Looking Inwards To Plug Africa's Infrastructure Funding Gap

Africa’s financial sector has hitherto been reluctant to invest in infrastructure largely due to the long project timeframes involved. But with such investments offering reliable returns, what’s it going to take to properly unlock this asset class?

- Paul Frankish

Despite encouraging progress over the last decade, financial systems in Africa (excluding South Africa) remain amongst the most undeveloped in the world with a shortage of diverse financial institutions. It’s the acute lack of long-term finance which is holding back economic growth and nowhere is this more evident than in infrastructure which, by the African Development Bank’s (AfDB) reckoning, needs $93bn a year in funding for the next 10 years. Of this, 40% – or $36bn a year – is required for the power sector alone.

Without universal access to electricity and better roads, ports and airports, Africa won’t be able to compete on the global stage. The AfDB estimates that poor infrastructure reduces productivity by 40% and cuts the continent’s economic growth by two percentage points per annum. In contrast, the World Economic Forum highlights the fact that every dollar spent on a capital project generates an economic return of between 5% and 25%.

Africa is not short on bold ambition. East Africa’s Grand Ethiopian Renaissance Dam will host the largest hydro-electric power plant in Africa, the seventh largest in the world once complete, with installed capacity of 6 450MW. DRC’s proposed Grand Inga Dam if/once completed would then take over as the planet’s biggest hydro-electric power project with expected generating capacity of 39 000MW. What Africa is short of though, is financing to fund those ambitions.

Funding models