JOHANNESBERG, July 23 – African governments and development finance institutions are placing greater focus on debt guarantees as they look to attract more private investment into infrastructure projects, especially as development aid continues to decline.
Banji Fehintola, Head of Financial Services at the Africa Finance Corporation (AFC), said African institutions are taking a more active role in financing the continent’s development. According to him, guarantees could help attract large-scale funding from pension and insurance funds that have traditionally viewed African infrastructure as too risky.
Guarantees help lower the risks investors face by offering protection if a borrower defaults, a project fails or political events disrupt an investment. They can also help projects secure stronger credit ratings, longer repayment periods and better financing terms.
The renewed push comes as African institutions seek to tap into an estimated $4 trillion held in the continent’s pension, insurance and sovereign wealth funds to help close an annual infrastructure funding gap of about $100 billion.
Earlier this year, African Development Bank President Sidi Ould Tah introduced the New African Financial Architecture for Development, with guarantees forming a key part of the strategy.
Interest has also grown with international aid budgets shrinking. The World Bank’s Multilateral Investment Guarantee Agency (MIGA) has more than doubled its guarantee issuance over the past five years to $9.5 billion, highlighting stronger demand for risk-sharing tools.
Investors say there is no shortage of interest in African infrastructure. However, they stress that projects need investment-grade credit ratings to attract large institutional investors from Africa and abroad.
Industry leaders also believe a shared African platform that allows development banks to pool guarantees could make financing more efficient and help channel more private capital into major projects across the continent.
