There is a consensus that Africa can increase economic growth by making significant investments in connecting infrastructure. (Photo by EMMANUEL CROSET / AFP)
There is a consensus that Africa can increase economic growth by making significant investments in connecting infrastructure — the physical and digital networks that connect towns, cities and countries, enabling seamless trade and data exchange. This includes transport, communication, energy, as well as water and sanitation, which are vital for the free flow of people, goods and services.
When this infrastructure operates optimally it facilitates increased trade, communication, commerce and social development — critical pillars in the objectives of the African Continental Free Trade Area (AfCFTA).
The Economic Commission for Africa (ECA) in 2023 stated that the Africa infrastructure deficit reduced continental economic growth by 2% annually and reduced productivity by 40%, an alarming state of affairs. To address this infrastructure deficit, the Programme for Infrastructure Development in Africa (Pida), an African Union initiative, produced the Pida Priority Action Plan (2021-2030) with the support of the United Nations. The plan has a critical list of 69 infrastructure projects to be developed in Africa for about $160 billion. Intra-Africa trade is extremely low at only 15%, compared with 68% in Europe and 59% in Asia. According to the ECA, once fully implemented, the AfCFTA aims to increase intra-Africa trade to 35% by 2040.
The objective is to not only increase trade volumes but also promote economic diversification away from reliance on commodity exports towards manufacturing and value-added industries. The changes in the global trade architecture, tariff regimes, aid cancellation, shifting political alliances and elevated geopolitical tensions indicate an urgent need for Africans to increasingly rely on other Africans. This means addressing the critical infrastructure deficits and unlocking intra-African trade is the most important task facing Africa today.
Financing connecting infrastructure
The technical White Paper, titled Missing Connection: Unlocking Sustainable Infrastructure Financing in Africa and co-published by the Africa-Europe Foundation and African Union Development Agency – NEPAD for the Finance in Common Summit held in Cape Town, South Africa in February 2025, noted the continent needs about $150 billion annually in infrastructure investment to address the infrastructure deficit.
Current investment is about $80 billion annually, of which only 40% of this financing comes from governments. About 35% of the financing is from donors and other international partners. The balance of current financing is from the private sector, whose role has taken on increased significance considering the changing donor patterns and decline in China-led financing in recent times. Creating enabling environments for private sector partners to invest in is critical for closing the significant funding gap.
Public private partnerships (PPPs) are increasingly viewed as one infrastructure financing modality that should be increasingly considered by African governments. These partnerships are long-term agreements that involve the granting of specific rights to the private sector to build new infrastructure or undertake substantial renovations of existing infrastructure using private financing and at significant private sector risk. In exchange, the private sector investors are granted long-term concessions over the operations of the assets and are remunerated through user charges, government unitary payments, or a blend of the two where revenue viability gaps exist.
The assets at the end of the partnership contract are transferred to the state and the state has the option to operate the assets or tender out to the private sector for another contract term.
Over the last few years, there has been a huge interest from African governments in using such partnerships to fund their infrastructure deficits. The continent has a low deal flow compared to other regions of the world, but this is set to change if the right policy interventions are applied. McKinsey and Company, in an article titled Solving Africa’s Infrastructure Paradox, noted that although Africa has a large pipeline of projects, for example, the Pida Priority Action Plan initiatives, but on average fewer than 10% of these receive funding.
There are international funds with an appetite to invest in Africa. So why are so few deals being funded? Some of the reasons for the slow conclusion of public private partnership deals in Africa are:
- Feasibility studies or business plans are not undertaken in sufficient detail to assess risks or commercial viability.
- Inadequate enabling legislation, frameworks, and policies tailored for concluding PPP transactions efficiently.
- The inability of governments to issue guarantees because of weak balance sheets or challenges with credit ratings.
- A shortage of skilled public servants who possess the necessary experience to conclude PPP contracts.
- Low liquidity or highly risk averse domestic lenders, thus making foreign lenders the primary option in some markets.
- Currency fluctuations and other political risk factors discourage investment because of the elevated perceived risks.
The African Legal Support Facility (ALSF) based at the African Development Bank undertook a study in 2024 to assess the progress in the development of public private partnership frameworks and supporting legislation. The study, titled Public Private Partnerships, Legal and Institutional Frameworks in Africa: A Comparative Analysis, produced some key findings:
- Out of 54 countries in Africa, 42 have enacted PPP legislation. Out of the 42 countries, 24 have civil law, 13 have common law and five have mixed legal systems.
- Western and Central Africa have the highest percentage of economies that have enacted specific PPP laws, with all countries in the region having laws in place, except for Equatorial Guinea and The Gambia.
- Eastern and Southern Africa have enacted the least specific PPP laws. Among the 12 countries that make up the Southern Africa region, four remain without a specific PPP law: Botswana, eSwatini, Lesotho and South Africa.
- Annual trends showed that the highest rate of enacted laws was from 2015 to 2017 with 16 laws passed over the three years.
- The first African country to enact a specific PPP law was Mauritius in 2004, while the most recent is the Republic of Congo in 2022.
- The restricted tendering method is the most common form of PPP procurement.
South Africa had concluded the most public private partnership deals in Africa as of the end of 2024, raising nearly $5 billion, with Nigeria in second place. South Africa appears to have had better success in PPP deal closure because of an advanced financial market, stable economic policy, favourable legal framework and a perceived transparent procurement process according to various studies.
The country uses Treasury Regulation 16 under the Public Finance Management Act for national and provincial governments and the Municipal PPP Regulation 309 under the Municipal Finance Management Act for local government. These regulations have been undergoing amendments, with Regulation 16 amendments complete and coming into effect on 1 July 2025 and Regulation 309 amendments still need finalisation.
Donor agencies and development finance institutions have directed funding to support the training and institutional building of PPP capabilities in African governments. The Public Private Infrastructure Advisory Facility, a World Bank programme, has successfully implemented institution-building activities to enhance the capacity of government officials around the world. This technical assistance helps to catalyse the adoption of PPP laws, regulations and guidelines in a streamlined manner to facilitate investments.
2025 and beyond
Attracting both domestic and global private sector investors to Africa is a critical part of closing the financing gap and making inroads to closing the infrastructure deficit that prevents Africa from growing at a rate fast enough to create meaningful opportunities, especially for its burgeoning youth population. One of the attractive features of PPPs is the transfer back to the state of the asset at the end of the agreement.
We have seen many privatisations of state-owned enterprises, usually accompanied by opposition from political parties or civil society because of the more permanent transfers of state assets to the ownership and control of the private sector. Governments have raised debt capital in private markets or by tapping into pension funds to fund infrastructure — another at times controversial route because of perceived risks to pensioners of the funds being mismanaged.
Public private partnerships are, however, not a silver bullet to the funding deficit because of the complex nature of the agreements and the real risk of African governments assuming contingent liability exposures inadvertently because of a shortage of skilled bureaucrats. It is incumbent upon our governments to develop the necessary legal frameworks and innovative de-risking mechanisms that will allow the successful conclusion of private sector investments.
Dr Mthandazo Ngwenya is a managing director at Bigen Africa Group and has also served as Africa director of Intellecap Advisory Services.
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