The African Development Bank is discussing ways to mobilise more of Africa’s roughly US$4 trillion in domestic savings and financial assets toward investment on the continent, as policymakers search for alternatives to expensive external borrowing.
AfDB President Sidi Ould Tah said the bank is working with pension funds, banks, capital-market institutions and other financial organisations to improve coordination and risk allocation so that more African savings can finance African projects.
The US$4 trillion figure is an estimate of capital already held across African banks, pension funds, insurance companies, sovereign wealth funds and other institutions. It is not a new US$4 trillion fund and the AfDB has not announced that this amount has been committed for investment.
A financing gap despite large domestic savings
The AfDB estimates that Africa faces an annual development-financing requirement of more than US$400 billion for structural transformation.
At the same time, the bank says the continent holds more than US$4 trillion in domestic savings and assets.
The challenge is that much of this capital does not currently flow into long-term infrastructure, energy, industrial and other development projects at sufficient scale.
Ould Tah has argued that better risk-sharing mechanisms, stronger capital markets and more bankable projects could help mobilise those resources.
Why domestic capital matters
African governments have often relied on external borrowing in dollars and euros for large infrastructure projects. Higher global interest rates and weaker local currencies can make that debt considerably more expensive to service.
Increasing the use of local pension, banking and insurance capital could potentially reduce some exposure to foreign-currency borrowing while deepening African capital markets.
That does not mean domestic financing is automatically cheap or risk-free. Pension funds and insurers have obligations to savers and policyholders and must invest under strict risk and liquidity rules.
The real policy question is whether governments, development banks and private investors can create projects with structures that meet those institutional requirements.
The AfDB is also pursuing wider reforms intended to lower the cost of capital, including support for more transparent sovereign credit-rating preparation and a broader African financial architecture aimed at mobilising investment.
For DGBN, the long-term measure will be the amount of African-held capital that moves into actual projects, rather than the headline size of the continent’s savings pool.
Read more from DGBN’s Finance desk, Africa desk and our coverage of African investment.