African Banks Confront Capital Constraints in Infrastructure Financing
African commercial banks are grappling with structural capital constraints that significantly impact their ability to finance large-scale infrastructure projects. Notably, the total Tier 1 capital of the African banking sector remains lower than that of a single major U.S. bank.
Insights from the Africa We Build Summit
The issue was brought to light by Jeremy Awori, CEO of Ecobank Group, during a panel session at the Africa We Build Summit, organized by Africa Finance Corporation (AFC) in Nairobi, Kenya. This event gathered global and regional leaders in development finance to explore ways to unlock infrastructure capital across the continent.
Undercapitalization Challenges
Despite Ecobank’s extensive footprint in 34 African nations, Awori emphasized the significant undercapitalization of the banking sector compared to international peers, which restricts their capacity to directly fund long-term infrastructure initiatives. He noted that all African banks collectively possess less Tier 1 capital than individual banks in the U.S. or China, underscoring a persistent disparity that limits lending capabilities across Africa.
Inadequate Structures for Long-Term Financing
Awori explained that while African banks have deep roots in local markets and contribute significantly to corporate banking, SME lending, and retail services, their balance sheets and deposit maturity profiles are ill-suited for large-scale, long-term infrastructure financing. He stated that the inherent short-term nature of deposits creates reluctance among commercial banks to commit billions of dollars to long-term projects.
Collaborative Approaches to Financing
To address these challenges, Awori advocated for a collaborative financing model that integrates development finance institutions, capital market participants, and risk-sharing partners. He highlighted partnerships with entities such as AFC, AfDB, and Afreximbank, which can provide access to long-term funding while supporting operational accounts, SME initiatives, and trade finance.
Mobilizing Domestic Institutional Capital
Unlocking Africa’s infrastructure potential hinges on mobilizing domestic institutional capital, particularly pension funds, to bolster the banking systems and expand lending capacities. Awori cautioned that without sufficient capital, lending will remain severely constrained by the limited capital base of African banks.
Broader Perspectives on Infrastructure Financing
Other panel participants reiterated similar themes of risk-sharing, capital mobilization, and the need for diverse financial structures. Heike Halmgart, managing director for sub-Saharan Africa at the EBRD, called for a shift away from piecemeal infrastructure deals toward a scalable pipeline of projects supported by a coherent government framework. She expressed optimism about improving conditions in Africa and emphasized the availability of capital and natural resources that can work in concert.
Addressing the Infrastructure Financing Gap
Speakers such as Khalid Ahmed from BADEA and Manuel Moses from ATIDI discussed ongoing initiatives to mobilize billions for critical sectors, including infrastructure and agricultural value chains. They emphasized the role of credit guarantees and insurance mechanisms in facilitating capital flow and mitigating risks for institutional investors. Christopher Olobo, CEO of Damana Guaranty, warned that guarantees should target viable projects rather than serve as a substitute for weak fundamentals, urging caution against over-structuring that could limit scalability.
These discussions point to a growing consensus that Africa’s infrastructure financing gap stems not from an absolute scarcity of capital, but from a combination of market perception, balance sheet limitations, and the necessary frameworks to mobilize both domestic and global capital at scale. The AFC summit highlighted this challenge as central to Africa’s development path, with participants affirming that the continent’s future growth relies on integrating institutional savings, banking systems, and development finance into a comprehensive investment strategy capable of delivering large-scale infrastructure projects.
