Economic Development in Africa: Two important pieces of the puzzle

There is broad consensus on the need to accelerate Africa’s economic and social development. African governments recognize its urgency, and regional and international institutions support it.

So why does progress often remain slower than expected?

While Africa faces numerous development challenges, two stand out as fundamental: the volume and terms of development financing, and the quality of economic governance.

Development finance: Aligning financing with development needs.

Economic and social development require substantial investments in infrastructure and human capital. Yet the economic returns on these investments, particularly in education and health, often materialize only over the long term. In many cases, several decades, or even an entire generation, may pass before their full impact is reflected in higher productivity, incomes, and living standards. 

However, much of the financing available to developing countries, whether domestic or external, remains characterized by maturities and grace periods that are significantly shorter than the economic and social payoff horizons of these investments.

Some regional and multilateral institutions, such as the concessional lending windows of the World Bank (International Development Association) and the African Development Bank (African Development Fund), do offer relatively favorable terms, with maturities of up to forty years and grace periods of around ten years. Yet the volume of concessional resources available remains far below the continent’s financing needs. Moreover, grace periods are often too short for investments in human capital whose economic benefits may take many years to materialize.

As concessional financing becomes scarce, many countries increasingly rely on international, regional, and domestic capital markets, as well as commercial financing, which typically carry higher costs, shorter and repayment periods. This trend increases financial vulnerability and may constrain countries’ ability to invest sustainably in their long-term development.

A better alignment between financing conditions and the payoff horizons of development investments is therefore essential. Such alignment would not only enable countries to invest more sustainably in their future but could also help reduce the risk of debt distress. For example, certain categories of investment may justify grace periods exceeding twenty years when their economic benefits are particularly delayed.

Nevertheless, even if development institutions were willing to extend maturities and grace periods further, the volume of resources available under such terms would likely remain insufficient to meet Africa’s enormous financing needs. Longer maturities increase lenders’ exposure to risk over extended periods and may limit their capacity to scale up such financing significantly.

Consequently, concessional finance alone cannot meet the continent’s development requirements. African countries must also mobilize other sources of long-term financing. This requires, among other measures including:

• Strengthening private investment through credible macroeconomic policies, an improved business environment, and well-designed, properly regulated public-private partnerships.
• Developing innovative financial instruments capable of attracting long-term private capital, including guarantee mechanisms, credit enhancement facilities, and diaspora bonds. The experience of several countries, notably Nigeria, demonstrates that diaspora bonds can be an effective tool for mobilizing the savings of citizens living abroad. Their success, however, depends on a critical prerequisite: investor confidence in the country’s institutions and the quality of its economic management.

Finally, it is important to recognize that no development financing strategy can sustainably rely on external resources alone. Domestic resource mobilization remains a fundamental pillar of sustainable development finance. In addition, more effective management of natural resources could substantially increase the fiscal space available to finance the investments required for long-term economic and social transformation.

Governance: Turning Resources into Results

Economic governance refers to a state's ability to use public resources efficiently, transparently, and responsibly in pursuit of economic and social development. It requires a strong sense of accountability on the part of public authorities toward citizens: creating conditions that enable people to meet their basic needs, develop their capabilities, and participate fully in economic life.

Good economic governance encompasses the fight against corruption, the reduction of waste in public spending, and sound public financial management. It also requires budgetary choices that prioritize high-impact investments, particularly in infrastructure, education, healthcare, and social protection.

Effective economic governance also strengthens investor confidence, encourages private investment, and improves the efficiency of public action. In doing so, it supports stronger and more inclusive growth while increasing resilience to economic shocks.

Yet for these gains to be sustainable, they must be underpinned by a robust framework of political governance based on the rule of law, institutional accountability, transparency in public decision-making, and citizen participation. Development is not built on financial resources alone; it also depends on trust in institutions.

Conclusion

Africa’s development challenge is not simply about mobilizing more resources. It is equally about ensuring that those resources are used effectively to generate lasting results.

The international community has a critical role to play by expanding the supply of concessional financing and by developing financing mechanisms whose maturities and terms are better aligned with the long-term requirements of economic and social development.

For their part, national authorities should continue reforms aimed at:

• strengthening public institutions, ensuring sound and transparent public resources management, and reinforcing the confidence of both citizens and investors;
• Improving public investment and debt management by ensuring that project selection, appraisal, and financing adequately reflect the alignment between financing conditions and the long-term economic and social returns of investment.
• Intensifying domestic resource mobilization through stronger tax administrations, accelerated digitalization of tax procedures, broader tax bases, and more efficient management of tax expenditures

Africa’s long-term prosperity will hinge not only on mobilizing greater resources but also on ensuring that those resources are translated into meaningful and lasting improvements in people's lives.