Funding Africa’s Infrastructure with Local Currency

Africa is at a pivotal moment in its development. Robust infrastructure is essential for sustainable economic growth, long-term prosperity and transformation. Yet the continent faces a substantial financing gap. The African Development Bank (AfDB) estimates annual infrastructure needs at US$130 billion to US$170 billion, with a financing shortfall of between US$68 billion and US$108 billion. These needs far exceed the amounts that might be financed through the fiscus, prompting increased interest in Public Private Partnerships (PPPs) or other vehicles to attract private investment. Institutional investors would hold more local currency bonds if the supply were greater, prompting the question of how to increase the use of local currency bonds to finance infrastructure investment.

Factors such as perceived investment risks, regulatory complexities and currency volatility continue to constrain access to long-term capital in Africa. In this article, Finenergi Advisory Services explore the case for the use of local currency as a part solution to stemming the funding gap, and consider policy roadmaps to a deep and vibrant local bond market to fund infrastructure development.