Financing
As it stands, DFIs together with national governments finance the bulk (70%) of infrastructure investment in Africa. China provided 24% of the funds raised for infrastructure on the continent in 2017. Outside of these investors, participants in the asset class in Africa are few and far between, with the private sector making up less than 3% (Source: ICA Infrastructure Financing Trends 2017).
However, the infrastructure investment gap is substantial and African governments don’t have the budgets to support the required level of investment. Many African governments generate relatively low tax revenue, which is traditionally a good source of financing for long-term projects such as infrastructure, due to the stability of such income. Many generate the bulk of their revenue via royalties on oil and other commodity exports. As a result, the drop in the commodity cycle over the past few years has caused governments to delay infrastructure investment.
Some of the barriers to private sector involvement in infrastructure include currency risk for international investors and uncertain legal and regulatory frameworks, often exacerbated by corruption.