Overcoming Infrastructure Challenges in Africa: Bridging the Gap to Financial Close
Infrastructure projects across Africa are critically needed, with demands for roads, power, and healthcare becoming ever more pressing. However, many of these initiatives struggle to transition from bid award to financial close—a phase where ambition often meets the intricacies of securing funding.
The Challenge of Bankability
The process of securing finance is often fraught with challenges that are seldom dramatic but are instead procedural and structural in nature. Various procurement models add complexity, as projects backed by sovereigns operate under different rules compared to public-private partnerships. As interest rates rise and supply chains become constrained, what once appeared as a viable investment can quickly diminish in attractiveness.
A project that initially ticked all the boxes for value-for-money can quickly lose its luster as market conditions fluctuate. This precariousness highlights the need for experienced project teams to navigate these complexities effectively.
Experience Matters
The role of those involved in assembling infrastructure deals extends beyond merely structuring finance. It involves anticipating investor concerns, navigating environmental regulations, and managing stakeholders with competing timelines. Many project teams may lack the experience to guide a project from bid to financial close, often leaving them unprepared for the nuances of this critical phase.
For instance, a large healthcare program initiated in 2018 faced delays as environmental and technical requirements evolved, causing uncertainty that could have jeopardized the initiative. Similarly, in Mozambique, a $15 billion liquefied natural gas project encountered challenges when several export credit agencies withdrew support due to environmental concerns, reopening settled debates over climate impact.
The Role of Export Credit Agencies
Export credit agencies (ECAs) play a pivotal role in managing risk in infrastructure projects, although their roles may not always be fully understood. While they offer longer tenors and lower pricing for sovereign borrowers, the gap in down payments often leaves lenders exposed to sovereign risk. This can create discrepancies between export credit-backed financing and local funding, which may come with much higher costs.
Some sovereigns have increasingly opted to fund down payments in cash, especially with the OECD raising the maximum export credit cover from 85% to 95%. However, blending local and ECA financing on competitive terms remains a significant hurdle.
Environmental and Social Scrutiny
As projects become more complex, there is an increased focus on environmental and social governance (ESG) requirements, which international financiers view as non-negotiable. Unfortunately, many projects treat these considerations as a late-stage compliance issue rather than integrating them from the beginning. When ESG factors are considered too late, costs can rise, timelines can extend, and projects may even fail to receive necessary approvals.
For example, a hospital project in southern Africa missed the opportunity to engage a broader pool of investors due to excessive administrative burdens, illustrating how regulatory concerns can outweigh financial incentives.
Coordination is Key
A lack of coordination among banks, ECAs, development finance institutions, and contractors often hampers progress. Without a lead arranger who can align timelines, responsibilities, and incentives, projects tend to stall.
Given the increasing selectivity of capital in 2026, favoring sovereigns with stable fiscal policies, it is crucial for governments, sponsors, and lenders to close the gap between bid award and financial close. This will facilitate tangible infrastructure advancements across the continent.
Promising Regions and Project Priorities
East Africa, including Uganda, Rwanda, Tanzania, and Kenya, has captured investor interest. In West Africa, Côte d’Ivoire remains robust, while Ghana’s restructuring is expected to improve confidence among investors. Nigeria and South Africa’s infrastructure initiatives, bolstered by a $8 billion financing envelope from Afreximbank, are also likely to attract private capital.
Projects that successfully reach financial close typically display two key attributes:
- Clear Developmental Impact: These must align with investor mandates.
- Credible Economic Returns: Often derived from foreign currency revenues or secure repayment agreements.
To mobilize capital effectively, projects must demonstrate both social value and economic resilience.
Conclusion
Africa’s infrastructure deficit is less about a lack of capital and more about challenges in coordination and execution. While the demand for improved infrastructure is evident, successful projects will depend on thorough preparation with financing in mind, the early integration of environmental considerations, and alignment among stakeholders.
A focused approach will ultimately translate infrastructure aspirations into meaningful progress, ensuring that crucial developments across the continent are not just envisioned but realized.
For more insights on the evolving landscape of African infrastructure, visit African Development Bank.
This article provides an engaging examination of the intricacies involved in financing infrastructure projects in Africa, emphasizing the importance of experience, coordination, and stakeholder alignment.
