Lack of infrastructure investment is stifling global growth. Roads, power lines, water systems and digital networks aren’t being built fast enough to meet rising demand or to enable higher productivity.
Nowhere is the shortfall more severe than in Africa, where annual underinvestment is estimated at around $100bn (R1.7-trillion).
The problem isn't just money. Insufficient investable projects, alongside lack of access to capital, are all stalling the rollout of critical infrastructure.
However, these constraints can be overcome. The G20 Summit in South Africa is a vital moment for Africa and the Global South to show how they’re meeting critical infrastructure needs with innovative funding solutions that work locally and can scale globally.
Public funding alone can’t close the infrastructure gap. And external development funding is waning as international providers of concessional finance pull back. The answer lies in mobilising domestic capital and blending it with Africa’s homegrown financing solutions.
With the right risk ratings and mitigation strategies, more infrastructure investment can also be mobilised from local investors
Across emerging markets domestic private capital under management is projected to more than triple to $40-trillion by 2040. This deep and growing pool of capital provides countries in Africa with a golden opportunity to close infrastructure financing gaps from within.
Tackling the cost of capital is critical. Many infrastructure projects remain unattractive to international investors due to inflated country risk premiums and currency volatility. Both borrowers and ratings agencies can do more to ensure that African risk is calculated using more accurate, granular and timely data and — therefore — better rated.
With the right risk ratings and mitigation strategies, more infrastructure investment can also be mobilised from local investors, reducing dependence on external funding and enhancing long-term resilience. Alongside this, the continued development of domestic capital markets will play an important enabling role in mobilising local capital for infrastructure investments.
Change is already happening. Years of underinvestment and stop-start support from external funders, compounded by high capital costs, have inspired countries in Africa to pioneer new approaches to financing. They have complemented traditional funding models with more pragmatic and flexible approaches. These include:
- The pan-African, Africa50 investment platform which has backed 25 infrastructure projects by providing more than $8bn to bridge the gap between project approval and disbursement.
- Egypt’s Nexus of Water, Food and Energy (NWFE) platform which mobilised $3.4bn in public funds to secure a total of $14.7bn for climate-focused infrastructure investment.
These are not isolated successes. They mark a broader shift in Africa and elsewhere to new funding mechanisms that combine public capital, private investment and institutional partnerships. A key priority going forwards is to help share, scale, and standardise these emerging best practices, in Africa and beyond.
As part of South Africa’s G20 presidency, the Business 20 (B20) finance & infrastructure taskforce has developed a set of guiding recommendations on how to learn from Africa and other emerging markets, how to support the changes that are already under way and how to accelerate infrastructure investment in Africa and throughout the world.
Looking outwards to shape the wider global approach is critical for mitigating the risks and costs of global financial fragmentation. These costs are potentially enormous. Research by the World Economic Forum and Oliver Wyman estimated that fragmentation could cost $5.7-trillion in lost GDP annually.
With this in mind, the recommendations address the global systemic barriers to infrastructure investment by highlighting the importance of:
- Supporting the expansion of investable infrastructure projects — including via targeted support for infrastructure projects across their development cycle through enhanced project preparation facilities, streamlining of regulatory and permitting processes, and increased visibility and use of national and regional project pipelines.
- Improving access to capital — building investment capacity by expanding the availability of new and existing sources of capital and addressing regulatory considerations, as well as exploring improvements to data and information availability to support credit rating assessments and de-risking investing through increased use of scalable concessional blended finance, public-private-philanthropic partnerships and credit insurance mechanisms.
- Enhancing the flow of funds out to the wider economy — fostering the development of domestic capital markets, reducing barriers to cross-border capital flows and enhancing working capital through early payment platforms and supply chain finance solutions.
Addressing these obstacles requires a dual approach: implementing critical long-term reforms, such as the development of domestic capital markets, while achieving immediate impact through priority quick wins, such as targeted reforms to the Global Infrastructure Facility.
South Africa’s G20 presidency, signalling the arrival of the G20 summit on African soil for the first time, is an opportunity for Africa to voice its needs and share its achievements. Africa’s innovative and scalable approaches to infrastructure financing demonstrate the continent’s resilience and resourcefulness. Perhaps even more importantly, they provide the global community with tools to accelerate the development of vital infrastructure and inclusive economic growth worldwide.
• Tshabalala is chair of the B20 finance & infrastructure taskforce and CEO at Standard Bank Group
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