African countries need to invest as much as $170 billion annually in infrastructure but continue to face a financing shortfall of up to $108 billion a year, underscoring the need to mobilise domestic capital as access to external financing becomes more constrained, according to a new study by Afreximbank.
The report estimates that the continent requires between $130 billion and $170 billion in annual infrastructure investment to meet its development needs but is investing only about $75 billion each year, leaving a funding gap of between $68 billion and $108 billion.
The deficit threatens efforts to improve transport, energy, telecommunications and water infrastructure, all of which are considered essential to boosting productivity, industrialisation and intra-African trade under the African Continental Free Trade Area.
While governments have traditionally relied on multilateral lenders, development finance institutions and external borrowing to fund large-scale projects, the study argues that domestic institutional investors, particularly pension funds, could become a more sustainable source of long-term financing if supported by deeper capital markets.
Africa’s pension assets have grown to about $1.1 trillion, yet only a small portion is invested in infrastructure because of shallow capital markets, limited investment instruments and regulatory constraints, the report said.
The research, which analysed data from 52 African countries between 2005 and 2017, found that pension funds alone do not significantly increase infrastructure investment. Instead, well-functioning capital markets are needed to channel retirement savings into infrastructure projects through instruments such as infrastructure bonds, infrastructure funds and public-private partnerships.
The findings suggest that expanding pension assets without strengthening financial markets is unlikely to narrow the continent’s infrastructure deficit.
The report recommends that governments deepen domestic capital markets, improve regulatory frameworks and develop a pipeline of bankable infrastructure projects to attract long-term institutional investors. It also calls for greater regional integration of African capital markets to improve liquidity and broaden investment opportunities across borders.
Infrastructure financing has become increasingly urgent as African governments pursue industrialisation, regional integration and economic diversification while facing tighter global financial conditions and rising debt servicing costs.
The study concludes that mobilising domestic savings through stronger financial markets could reduce dependence on external financing and provide a more resilient source of capital for infrastructure investment, helping to close one of the continent’s biggest constraints to long-term economic growth.
