Africa’s Unique Financial Landscape and Challenges
The discussion on how to finance Africa’s development is both urgent and complex. As the world meets at the United Nations General Assembly (UNGA), African Nations continue to grapple with persistent financial challenges. From surging debt levels and climate-related vulnerabilities to underdeveloped infrastructure, Africa’s financing needs are vast and increasingly pressing. Without a new approach, Africa risks falling further behind in meeting the Sustainable Development Goals (SDGs) and the ambitious vision of the African Union’s Agenda 2063.
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I opine that the way forward requires a radical shift in financial models, leveraging both innovative tools like blended finance and local resource mobilisation, to address the pressing challenges of debt, climate change, and underinvestment in critical sectors. Africa can no longer rely solely on traditional financial mechanisms such as official development assistance (ODA) or external borrowing. The continent must actively engage in reshaping the global financial system, strengthen its domestic capacity, and adopt models that work for its specific development trajectory.
Blended finance for Africa’s growth
While blended finance has the potential to channel much-needed capital into infrastructure, agriculture, and clean energy, African countries must also explore other innovative models such as impact investing and diaspora bonds, which can mobilise both local and international resources for long-term growth. Blended finance combines public and private resources to de-risk investments in key sectors.
A successful example of blended finance is the innovative partnership established in Kenya’s renewable energy sector. Kenya is now leading the way in Africa’s clean energy transition, with over 85 percent of its electricity coming from renewable sources. This achievement was made possible by partnerships between private sector players, multilateral institutions like the African Development Bank, and the government. By leveraging such models, risks were mitigated, making the sector more attractive to investors and ensuring long-term sustainability.
In Nigeria, the Sovereign Green Bond programme has demonstrated the potential of raising funds for sustainable projects through blended finance. Nigeria issued its first green bond in 2017, raising NGN 10.69 billion, followed by a second series in 2019, raising NGN 15 billion to finance clean energy, afforestation, and mass transit projects. The Energising Education Programme, for example, uses green bond proceeds to fund renewable energy projects in universities across Nigeria, reducing reliance on diesel generators and contributing to carbon emission reductions.
However, to fully leverage blended finance and attract private capital, African countries need to create the right environment for investment, including offering tax incentives for major investors in social impact projects and critical sectors like clean energy and infrastructure. This approach ensures that the private sector can contribute meaningfully without being overburdened.
The role of domestic resource mobilisation
While external capital is essential, Africa must also focus on strengthening its domestic resource mobilisation (DRM) efforts. Currently, tax revenues in many African nations fall well below the global average of 34 percent, with some African countries generating as little as 16 percent of GDP from taxes. By expanding the tax base, improving tax compliance, and curbing illicit financial flows, African governments can significantly increase the resources available for development.
Rwanda offers a prime example of what is possible. Between 2010 and 2021, Rwanda increased its tax-to-GDP ratio from 12.3 percent to 16.7 percent by digitising its tax services. This approach not only improved revenue collection but also enhanced transparency and reduced corruption. Expanding such initiatives across the continent could unlock billions of dollars in additional revenue for critical social services and infrastructure development.
The role of climate finance
Africa’s development trajectory cannot be discussed without addressing the profound impact of climate change. Despite contributing less than 4 percent to global carbon emissions, Africa bears the brunt of climate-related disasters, from droughts in the Horn of Africa to cyclones in Southern Africa. These disasters cost African economies billions annually—an estimated $8.5 billion in 2022 alone—and exacerbate existing vulnerabilities, particularly in agriculture and food security.
To meet its climate goals and achieve a just energy transition, Africa needs an estimated $2.8 trillion by 2030. Yet, climate finance flows to Africa remain woefully inadequate, with only $29.5 billion mobilised annually, representing just 11 percent of the required amount. It is critical that the international community steps up to provide more equitable access to climate finance, particularly through concessional loans and grants that do not further burden African nations with unsustainable debt. This should include keeping to past commitments made during COP summits regarding climate financing for developing nations.
Furthermore, African countries must be more proactive in seeking climate financing by developing comprehensive climate adaptation plans and integrating climate resilience into their national development strategies. Nations like Ethiopia have already taken the lead, securing significant climate financing to support reforestation and green energy initiatives.
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The way forward: A shared global responsibility
As we gather at the UNGA to discuss the future of global development, it is clear that the financing of Africa’s future requires a radical rethink. The current global financial architecture is inadequate to meet Africa’s growing needs, and without substantial reforms, the continent will continue to fall short of its development goals. African leaders must advocate for increased representation in global financial institutions and work towards securing more favourable terms for international borrowing and investment.
I will continue to advocate for these changes. At the CEO Roundtable Forum at UNGA, it is critical that we push for actionable commitments from global leaders, including increased investment in Africa’s infrastructure, expanded access to climate finance, and the reform of international financial institutions to better serve developing Nations.
Africa is at a crossroads. With the right financial models and international support, the continent can unlock its vast potential and chart a course toward sustainable and inclusive development.
Olapeju Ibekwe, CEO, Sterling One Foundation. She is a seasoned business leader, filmmaker, and sustainability professional with keen interests in women empowerment, youth development, access to quality education and better healthcare.
