Long-Term Finance

construction site with tower cranes in the background

In Africa, financing tends to be short term in nature, resulting in a fundamental maturity mismatch with the financing needs of companies looking to invest in productive capacity or households looking to finance housing through mortgages.

At the same time, Africa faces vast, growing infrastructure needs that cannot be met through public financing alone. Unreliable electricity supply and poor roads continue to constrain output and undermine economic development. It is estimated that Africa’s infrastructure investment needs (power, water and sanitation, transport, ICT) amount to USD 80 billion per year over the next ten years. Half of this amount is required for capital investment, with the other half needed for maintenance and operational costs. Long-term finance will be indispensable to address these needs.

With the exception of Namibia and South Africa, housing finance is only available on a limited scale in most African countries. In Mali, Rwanda and Senegal, available housing finance amounts to 2 percent of GDP; in Ghana, Tanzania, and Uganda, it is equivalent to 1 percent – a significant difference from other developing economies, such as Chile, Malaysia and Thailand, where housing finance accounts for 15 to 21 percent of GDP.

Improving the supply of long-term financing in the economy will require increasing the capacity of the banking sector to transform a predominantly short-term funding base into longer-term financing for the private sector; it will also require establishing capital markets that can channel the increasing amounts of long-term savings from pension funds and insurance into long-term investments.

Legal and institutional frameworks also need to be in place as the foundations for private funds to be invested in large long-term investments in housing or infrastructure. Public-Private Partnerships (PPPs) offer a possible alternative to financing long-term investment; however, while several countries around the world have well-established PPP programs, its use is less widespread in Africa.