Africa has $4-trillion local capital available to fund infrastructure: AFC

African governments should turn to an estimated $4-trillion (R70.94-trillion) in capital held by domestic institutions like pension funds to develop much-needed local infrastructure as external funding sources wane, the Africa Finance Corporation (AFC) said on Thursday.

Building railways and expanding power generation are major priorities for the continent as its population and economies grow, but traditional sources of funding such as foreign direct investment and official development assistance are proving "increasingly insufficient", the AFC said.

Higher interest rates globally, declining donor budgets and protectionist policies in advanced economies are further tightening the availability of funds, it said in a report.

"These developments underscore Africa's need for a more resilient and internally anchored financing strategy," said the financier, which is owned by African governments, multilateral lenders and private funds.

African governments are also struggling to find space within national budgets to pay for development projects as interest payments gobble up an ever-rising share, the report said.

They can, however, turn to the potentially trillions of dollars in domestic capital held by sovereign wealth funds, pension funds, and central and commercial banks, it added. These are currently held by institutions or invested in short-term liquid instruments like money markets due to legal restrictions on where assets such as pension funds can be invested.

To unlock these funds, African governments will have to modernise huge swathes of their economies that are not taxed and regulated, and reform the rules around pension funds to allow them to invest in long-term infrastructure projects, the AFC said.

They will also need to boost national savings rates, which on average stand at half those of Asian nations, it added.

The African Development Bank, a shareholder in AFC, has pegged Africa's annual financing gap for structural transformation at more than $400bn (R7.09-trillion), or nearly 14% of the continent's projected GDP, by 2030.

Reuters