised over long-term bargaining power.
The money is coming but not for the reasons we’re used to.