AFC aims for financial independence with domestic capital focus

The Africa Finance Corporation charts a new course to fund infrastructure projects using local African investments.

The Africa Finance Corporation (AFC) is steering Africa towards financial autonomy by mobilising domestic capital for infrastructure development. Mohammed Abdul-Razaq, Senior Vice President at the AFC, stated that African financial institutions hold trillions of dollars in assets. These assets, including pension funds and insurance capital, can fund the continent's essential infrastructure projects. Historically, Africa has struggled to channel its vast capital effectively into productive infrastructure. Mr. Abdul-Razaq noted a paradox: while trillions of dollars are available domestically, only a small fraction invests in African infrastructure. The AFC aims to bridge this gap, promoting local investment over external financing. This initiative aligns with Ghana’s broader goal of reducing foreign debt and strengthening its financial markets. Ghana, like many African nations, has faced challenges from global economic shocks and conditionalities attached to external loans. Building resilient domestic capital markets is crucial for sustainable development and economic stability, moving away from volatile international funding sources. Mr. Abdul-Razaq explained the AFC’s three-pillar strategy. First is de-risking projects by using its balance sheet and blended finance. This absorbs early-stage risks that deter domestic institutional investors. Second is standardisation, creating clear, bankable project structures. These structures make infrastructure investments as trustworthy as government bonds for pension funds. Third is advocacy, working with regulators and finance ministries to update rules. These changes will allow institutional investors to allocate more funds to infrastructure. External capital is not inherently bad, but it often comes with conditionalities and currency risks. Global events like pandemics and interest rate changes have shown the fragility of relying solely on foreign funds. A strong domestic capital market offers a durable solution, funding infrastructure regardless of global financial conditions. This resilience is what the AFC calls financial sovereignty. Partnerships are evolving towards a more equitable model. Domestic investors are now co-architects in financing structures, not just passive recipients. Governments play a vital role by providing policy certainty and fiscal incentives. Tax treatments for infrastructure investment vehicles are also being reformed. These reforms are encouraging more local long-term capital commitment. Regional development finance institutions, such as the African Development Bank and the AFC, act as catalysts. They take initial risks and provide technical assistance. Their goal is to structure projects to international standards, paving the way for commercial and domestic institutional capital. This leverage model allows one dollar of AFC capital to mobilise five to ten dollars of private and domestic capital, scaling up development efforts significantly. Looking beyond 2026, optimism surrounds Africa’s infrastructure financing. There is increasing alignment among finance ministers, central bank governors, and pension fund trustees. The AFC plans to introduce a Domestic Capital Mobilisation Index. This index will track, country by country, the proportion of infrastructure investment funded locally. The AFC calls domestic capital “patient capital,” meaning it is committed for the long term.

AFC aims for financial independence with domestic capital focus

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