Africa holds $4 trillion in domestic capital for infrastructure investment

Business Insider

a day ago

The Africa Finance Corporation has said African governments should look inward to tap into an estimated $4 trillion in capital held by domestic institutional investors.
The Africa Finance Corporation emphasizes utilizing $4 trillion in domestic institutional capital for infrastructure development.
Pension funds ($455 billion) and sovereign wealth funds ($150 billion) make up a portion of this capital pool.
Legal restrictions and a lack of financial instruments hinder efficient use of domestic capital assets.
The Africa Finance Corporation has said African governments should look inward to tap into an estimated $4 trillion in capital held by domestic institutional investors.
According to the AFC, around $455 billion of this capital is currently held in pension funds, while sovereign wealth funds account for another $150 billion.
When combined with commercial bank assets and foreign currency reserves, the total pool of investable domestic capital across the continent reaches $4 trillion.
With the continent's population and economies rapidly expanding, investments in sectors like railways and power generation are becoming increasingly urgent.
However, traditional funding avenues, such as foreign direct investment and official development assistance, are no longer keeping pace with the continent's infrastructure needs, Reuters reported.
African governments are finding it increasingly difficult to allocate funds for development projects, as interest payments consume a growing portion of national budgets.
Shrinking donor budgets, and rising protectionist policies in advanced economies are further constraining the flow of funds, the AFC noted in its report.
Legal and regulatory hurdles remain
According to the report, much of this domestic capital is currently held by institutions or parked in short-term, liquid assets like money markets, largely due to legal restrictions on how pension funds can be invested.
Most African nations lack the regulatory clarity and financial instruments needed to redirect capital flows, the AFC said, adding that the vacuum is one of the biggest barriers to mobilizing domestic capital at scale.
South Africa, Nigeria and Kenya are among a small group that have begun to align savings with development needs, the lender said. Still, progress is slow. Nigeria's pension exposure to infrastructure has grown from less than 0.02% to 1% of total assets since 2017.