Financing Development and Transformation in Africa

By Paul Elebute

The African continent is reputed to be on the verge of a major economic breakthrough.

According to recent econometrics, the Black continent is steadily undergoing handful economic growth rates tending towards achieving sustainable development.

Core areas of development like industrialization, ICT, renewable energy resources have been spotted.

Notwithstanding, financing these investment areas have posed no little challenge.

The traditional channels of Foreign Direct Investment, Official Development Assistance are still available but are not entirely reliable thereby necessitating the need to innovate new models of financing the expected transformation. 

This short essay seeks to underscore the means by which development can be financed. The prevailing need is summarily appraised. Subsequently, states’ efforts at financing transformation are briefly highlighted.

And finally, significant directions in funding change are examined. The work concludes submitting that firm political will and commitment would be greatly needed to realize a Pan-African development and transformation.


According to Nobel prize-winning economist Amartya Sen, development must be judged by its impact on people, not only by changes in their income but more generally in terms of their choices, capabilities and freedoms; the UN Human Development Index and the Multidimensional Poverty Index have well adopted this.

Ditto, the Oxford Living Dictionary defines transformation as “A marked change in form, nature, or appearance”.

However, this must be considered in terms of its lasting impact; its sustainability. Lessons learned from Africa’s development trajectory over the past three decades have prompted a fresh wave of thinking towards a post-2015 and Africa 2063 transformative developmental framework designed to ensure self-reliance for Africa (Abugre and Ndomo, 2014).

Therefore as Mr. Wu Hongbo, UN DESA’s Under-Secretary-General has indeed rightly commented ‘arriving at a comprehensive financing framework will be central to any agreement on a sustainable development agenda’ (UNDESA, 2014).


‘Discovery is the essence of economic life’ – F.A. Hayek, 1974 Economics Nobel laureate

Although backing development can be implemented via local and international forums, the argument however appears convincing that we access windows that only promote sustainable transformation.

Culpeper and Bhushan (2010) have well reasoned that first, domestic finance is less volatile than most sources of external finance and do not increase a nation’s vulnerability to external shocks that may lead to debt crises.

Second, it is politically sound to rely on domestic resources because they increase a country’s ownership of public policy and tie accountability to the citizens rather than external investors and donor organizations.

Fiscal returns on the traditional income outlets like the exploitation of mineral resources in our economies are at an all-time low. As a result, innovative methods need to be brought to the fore.

The ever-bourgeoning rate at which external debts escalates is discouraging enough.

A NEPAD-OECD report (2010) reveals that the external debt for African countries was estimated to be US$300 billion in 2009 and about 16 per cent of the continents export earnings were spent on servicing it that year. You can tell better what this would have turned out to be almost a decade after!


Murai (2015) observes Kenya’s leadership in promoting financial inclusion leading to innovative financing mechanisms that support access to health services and renewable energy.

Also, following the Stock Exchange of Mauritius (2015) her efforts to align her stock exchange to sustainable development results in the launch of the Sustainability Index.

According to UNEP Inquiry (2016), Philippines work with the global insurance sector to develop a public-private disaster insurance pool, making and will make disaster insurance compulsory for homeowners and SMEs.

In Nigeria, the Central Bank of Nigeria-founded Nigerian Incentive-Based Risk Sharing System for Agricultural Lending (NIRSAL) provides risk mitigation, financing, trading, and other strategic assistance to agribusinesses in Nigeria and has a capital base of $500 million. (Relief Web, 2013)

In his Royal Message at the Ninth African Development Forum, King Mohammed VI declared that for Morocco an ‘intra-African process is essential’ (Hamdok, 2015).


Local Resources Mobilization -

By formalizing virtually all the informal sectors of our economy we are poised to expanding our financial markets. Innovative moves need to be geared towards harnessing the resource potentials of our financial markets.

Impediments such as undue tax exemptions, traditional tools vis-à-vis operations of tax collection should be removed. In Africa, we dearly need tax reforms. Capital market securities may also be functionally mobilized. Tourism and hospitality are goldmines today.
They should be exploited. Hamdok (2015) discloses that if the levy on air tickets were to be increased by $10 per ticket and hospitality levy increased by $2, additional revenue of $775 million would be raised, without repercussions on the economies of member States.

Quality Policy Simulation and Regulatory Compliance –

‘Economic development is not hindered so much by lack of capital as by bad institutions’ (Kasper, 2005).

Former US President Barack Obama in an interview granted the New York Times has rightly observed that ‘in growing our economic pie…we also need a more vigorous regulatory regime’ (Richard, 2009).

Import-substitution strategy should be adopted to impose high levy on imports and insurance premiums. Credit-guarantee schemes should as well be initiated and strengthened.

To finance transformation which Africa needs issues highlighted in the Action Agenda 2015 such as domestic public resources; international trade as an engine for development; debt and debt servicing; addressing systemic issues; Science, Technology and innovation (STI) and capacity building would be given frontline policy attention.

Regionalization -

An intra-African process is truly pertinent. Border restrictions which elicit high tariffs should be removed.

This is to effect Pan-African trade hinged on liberalization and enhancement of individual economic freedom and empowerment as Hayek cautions in his classic, Road to Serfdom, ‘to be controlled in our economy is to be controlled in all things’.

Illicit Financial Flows (IFFs) -

 Illicit financial flows are commonly referred to as “money that is illegally earned, transferred, or utilized” (ECA, 2014b in Hamdok). Latest statistics reveal that Africa lost between $854 billion and $1.8 trillion in illicit financial flows between 1970 and 2008.

Whilst the drivers of IFFs are checkmated the gleanings from IFFs are vastly serviceable.

Private Equity-

 According to Ncube, over $200 billion has been raised by private-equity firms, with Kenya, Nigeria and South Africa being the major beneficiaries. Private-equity investment deals in Africa increased from $890 million in 2010 to $3 billion in 2011 (Ncube, 2012 in Hamdok)

Impact Investment-

 Impact Investment may also be coveted. To Carlo Lopes, Executive Secretary of ECA, Global impact investments accounted for about $8 billion in 2012, a third of it going to Africa.

Climate Financing -

Established in 2010 the Green Climate Fund is to provide a significant proportion of the medium-term financing goal of $100 billion a year by 2020, a target set by developed countries in 2009.

For instance, the African Development Bank has concluded that adaptation costs in Africa will be in the region of $20–$30 billion over the next 10–20 years, while the World Bank puts that figure at $18 million per year from 2010 to 2050. (Hamdok, 2015)

Novel Models of Partnership -

Public and Private Partnership, the South-South alliance are good instances that can be entered into. Euro-bonds, no-interest bonds may as well be sourced to furnish the fiscal wherewithal for the Black continent in relevant investment sectors.


The ‘Action Agenda’ of Addis Ababa have been well prepared and financing, innovative financing, remains the viable way to walking the talk.

This could be bolstered by efficient policy-making and strong political will and commitment. The Bretton Woods Institutions have well helped but we should begin to pioneer home-grown methods by which we can profitably finance our development and transformation.

In achieving this, an Afro-pessimistic attitude must be quelled. We must believe in Africa. Black is beautiful.


  • Abdalla Hamdok (2015), Innovative Financing for the Economic Transformation of Africa, UNECA publications, Addis Ababa, Ethiopia.
  • Abugre, Charles, and Atieno Ndomo. (2014). Structural Transformation and the Challenge of Financing Africa’s Post 2015 Development Agenda. Nairobi: United Nations Millennium Campaign Africa and United Nations Development Programme Regional Service Centre for Africa.
  • Culpeper, R. and Bhushan, A. (2010), Domestic Resource Mobilization in Africa: An Overview, The North-South Institute, available at:  Accessed on May 18, 2018
  • F. A. Hayek (1978). "Competition as a Discovery Procedure", in New Studies in Philosophy, Politics, Economics and the History of Ideas (London: Routledge Kegan Paul), pp. 179-190
  • F. A. Hayek (1945), ‘Road to Serfdom’, Institute of Economic Affairs, London.
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  • NEPAD-OECD (2010), “Africa investment initiative ‘external debt in Africa’”, Policy Brief No. 3, available at:  Accessed on May 18, 2018
  • Oxford Living Dictionary Available at Accessed on May 17, 2018.
  • Relief Web (2013),  Accessed on May 18, 2018.
  • Richard Joseph (2009), Available at  Accessed on May 16, 2018
  • Stock Exchange of Mauritius (2015). “The Stock Exchange of Mauritius (SEM) launches its Sustainability Index (SEMSI), and joins the league of Sustainable Stock Exchanges.” pdf accessed on May 18, 2018.
  • UNEP Inquiry (2016). Green Finance for Developing Countries.  Accessed on May 18, 2018
  • UNDESA (2014), Accessed on May 18, 2018
  • Wolfgang Kasper (2005). Economic Freedom and Development, Sydney.

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