Mobilizing Africa’s capital for African development

Gomez Agou

CAMBRIDGE – With Africa facing a $2.8 trillion financing gap for climate action alone by 2030, one might assume that the continent’s funding problem boils down to a shortage of capital. But this and other funding gaps could be covered by the hundreds of billions of dollars managed by African institutional investors, as well as the trillions of dollars searching for yield globally, were it not for the continent’s fragmented investment landscape. Unlocking this capital will require a shift from a model of simple lending to one of sophisticated leverage.

Most development-finance institutions were designed primarily as lenders: they process projects, disburse loans, and measure success in terms of the dollars deployed. That model remains essential. But it is not enough to meet Africa’s development needs. To attract the capital it requires, Africa must be able to offer investors structured, repeatable, risk-adjusted opportunities.

But in a landscape where investment projects are often bespoke, financing pipelines are opaque, documentation is inconsistent, and exit pathways are unclear, global investors assess opportunities as one-off bets. Moreover, domestic institutional investors, constrained by excessive regulation or shallow markets, often allocate savings to short-term sovereign debt rather than long-term productive assets. And, after a decade of rising borrowing costs, governments cannot pick up the slack by borrowing still more.

Development banks must start thinking less like balance-sheet lenders and more like “capital architects” acting across three interconnected spheres, starting with global capital. Standardized co-investment platforms, transparent macroeconomic and sectoral dashboards, first-loss instruments deployed with fiscal discipline, and predictable engagement mechanisms can transform perceived risk into measurable, priceable risk.

Only such a change will deliver the structured continuity that investor confidence demands. This would attract global sovereign-wealth funds, pension funds, asset managers, and climate vehicles that are seeking long-term exposure.

The second sphere is domestic institutional capital. Although African pension funds and insurers collectively hold substantial long-term savings, poor regulatory design, shallow markets, and a lack of suitable instruments make it difficult for them to invest those funds productively at home. Development banks should help African countries design infrastructure funds that follow local prudential rules, as well as local-currency green-bond pipelines, securitized small and medium-size enterprise portfolios, and blended-finance vehicles that crowd in domestic investors alongside international partners.

Nigeria’s InfraCredit, which provides local-currency credit guarantees to enhance the attractiveness of debt instruments issued to finance local infrastructure projects, offers a glimpse of what is possible. Such initiatives do not merely mobilize private capital; they also strengthen financial sovereignty, leading to durable, long-term benefits such as reduced dependence on external financing cycles, deeper domestic capital markets, and a growing capacity to price and absorb African risk without relying on foreign intermediaries.

Success in these areas depends significantly on progress in the third sphere: investment platforms. Investors do not want to formulate new frameworks for each project. Instead, they want to replicate existing structures, such as energy-transition programs, standardized public-private-partnership models, regional infrastructure vehicles, industrial clusters, and sector-specific financing platforms that can absorb capital at scale.

A solar farm financed once is a deal; a standardized energy platform that blends domestic pension debt, development-bank guarantees, and global equity participation across multiple projects is architecture. The difference between a transaction and a market is repeatability.

But a structure is only as sturdy as its foundation, and all three spheres of capital – global, domestic, and platform-based – are ultimately anchored in sovereign risk. Sovereign spreads determine the cost of corporate and infrastructure finance, and fiscal credibility dictates sovereign spreads. Pretending otherwise risks transferring, rather than reducing, fragility.

Beyond acting as capital architects, development banks must therefore be macro-strategists, building a single framework that supports coordination of macroeconomic surveillance, debt-sustainability analyses, and capital-structure design. Guarantees and blended instruments must be assessed alongside sovereign contingent liabilities. Project-level solutions must be designed in such a way that they do not undermine fiscal resilience. Macroeconomic policy and capital mobilization must operate in tandem, not in parallel silos.

Operationally, this means translating country and regional economic analysis into investor-facing intelligence: forward-looking risk assessments, scenario analyses, and policy trackers that illuminate Africa’s risk-return dynamics over time. It also means institutionalizing investor-engagement platforms that bring together policymakers, regulators, domestic asset owners, and global capital. And it means measuring performance not only by disbursements, but also by catalytic leverage: how many dollars of external capital are mobilized per development-bank dollar deployed.

It should be clear by now that Africa cannot count on externally financed public investment to meet its development needs. Official development assistance fell by more than 7 percent in 2024 and is expected to continue shrinking. Bilateral aid is also contracting, and China’s infrastructure lending has slowed. Meanwhile, Africa’s demographic and climate pressures are intensifying.

Fortunately, alternative sources of financing are abundant. African savings pools are growing. Global pension funds are reallocating their portfolios. Gulf sovereign wealth funds are expanding. Climate-finance vehicles are searching for credible pipelines. With the right architecture, Africa can attract and deploy this capital effectively. Development banks should take the lead in building it.

Gomez Agou, former resident representative of the International Monetary Fund in Gabon from 2021 to 2025, is a fellow at Harvard Kennedy School. This article was distributed by Project Syndicate.