With an average GDP growth rate of 4.4% in 2025, Africa is one the fastest-growing regions of the world. Certainly, given how far it lags the rest of the world, the continent has no other choice but to grow. This growth, however, faces a challenge – an annual development financing gap of US$1.3 trillion, according to the African Development Bank (AfDB) in its African Economic Outlook 2026 report.
In its report, AfDB argues that Africa must fundamentally rethink how it finances development in an increasingly fragmented global economy. It asks an uncomfortable but necessary question: has Africa relied on foreign capital for too long while neglecting its own financial resources?
The African economy has proven remarkably resilient recently in the face of wars, geopolitical disruptions, climate shocks, epidemics and supply chain disruptions. While it is great that growth has remained strong through all these tribulations, it has not translated into enough jobs, or enough poverty reduction, or enough industrialisation, structural transformation and generally better lives for Africans. This is because the present rate of growth is insufficient. To make the same kind of leap forward as Asia has done, Africa needs to grow at a sustained annual average of 7% for many years. That is a tall order, as the required financing for this growth has not been easy to come by.
Waiting for external financing is now an exercise in futility
The road to 7% growth
Africa’s debilitating development financing gap has been a tough hoop to jump through for a considerable time now. The AfDB, however, estimates that improved efficiency could unlock that amount – and more. Its report argues that the continent could open up US$1.43 trillion a year by eliminating inefficiencies and using available resources better.
It estimates that nearly US$469bn is lost every year as a result of poor tax compliance, unnecessary exemptions, narrow tax bases and weak tax administration.
Just 3% of domestic capital goes into infrastructure and productive projects
Inefficient public spending is also to blame here. The AfDB report estimates that up to 40% of public investment is wasted and that better project selection and execution could release as much as US$299bn across the continent.
Another area that could help is one I highlighted in a previous AB column (‘Capital deployment falls short’). Africa’s pension funds, insurance companies, sovereign wealth funds, mutual funds and other pools of capital have accumulated significant amounts of capital – about US$4 trillion according to the report – but only a tiny 3% of all this is invested in infrastructure and productive domestic projects. Most of this capital chases government debt and finances budget deficits, sustaining fiscal inefficiency across the continent. For things to change, a significant portion of this capital must be redeployed into growth-enhancing investment.
Global reset
It is getting clearer by the day that the continent must shift its gaze away from external financing, which has become significantly unreliable. Quite simply, the world has changed. We now see increased protectionism rolling back globalisation, rising geopolitical fragmentation with a consequent rise in defence spending, and a decline in development aid. Higher interest rates and tighter global liquidity make waiting for external financing increasingly an exercise in futility. Africa needs to realise that external financing is drying up and will not always be available.
Africa needs to look at financing differently. The solution to financing development cannot be borrowing more. We must build stronger financial systems that allocate capital better. This means making the necessary effort to deepen African capital markets. With the notable exceptions of those in South Africa, Nigeria, Morocco and Egypt, capital markets across the continent are small and fragmented. Efforts at market integration must therefore be taken more seriously.
Attracting diaspora capital and building investor confidence are key
Intracontinental banking and payments systems also need to be strengthened and financial integration supported. Payments infrastructure such as PAPSS require strengthening and mainstreaming. The African Credit Rating Agency, which is to be launched this year, must be given all the support it needs. The same goes for the African Financing Stability Mechanism.
A fundamental rethink of the roles of the financial markets and system in financing Africa’s development is required. The continent must make the effort to position regional financial institutions to fund development. Attracting diaspora capital and know-how should be of strategic importance, and investor confidence must not be taken as an afterthought.
For too long, Africa’s development has centred on how much it can borrow and how much aid it can receive. AfDB’s report suggests that with all the changes currently happening across the world, Africa must get better at mobilising and deploying its own resources. The continent’s development must focus less on attracting external capital and more on unlocking the vast pools of domestic capital within its borders. The financing gap is real, but so is Africa’s potential to finance its own development.
