Africa financing gap tops $1.3trn despite fastest growth in decades

Africa’s development financing gap has widened to more than $1.3 trillion annually despite the continent remaining one of the world’s fastest-growing regions over the past two decades, according to the African Development Bank (AfDB).

In its 2026 African Economic Outlook report, the AfDB said Africa recorded average real GDP growth of 3.8 percent annually over the last 20 years, but weak domestic resource mobilisation, fragmented financial systems and declining external financial flows continue to constrain development financing needed to achieve the Sustainable Development Goals (SDGs).

The bank said Africa’s revenue-to-GDP ratio declined sharply from between 23 percent and 30 percent in the 2000s to 16.2 percent in 2024, reflecting tax collection that has failed to keep pace with economic growth due to narrow tax bases, weak compliance, exemptions and limited taxpayer coverage.

The report also showed that domestic credit to the private sector averaged just 23.7 percent of GDP between 2020 and 2024, less than half the 51.9 percent recorded in Latin America and the Caribbean, underscoring the continent’s weak financial intermediation capacity.

“Beyond the financing gap itself, the issue is also about deploying capital effectively,” the report said, noting that Africa could unlock as much as $1.43 trillion annually through stronger tax collection, improved public investment efficiency, reduced illicit financial flows and corruption, deeper capital markets, diaspora financing and expanded public-private partnerships.

The AfDB estimated that stronger tax and non-tax mobilisation alone could generate an additional $469 billion annually, while improved efficiency in public investments could save about $299 billion yearly.

The report highlighted Africa’s growing but underutilised institutional investment base, noting that pension funds, insurers and sovereign wealth funds collectively manage around $4 trillion in assets, with less than 2.7 percent allocated to infrastructure and productive sectors across the continent.

It added that public-private partnerships remain a major opportunity for infrastructure financing, estimating that every additional dollar of public investment could attract roughly $1.40 in private capital.

The bank called for accelerated reforms to deepen Africa’s financial systems through integrated capital markets, pan-African banks, climate finance and Islamic finance instruments under the proposed New African Financial Architecture for Development (NAFAD), which aims to mobilise more than $4 trillion within Africa’s financial ecosystem.

The report also highlighted the newly launched African Credit Rating Agency as a potential tool for addressing perceived biases in sovereign risk assessments that have raised borrowing costs for African countries.

While Africa’s stock market capitalisation rose nearly six-fold over two decades to reach $1.2 trillion in 2024, equivalent to about 40 percent of the continent’s GDP, activity remains concentrated in South Africa, Egypt, Morocco and Nigeria.

The AfDB further stressed the need to strengthen continental financing mechanisms, including the African Financing Stability Mechanism, to help countries manage debt refinancing risks, ease liquidity pressures and improve financial stability.

Despite financing constraints, the bank maintained a relatively resilient growth outlook for the continent. West Africa’s economy was estimated to have grown by 4.8 percent in 2025 and is projected to moderate slightly to 4.7 percent in 2026 and 4.5 percent in 2027, supported by agricultural expansion, agro-processing, mining, hydrocarbons and sustained infrastructure investments.

Nigeria and Algeria are projected to post real GDP growth of 4.1 percent in 2026, although Nigeria’s growth is expected to slow to 3.7 percent in 2027 while Algeria’s could rise further to 4.2 percent.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.