The Future of Infrastructure Investment in Africa

The investment landscape in Africa is undergoing a significant transformation, shaped by a high-interest rate era, evolving geopolitical dynamics, and the continued demand for energy and infrastructure projects. As investors navigate Africa’s financial markets, a rise in public-private partnerships, especially in green energy, will likely be the trend moving  into the future. China has played a crucial role in funding energy and infrastructure projects so far, but recent developments suggest that Beijing is altering its approach in response to its own economic woes and the re-election of Donald Trump. With negotiations on peace in Ukraine and Gaza ongoing, the world’s attention could soon be turning to Africa.. 

A Changing Investment Climate

In Africa, the demand for large scale infrastructure investments remains high, yet capital remains constrained by perceived risks and a lack of well-developed secondary markets for investors. While in traditional investments shareholders can sell off their assets on the stock market (or to other private investors), there are few options for investors wishing to sell their shares of infrastructure developments. Therefore, many early-stage investors in critical infrastructure projects, including renewable energy projects, struggle to find viable exit strategies. Development finance institutions, who usually provide much of the financing for these projects, often find themselves unable to sell off their shares in projects and reallocate their capital.

One solution for this is the UK-backed MOBILIST (Mobilising Institutional Capital Through Listed Product Structures) programme. The programme takes inspiration from REITs (Real Estate Investment Trusts), which are used in the real estate market to pool assets together, making them more accessible to investors. MOBILIST has developed a similar investment vehicle called ‘Yield Cos’, which acquire operational infrastructure and energy projects, lowering the risk for investors while also allowing early-stage investors to reinvest their capital. While the initiative has not totally eased investors fears, it is a step towards Africa bridging its financing gap.

Despite volatility, African stock markets remain attractive for retail and institutional investors, and alternative investments, ranging from private equity to infrastructure funds, are becoming more mainstream. While the re-election of Trump can be seen as a knock to the pro-ESG (environmental, social, and governance) camp, sustainable investments, especially in emerging markets, could provide both safe financial returns and positive social impact.

Cost of Capital 

China has been the dominant player in African infrastructure financing for over two decades, providing approximately $182 billion in loans across the continent. Historically, China would use one of its three “policy” banks, Export-Import Bank of China, Agricultural Development Bank of China, or the China Development Bank, to fund infrastructure projects, which would then be built by state-owned enterprises (SOEs). However, this model is no longer sustainable due to a variety of reasons, such as China's economic slowdown and Africa’s increasing debt sustainability issues. The shift was demonstrated during  the 2024 Forum on China-Africa Cooperation (FOCAC), where Beijing announced a financing package of $51 billion, including a significant portion dedicated to equity investments. Despite this being a substantial amount, it is lower than previous packages, especially as the financing will be spread over a three year period . With African nations increasingly advocating for equity financing, Chinese firms will now more frequently have to participate in competitive bidding systems rather than rely on closed door negotiations. Furthermore, if they win contracts they will now be stakeholders and not just lenders, meaning they will have more of an interest in the long term maintenance of projects.

The Green Transition 

The 2025 China-Africa Cooperation Beijing Action Plan stated that new investments will have a focus on green energy development. This is not entirely new news, as in 2021 Beijing announced it would stop funding new coal power projects as part of the Belt and Road Initiative (BRI), redirecting its focus toward renewable energy. Since then, China has used its domestic expertise to increase financing for solar, wind, hydroelectric, and green hydrogen projects. It has also stated its desire to develop nuclear energy projects across the continent. The Export-Import Bank of China (EXIM) and the China Development Bank (CDB) continue to drive much of this financing, with a new emphasis on smaller, environmentally friendly projects. The recent Chinese pivot toward the “small is beautiful” approach, the phrase used Xi Jinping’s keynote speech at FOCAC, further illustrates Beijing’s new lower appetite for risk. The BRI has been successful for both China and Africa, as China was able to redirect capital and expertise to aid African nations in their modernisation efforts. 

Now at the forefront of developments in green energy technology, China is well placed to continue utilising the BRI to build green infrastructure in Africa. Despite increased commitment to renewable energy, challenges remain. African nations still face barriers in raising funding for renewable energy projects, as key stock markets in Nigeria, South Africa, and Kenya have yet to provide low risk investment vehicles to attract capital. While Yield Cos could help alleviate these worries, they are still relatively new investment vehicles and lack the trustworthy profile that is needed to attract large scale institutional investment.

The Role of Private Sector 

Due to its economic slowdown, China has pushed for its private sector companies to become more involved in Africa. Between 2015 and 2021, non-policy bank creditors provided approximately $55 billion in financing, making up one-third of China’s total spending in Africa over this period. Where these firms differ from policy banks, is that policy banks aim to implement specific government policies rather than pursuing profit as commercial banks do. Unlike state-backed loans, financing from commercial creditors, such as the Industrial and Commercial Bank of China (ICBC), is faster and less bureaucratic, despite these institutions still being largely owned by the Chinese government. While policy banks can take several years to commit capital after rigorous negotiations, financing from commercial creditors can be obtained within a year. In some cases, these lenders have provided bridge loans to sustain projects while awaiting funding from policy banks.

However, this also highlights one of the main negatives of commercial loans, which is the much shorter time period that creditors want to be involved for. This means that their loans carry higher interest rates and shorter repayment periods, exacerbating short term debt burdens for already struggling African nations. This has been made worse by the recent era of high interest rates and by the fact that the majority of Chinese financing has gone to countries facing debt sustainability issues. Furthermore, they require sovereign guarantees and insurance from China Export and Credit Insurance Corporation (Sinosure), which increases overall borrowing costs. The risk coverage Sinosure provides has also been cut back for countries that have defaulted. With the Chinese financial sector already risk averse due to their exposure to the ongoing domestic real estate crisis, private creditors will be less amenable to debt restructuring than policy banks are. This is because policy banks have to consider China’s geopolitical relationships while private creditors are profit driven. Despite these negatives, China’s willingness to provide equity financing indicates its long-term strategic commitment to close financial ties with Africa.

Western Response

Beijing adapting its strategy to align with both African goals and its own domestic constraints will likely mean that it maintains its dominant position on the continent. While its European counterparts have undertaken projects like MOBILIST and the Sustainable Energy Fund for Africa (contributing states being Denmark, the UK, Spain, and France), Europe’s focus is on rearming in anticipation of standing against Russia without American backing.With Western Europe having to make stricter fiscal decisions in the face of potential economic stagnation, they are unlikely to close the financing gap they have with China in Africa. 

Under a second Trump administration, the US is expected to take a more aggressive stance in countering Chinese investments in Africa. USAID has had most of its operations halted and is anticipating a significant shift in its policies once the administration’s 90 day review of USAID is complete. This has and will very likely involve cutting funding to countries that engage with Chinese entities, directly or indirectly, reinforcing Trump’s America First foreign policy. Trump’s emphasis on deal making and the involvement of the US private sector may be to Africa’s benefit, as a transactional approach could allow financing to go ahead with little of the red tape associated with the international NGOs that usually acquire USAID funding to operate in Africa. His nomination of Benjamin Black, whose experience lies in finance rather than foreign policy, to lead the US international Development Finance Corporation (DFC) solidifies this transactional approach, prioritizing economic returns over traditional aid diplomacy. Additionally, US support for fossil fuel rich nations, such as Tanzania and Nigeria, contrasts sharply with the previous administration’s green energy focus, further distinguishing its investment strategy from China’s renewable heavy initiatives. With this in mind, we will likely see African nations reliant on or rich in fossil fuels aligning with the US, while those focusing on green energy will likely become closer to China.

Conclusion

While Trump could force a clearer alignment of countries currently taking advantage of funding from both the West and China, a significant incentive that China maintains is political stability. The switch from Biden to Trump was tantamount to political whiplash, which countries like South Africa are currently learning the hard way. The US cut $1 billion in loans  that were employed to facilitate South Africa’s transition to green energy as part of a growing political spat between the two nations. African countries who could stand to benefit from US investments in its fossil fuels could be deterred by the possibility of a Democratic administration reversing Trump policies. Though China is decreasing the size of its investments, it remains a steady and predictable partner. In addition to this, US warnings of Chinese debt-trap diplomacy will likely fall on deaf ears as there have been no clear-cut cases so far of China leveraging debts to force nations into one-sided agreements. However, the introduction of Chinese private firms more concerned about profit than politics could see this change and may finally give the US the edge it desperately needs in Africa.