From Funding Gap to Investment Opportunity: Rethinking Infrastructure Finance in Africa

By Tosin Clegg

Several deficits, including insufficient power, congested ports, weak transport networks, and chronic gaps in healthcare and digital connectivity, have long been portrayed in Africa’s infrastructure sector. But this deficit-focused narrative increasingly overlooks a more commercially compelling reality: Africa’s infrastructure needs represent one of the strongest long-term investment opportunities in global markets today. There is an estimated annual financing gap of roughly USD 100-130 billion, representing one of the largest undercapitalized opportunities in the global investment landscape, with the continent’s unmet infrastructure needs constituting not merely a policy challenge but an emerging asset class viable for institutional investment. With several global investors facing reduced returns in developed markets and a need for long-term, inflation-protected assets, African infrastructure offers a compelling untapped opportunity, as rapid urbanisation, demographic expansion, and a fast-growing digital economy are driving unprecedented demand for power, logistics, housing, data centres, diagnostics, and social infrastructure. Thus, they serve as assets that form the backbone of stable, long-duration portfolios and are suitable for investors searching for yield, diversification, and inflation-linked returns.

These assets translate directly into predictable cash flows, long-term revenue streams, and asset-backed investment opportunities. Yet, Africa attracts only a fraction of global infrastructure capital. This is not because returns are unattractive; they are often above global averages, but because many projects are not structured to meet institutional investment standards, and risk perceptions remain high. With developed markets offering shrinking yields and rising volatility, Africa’s infrastructure market warrants reassessment as a bankable asset class rather than a fiscal burden. With the right design, Africa’s infrastructure gap can be reformed from a fiscal burden into a strategic frontier for pension funds, sovereign wealth funds, insurers, and long-term institutional capital. Also, the gap between opportunity and investment is explained not by the absence of returns, but by misaligned risk perceptions, structural financing constraints, and a legacy view of infrastructure as a purely public good rather than a bankable asset class. This view is increasingly outdated.

Global capital markets are undergoing profound shifts. In developed economies, infrastructure has matured into a mainstream asset class, prized for its stable yields and inflation-protected characteristics. Institutional investors are actively increasing their allocations to real assets, but saturated markets in Europe and North America are compressing yields and narrowing opportunities. In contrast, Africa offers scale, growth, and untapped value. This is evident in several infrastructure sectors. For example, energy demand is projected to double by 2040, urban populations are expanding by more than 20 million people each year, and digital connectivity needs are surging as mobile penetration and data consumption accelerate. Also, hospitals, diagnostic centers, transport hubs, ports, industrial parks, and logistics networks are in urgent demand. Each of these sectors has the potential for infrastructure-backed revenues, whether through power purchase agreements, long-term leases, user fees, tolling structures, or public-private partnership (PPP) arrangements. All of these portray Africa’s infrastructure gap not only as a challenge but also as a portfolio waiting to be built.
Despite the promise, several barriers continue to impede capital flow into this seemingly viable market. A major barrier is currency volatility and a mismatch that discourages foreign investment. There is limited local-currency financing, creating a currency mismatch and an increased reliance on external debt. This usually erodes returns when revenues are in local currency, but funding is in a foreign currency (dollars, pounds, etc.). Another challenge is weaknesses in project preparation, as many projects are not “investment-ready,” leaving them unbankable. This can be linked to perceived exit risks, as there are unclear exit strategies for investors, especially private equity and infrastructure funds. Also, policy unpredictability and inconsistent regulatory enforcement prevent capital from being deployed into the African infrastructure sector. Investors find it difficult to trust shifting policies by the regulatory bodies due to a lack of government backing. These barriers are real, but they are not insurmountable as new financial and policy mechanisms are emerging that directly address them. Several African markets have successfully attracted infrastructure investment through targeted reforms and de-risking tools.
African governments and development finance institutions (DFIs) are increasingly designing tools and introducing mechanisms that restructure risk and enhance bankability, making African infrastructure more attractive for institutional investors. These tools include co-investment platforms that crowd in private capital by sharing risks, first-loss guarantees to protect investors from downside risk, and local-currency hedging facilities that reduce currency mismatch. On the governance side, there can be political risk insurance, partial credit guarantees, transparent PPP rules, and standardised contracting, as well as regulatory sandboxes to test new business models in energy and digital infrastructure. They can also set up project-preparation facilities that improve technical, legal, and financial readiness. There have been success stories in some countries that have implemented these strategies. For example, South Africa’s renewable energy procurement program has attracted billions in private investment. Kenya and Nigeria have seen a boom in data centers, fiber-optic projects, and tower infrastructure. West Africa’s diagnostic healthcare networks show that structured PPPs can deliver world-class facilities while generating stable, inflation-linked returns. These demonstrate that when risk is appropriately priced and mitigated, African infrastructure can attract significant private capital and outperform global peers.

Institutional investors, including pension funds, sovereign wealth funds, and insurers, are uniquely suited to the African infrastructure opportunity and should therefore broaden their exposure to real assets. Africa offers what developed markets struggle to provide: long-term liabilities that seek stable, predictable returns often in the 6–12% range, which the African infrastructure naturally provides. As global markets contend with tightening yields, African infrastructure stands out for its combination of return, scale, and real-economy impact. In developed markets, competition has pushed yields down. But in Africa, properly structured assets can generate higher returns without disproportionate risk, especially when supported by multilateral guarantees or tariff-backed revenue streams. Furthermore, global investment mandates are shifting. Institutional investors are increasingly integrating ESG, climate, and impact metrics, areas where African infrastructure provides strong alignment, particularly in renewable energy, healthcare access, affordable housing, and digital inclusion. For investors to fully unlock this opportunity, a reframing is essential. Africa’s infrastructure gap must be seen not as a financing problem but as a pipeline of investable projects. This perspective shift requires a combination of bankable project structuring, transparent regulatory frameworks, scalable blended-finance models, local institutional investor participation, and stronger project-preparation capacity.

Africa’s infrastructure is not intrinsically “too risky”; rather, many projects have been inadequately structured and insufficiently de-risked. When governments provide policy clarity, DFIs share early-stage risk, and key uncertainties are reduced, private capital is far more likely to participate, and investments can prove themselves on their own merits. As investors globally look beyond traditional markets, Africa stands out as a frontier of long-term value. The continent’s infrastructure requirements, once viewed as a development liability, are now emerging as one of the most compelling investment markets. It is important to treat the infrastructure gap as demand-driven rather than deficit-driven, and to ensure several factors are put in place. This includes prioritizing bankability over policy ambition, encouraging local institutional investors, especially pension funds, to participate alongside global capital, and building standardized, replicable project models. If policymakers, DFIs, and private investors collaborate to improve bankability and predictability, Africa could unlock hundreds of billions in infrastructure investment over the next decade. The result would be transformative, leading to deeper markets, stronger economies, and resilient growth.