African policymakers, investors and financial-market leaders are meeting in Nairobi this week with a central question: how can the continent use more of its own money to finance development instead of relying heavily on external funding?
More than 300 policymakers, regulators, institutional investors, development finance leaders and market practitioners from more than 20 African countries are attending the third Sustainable Capital Markets Conference, organised by FSD Africa and its partners.
The conference comes as African countries face mounting pressure to finance infrastructure, energy, businesses and climate resilience while dealing with tighter fiscal conditions, high debt-servicing costs and slower access to international funding.
The answer being explored is greater use of domestic capital markets.
Africa has billions available, but little reaches productive sectors
African institutional investors—including pension funds, insurance companies, banks and sovereign wealth funds—manage an estimated US$4 trillion.
Yet only about 2.7 per cent of institutional assets are currently invested in infrastructure and other productive sectors across the continent.
This creates a significant gap between the money available within African financial systems and the financing required to support long-term economic development.
The conference is therefore examining ways of moving more institutional capital into areas such as infrastructure, climate-resilience projects, energy transition, small and medium-sized enterprises and other parts of the real economy.
Capital markets have grown, but activity remains limited
Africa’s domestic equity markets have expanded significantly since 2000, growing 27-fold to about US$561 billion.
However, the continent’s share of global capital-market activity has declined, suggesting that the expansion has not kept pace with developments elsewhere.
Debt markets also remain relatively shallow.
Fewer than half of African countries have had a domestic company issue a corporate bond since 2000, limiting the financing options available to businesses seeking long-term capital.
For companies and governments, deeper capital markets could provide alternatives to traditional bank lending and external borrowing.
What is standing in the way?
Participants at the Nairobi conference are examining several barriers to unlocking more domestic investment.
These include weaknesses in market infrastructure, regulatory challenges, limited investment products and difficulties in structuring projects that can attract private investors.
The discussions will also focus on sustainable finance, including green, gender and other thematic bonds, as well as blended-finance structures that combine public or development funding with private investment.
Another area is sovereign debt management and market transparency, which can affect investor confidence and the cost of raising capital.
Why infrastructure and climate finance matter
Africa’s financing needs are expanding alongside its population and economies.
The continent produces approximately 25 million new job seekers every year, increasing pressure on governments and businesses to create employment while investing in transport, energy, housing, digital infrastructure and other essential services.
Climate change adds another financing challenge.
African countries need long-term investment to strengthen resilience, support the energy transition and respond to climate-related risks, even as many governments face constrained public budgets.
Mobilising domestic institutional investors could therefore provide an additional source of long-term financing for projects that require substantial capital.
What is expected from the Nairobi meeting?
The conference aims to move beyond discussions and produce practical frameworks for capital-market development.
One proposed outcome is an Africa Capital Markets Roadmap, setting out shared priorities and commitments for developing deeper, more efficient and inclusive financial markets.
Participants are also expected to work towards a roadmap for capital mobilisation, including measures involving public-private partnerships, regulatory reforms, priority financing structures and innovative investment vehicles.
Another focus will be finding pathways to unlock a larger portion of Africa’s US$4 trillion institutional capital pool for infrastructure, climate resilience, energy-transition projects, MSMEs and other productive sectors.
The bigger question for Africa
The debate is ultimately about whether Africa can make better use of capital already within its own financial system.
Having billions of dollars managed by African institutional investors does not automatically mean that the money can be directed into infrastructure or development projects. Suitable investment products, strong regulations, credible projects, transparent markets and risk-sharing mechanisms are needed to connect investors with opportunities.
The Nairobi conference is therefore focusing on the mechanisms that could bridge that gap.
For African economies facing growing development and climate-financing needs, the challenge is no longer only finding capital. It is also creating financial markets capable of mobilising and directing more of the continent’s existing capital towards long-term economic development.
