Africa has the potential to accelerate economic growth and narrow its significant income gap with the rest of the world by unlocking both its labour potential and its vast reserves of critical minerals, writes Samira Mensah, Managing Director Africa at S&P Global Ratings.
S&P; Global Ratings projects that most African countries will report average GDP growth of 4.5% in 2026-2028, higher than in other emerging markets and historical levels. Faster economic growth is essential to improve the living standards of a rapidly growing population. We expect Africa's population to account for nearly one-third of the global population by 2060.
However, structural challenges persist, as many African sovereigns have limited government revenue and high debt-servicing costs that inhibit investments in public infrastructure. While lower global interest rates may alleviate near-term financing risks, a complex web of financial, regulatory and execution barriers exacerbates Africa's economic vulnerabilities. These barriers need urgent attention to unlock the continent's economic potential. Moreover, despite favourable terms of trade in the context of high commodity prices, Africa is grappling with financing shortages amplified by a sharp reduction in official development assistance.
Rising demand for energyEnergy is a strategic priority for Africa as it faces rising demand and a push for industrial transformation. The continent's infrastructure needs are immense, encompassing energy, transport and logistics, housing, water and sanitation and digital infrastructure. All of these are critical for industrialisation, trade and social development.
We anticipate that increasing population density and urbanisation will sustain the demand for infrastructure, housing and essential services. Broadening access to electricity is a key issue, with over 600m people in Africa lacking access to electricity and about 1bn lacking clean cooking options, according to the International Energy Agency.
The energy mix is equally important to ensure a stable and reliable power supply. Government-led initiatives such as South Africa's Renewable Energy Independent Power Producer Procurement Programme have succeeded in attracting nearly $20bn in private investments and delivering additional renewable-energy capacity.
We believe that the development of capital markets is essential for the growth of African economies and their private sectors. Unlocking Africa's abundant funding potential would benefit from establishing effective regulatory regimes that encourage listings without overburdening issuers.
Strengthening capital markets through the provision of debt, equity-raising and listing opportunities can enhance market access and liquidity. Excluding South Africa, capital markets across Africa remain fragmented and shallow. Countries such as Nigeria, Egypt, Côte d'Ivoire, Kenya and Morocco do have valuable domestic financing sources, but often at high costs.
Deep capital markets are essential as they provide financing for both governments and the private sector by channelling domestic savings into projects that generate returns. This process fuels a virtuous cycle of investment, economic expansion and job creation.
Progress in this area requires sustained effort and a long-term commitment. Multilateral lending institutions (MLIs) play a crucial role in broadening market access. MLIs can offer local-currency loans, enhance liquidity and de-risk investments by providing guarantees to both local and international investors. Moreover, MLIs' support extends beyond financing and involves adapting regulatory frameworks, building institutional and technical capacity and developing essential infrastructure. These efforts represent a growing commitment to strengthen Africa's capital markets even though the funding amounts may be modest.
The rise of green financeIncreasing interest in green and sustainability-linked instruments is fuelling growth in sustainable finance, with African issuers raising approximately $13bn in such debt in 2024. Most of the financing since 2016 has gone on renewable energy, access to essential services and basic infrastructure. We expect sovereign issuance to increase across the continent in the coming years, driven by investor appetite and governments' efforts to tackle environmental and social challenges.
Interest in sustainable finance also extends to the private sector, with South African banks being the most active issuers of green-labelled debt instruments on the continent. South African banks' key partnerships with institutions such as the International Finance Corporation, a member of the World Bank Group, facilitate the provision of green-certified home loans through blended finance, which attracts private capital to emerging markets by combining it with public funding.
Green-certified loans incentivise developers and homeowners to adopt environmentally efficient practices. The Johannesburg Stock Exchange, the largest African stock exchange by market capitalisation, is supporting sustainability-linked financial instruments and improving environmental, social and governance disclosures, aligning African capital markets with global best practices. Recently, the Rwanda Stock Exchange launched a green exchange window, a platform for trading green, social and sustainability-linked financial products, supported by the Luxembourg Stock Exchange.
Collectively, these debt instruments can act as catalysts for blended finance structures, thereby mobilising more private capital, especially when combined with national and multilateral development banks' credit-enhancement mechanisms.
Blended financeThe use of blended finance vehicles that enhance diversification, scale and mobilisation ratios - the amount of private-sector capital attracted for each dollar of catalytic capital invested - would better align investors and borrowers in a context of shrinking concessional funding.
Persistent challenges continue to inhibit large institutional investors' appetite to engage in Africa. Key investment barriers include weak institutional frameworks; a lack of first-loss capital; foreign-exchange risks stemming from a limited number of hedging instruments; a scarcity of sufficiently large projects; inadequate project data; and weak project preparation.
Together, these factors delay financial close and increase execution risk, ultimately limiting the availability of long-term financing options. Regulatory barriers and the standardisation of blended finance structures further hinder the scalability of these financing options. Bridging these gaps requires a combination of innovative financial mechanisms and risk-mitigation tools such as credit guarantees and hedging.
S&P; Global Ratings is committed to helping drive impactful progress through our credit ratings, second-party opinions, research and thought leadership. Our goal is to support Africa's economic growth and integration by fostering robust capital markets.