Analysis: Using homegrown funds to drive Africa’s transformation

Last year the African Development Bank identified an over $400 billion annual financing gap that must be filled by 2030 to meet Africa’s education, energy, innovation, and productive infrastructure shortfalls. This moment calls for Africa to revolutionize its development financing approach by harnessing its substantial domestic resources.

The narrative of a “poor” Africa is contradicted by reality: Beyond vast natural resources, the continent holds $2.5 trillion in liquid investable wealth from high-net-worth individuals (HNWI) and about $2 trillion of assets under management of pension funds, sovereign wealth funds, and insurance companies. These funds are being held in bank accounts or invested in property, equities and debt instruments in Africa and abroad but not in the vital infrastructure and long-term development projects which require patient capital. Various national regulatory hurdles often restrict HNWI, local pension funds and insurance companies from investing in private markets and projects which are seen as illiquid and therefore too risky.

It is time for us to focus on the domestic mobilization of local resources with innovative long-term capital vehicles to finance Africa’s projects. Developing these specialized funds and amending certain regulations, would enable strategic co-investments alongside infrastructure funds and development finance institutions. These vehicles can play a pivotal role in building more liquid markets with attractive returns.

Whenever African pension and sovereign wealth funds invest locally, they become powerful advocates for necessary policy reforms while serving as political risk insurance and giving confidence to international investors. The growth of African sovereign wealth funds has been remarkable, with nearly 20 established since 2010. Transferring state assets to professionally managed funds will help nations better monetize these assets and develop bankable projects at scale. This approach creates co-investment opportunities with the private sector while maximizing leverage. As a result, African countries can spur private sector growth and establish sustainable methods for domestic resource mobilization to fund high-priority development projects.

To succeed, these vehicles must be structured with longer fund lives that allow investors to hold assets through market volatilities. Their success depends on developing a robust pipeline of bankable projects, where blended finance and concessional capital play crucial roles in de-risking investments and supporting early-stage project preparation.

However, such facilities remain underfunded and fragmented. The pursuit of concessional capital should begin domestically. The public sector and local philanthropists can collaborate to enhance funding for project preparation and project development in a coordinated manner, in collaboration with existing regional or international facilities.

By integrating permanent capital vehicles, institutional investments with local ownership, and strategic de-risking, Africa can create a sustainable infrastructure financing model. This approach would harness wealth within the continent while attracting complementary international investments, creating a self-reinforcing cycle of development and prosperity.

Amadou Hott served as Senegal’s Minister of Economy, Planning, and Cooperation between 2019 and 2022. Previously he was the inaugural Vice President for the Power, Energy, Climate Change and Green Growth Complex at the African Development Bank.