This chapter assesses the investments in infrastructure that African countries can make to reach the levels of productive transformation of their peers in other world regions. First, it uses a unique methodology to estimate the continent’s total investment needs for transport, energy and digital infrastructure and assesses opportunities to deepen regional value chains and rural-urban linkages. Second, the chapter identifies the sources of financing in view of sovereign debt burdens and reduced aid budgets. Third, it evaluates the main environmental and social sustainability opportunities and risks of infrastructure development.
Africa's Development Dynamics 2025
Infrastructure, Growth and Transformation
Abstract
Developing infrastructure is necessary for Africa to achieve productive transformation. With average annual investments of USD 155 billion until 2040, African countries could develop their infrastructure to a level comparable with peer countries in other world regions that have the highest levels of productive transformation. This investment could raise average annual gross domestic product (GDP) growth by 4.5 percentage points. This big push for infrastructure could thereby help surpass the African Union’s Agenda 2063 objective of 7% annual GDP growth per year and double Africa’s GDP by 2040.
The continent’s investment needs are especially large for cost-effective types of infrastructure, such as roads (32% of the total), railways (24%), fibre-optic cables (23%) and solar power (17%). Better transport, digital and energy infrastructure would improve Africa’s value chain integration and productivity. Strengthening infrastructure within and between cities is key for productive transformation and narrowing rural-urban divides. Infrastructure maintenance remains important, making up 42% of the total investment needs.
To increase infrastructure financing to the required scale, sovereign debt conditions must improve, and the cost of capital be lowered. African governments spent around 1.3% of GDP (USD 34 billion) per year on infrastructure between 2016 and 2020, a share similar to other world regions but much less than the People’s Republic of China (hereafter “China”) (6.7%) and Viet Nam (5.1%). For private infrastructure investments, the cost of debt is at least 2.5 times higher in Africa than in OECD countries. While bilateral aid has been reduced due to shifting priorities, large development funders have increased their contributions.
Environmental and social sustainability risks of infrastructure can be better managed. Climate change and population growth can exacerbate vulnerabilities and negative outcomes, including pollution, biodiversity loss and the exclusion of rural populations and women. With additional policy and financial support, climate resilient and green infrastructure and nature-based solutions can minimise economic losses and harm.
Note: LAC = Latin America and the Caribbean. Infrastructure investment needs refer to modelled estimates of the total expenditures required to build new infrastructure to match the infrastructure levels of peer countries that perform well in productive transformation, while also maintaining existing infrastructure. See Annex 1.A for details.
Source: Data sources for the investment needs estimations are listed in Annex 1.A.
Note: LAC = Latin American and the Caribbean. Transport = kilometres (km) of paved roads and railways per 100 km2 of non-desert land area. Digital = per cent of the population aged 15+ with access to the Internet. Energy = installed energy capacity as watt per capita. Water = per cent of the population with access to drinking water.
Source: Transport and energy indicators’ sources are reported in Annex 1.A. Access to drinking water: Drinking water, sanitation and hygiene (WASH) estimates: UNICEF (2024[1]), Drinking water, sanitation and hygiene in households by country, 2000-2022 (database), https://data.unicef.org/topic/water-and-sanitation/drinking-water/; Access to the Internet: Gallup (2020[2]), Gallup World Poll 2020 (database), https://www.gallup.com/analytics/213617/gallup-analytics.aspx.
Infrastructure development merits being a top priority for African policymakers, as it can boost growth, trade, job creation and firm productivity. Africans expect their governments to focus on infrastructure as a priority, according to this report’s analysis of findings by Afrobarometer on the top national issue that Africans wish their governments would address (Figure 1.3). Infrastructure is an important enabler of economic growth, regional integration and employment. Since the physical stock of infrastructure1 is more limited in Africa (Figure 1.2), infrastructure investments promise larger gains than in other world regions (Box 1.1). Integrated infrastructure networks can also boost firm productivity and help deliver well-connected trade networks, contributing directly to the fulfilment of the African Union’s Agenda 2063 vision of “world-class infrastructure crisscrossing Africa” through enhanced connectivity by rail, road, sea and air and through the development of regional power pools and digital networks (AUC/OECD, 2019[3]; AU, 2015[4]).
Note: The results are based on the question “In your opinion, what is the first most important problem facing this country that the government should address?” in a survey of 53 444 individuals aged 18+ from 39 African countries. The data are weighted to obtain a representative sample. The category “Infrastructure-related” comprises responses for “Electricity”, “Infrastructure/Road and Transportation”, “Water supply” and “Communications”.
Source: Afrobarometer (2023[5]), Merged Round 9 (database), https://www.afrobarometer.org/data/merged-data/.
The Africa’s Development Dynamics 2025 report addresses the question of how African policymakers can unlock infrastructure development to accelerate the productive transformation of the continent and its five regions. It focuses on economic infrastructure1 which directly increases the productivity of firms and workers and indirectly promotes productive transformation over time. In line with the scope of the Programme for Infrastructure Development in Africa (PIDA) and existing evidence of productivity effects, the report focuses on transport, energy, digital and water infrastructure.
Infrastructure is necessary for economic development. Infrastructure enables productive activities and access to goods and services for households and firms. Expanding the quantity and quality of infrastructure allows previously unexploited or underexploited resources and capital to be put to use, thereby augmenting production where possible, in turn increasing capital accumulation, economic growth and (on aggregate) socio-economic development (Familoni, 2006[6]). Despite the progress made in Sustainable Development Goal 9: Industry, innovation and infrastructure, the current pace of progress in Africa remains insufficient to achieve the goal by 2030 (Africa UN, 2025[7]).
Infrastructure is also a pre-condition for productive transformation. Productive transformation is the process of accumulating and diffusing organisational, production and technological capabilities, including reallocating capital and labour towards the more productive segments of an economy (AUC/OECD, 2019[3]). Transport infrastructure allows agricultural workers in rural areas to access more productive jobs, notably in services (Barrett et al., 2017[8]; Gollin and Rogerson, 2014[9]), while digital and energy infrastructure enable the use of modern technologies in agriculture and manufacturing and the growth of highly productive activities like the financial and digital economies (Herera Dappe and Lebrand, 2024[10]). Coupled with trade and tax reforms, infrastructure development can lead to productive transformation with more sustainable and equitable economic outcomes (Cateia and Fereira, 2023[11]). Table 1.1 illustrates aggregate economic impacts of infrastructure investments in transport, energy and digital infrastructure across developing countries.
Note: “Increase in infrastructure” refers to public expenditure and physical stock combined. “Economic output” includes indicators of production, income, expenditures and productivity, in levels or growth rates. Only coefficients from macro-studies are reported. “Employment” includes wages and employment indicators. “Trade” includes exports and imports. “Population” includes changes in population and migration flows. “/” indicates missing data. No systematic results were available for water infrastructure.
Source: Foster et al. (2023[12]), The Impact of Infrastructure on Development Outcomes: A Meta-Analysis.
Infrastructure development comes with particular financing and planning challenges. Infrastructure development takes a long time and requires large upfront investments that are beyond the capacity of private enterprises. From 2016 to 2020, the public sector accounted for 89% of total commitments to infrastructure in Africa, with 42% coming from African governments and the rest from bilateral and multilateral stakeholders’ data (ICA, 2022[13]). New infrastructure must be well-embedded in existing and future economic activities, while balancing growth and poverty alleviation and the needs of rural and urban populations (Canning and Bennathan, 2000[14]; Christiaensen and Todo, 2014[15]). Infrastructure planning requires co-ordination between governments across the local, national, regional and international levels, to avoid frictions and cumbersome processes (Gambino and Reboredo, 2022[16]).
Note: 1. Broadly, economic and social infrastructure can be defined as follows: Economic infrastructure includes transport (e.g. roads and ports), utilities and public works (e.g. energy and water supply, dams, sanitation and sewage, and waste collection), and digital and telecommunications (e.g. fixed and mobile telephony and Internet connectivity). Social infrastructure includes the provision of education (e.g. schools, universities and teachers) and health (e.g. clinics, doctors and pharmaceutical value chains).
Source: Authors’ compilation.
An annual investment in infrastructure of USD 155 billion could boost African countries’ productive transformation to match the levels of peer countries in other world regions. This report uses a unique methodological approach to estimate the investments needed to fill the gap in productive transformation between a given African country and benchmark countries (Box 1.2; Annex 1.A). The estimation considers scenarios that reflect closer and more distant time horizons of important African policy agendas, notably PIDA’s target for 2012-40 and the Agenda 2063. The scenarios mirror the economic opportunity of pushing Africa’s infrastructure development, contrasted with the respective investment costs.2 They project the GDP growth that would result from the increases in infrastructure stock, in terms of both their immediate effects and their cumulative impact over time. Table 1.2 summarises the results.
Note: GDP = gross domestic product. The steps taken to calculate the investment needs and growth estimations are detailed in Annex 1.A. The estimated increase in annual growth captures the short-term effect of infrastructure on economic output. Long-term annual growth accounts for the cumulative impact of past investments in infrastructure as their benefits continue to materialise over time.
Source: Data sources for the estimations are listed in Annex 1.A.
These investments could more than double Africa’s GDP by 2040 and enable African countries to achieve the objective of 7% annual growth outlined in Agenda 2063. By increasing annual GDP growth by 4.5 percentage points, an annual infrastructure investment of USD 155 billion would add USD 2.83 trillion to Africa’s GDP by 2040, thereby more than doubling it compared to the USD 2.80 trillion in 2024. Assuming that the currently projected average annual GDP growth rate of 4.4% from 2025 to 2030 could be sustained, the investment would result in an 8.9% long-term GDP growth rate. Even an annual investment of USD 102 billion would lead to an overall growth rate of 8.3%. A cost-benefit analysis conducted for this report estimates that the USD 155 billion in annual investment would have a benefit-cost ratio of 1.13. This means that the cumulative GDP gains from the higher economic growth that would result from the investment until 2040 would exceed the infrastructure investment costs by 13% (see Annex 1.A for details).
Filling Africa’s investment needs would require infrastructure spending on par with China or Viet Nam. The 2040 scenario requirement of USD 155 billion in annual investment is equivalent to 5.6% of Africa’s GDP in 20243 and nearly double the total annual spending of USD 83 billion on average from 2016 to 2020 according to the most recent available data (ICA, 2022[13]). As a share of total GDP, Africa’s investment need is three times larger than that of Latin America and the Caribbean and five times larger than that of developing Asia (Figure 1.4). In the 2063 scenario, African countries’ requirement of USD 102 billion in annual investment equals 3.7% of the continent’s GDP in 2024, or USD 19 billion in additional annual spending. Such a big push for infrastructure development appears possible if Africa’s infrastructure spending can match that of countries that have successfully combined large infrastructure investments with productive transformation policies to boost economic development. African governments spent an average of 1.3% of GDP (USD 34 billion) on infrastructure per year over the 2016-20 period. This is comparable to the global average but far below the spending levels of countries pursuing an infrastructure-led approach to economic development, such as China (6.7% of GDP) and Viet Nam (5.1% of GDP) over the 2010-14 period.4
Note: Infrastructure investment needs refer to modelled estimates of the total expenditures required to both maintain existing infrastructure and provide enough new infrastructure to match the infrastructure levels of peer countries that perform well in productive transformation. See Annex 1.A for details.
Source: Data sources for the investment needs estimations are listed in Annex 1.A.
The Africa’s Development Dynamics 2025 report uses a unique methodology to estimate the infrastructure investments that African countries would need by 2030, 2040 and 2063 to close the infrastructure gaps with benchmark countries that have high levels of productive transformation. The following steps are involved (Annex 1.A for details):
1. A composite index of productive transformation is constructed from five indicators (e.g. value added of services and manufacturing, and exports diversification), assigning each country in the world a productive transformation score from 1 to 100.
2. An econometric model assesses i) the size and statistical significance of the effects of specific infrastructure types (e.g. roads and railways) on the composite index, and ii) any non-linear relationships.
3. Each country is matched with a benchmark – a comparable country that shares important characteristics, such as GDP, surface area and population, and that is more successful in achieving productive transformation.
4. An estimate is then made of how much each country’s stock of physical infrastructure would need to increase to reach the level of its benchmark country. Infrastructure stocks are measured, for example, in kilometres of roads, railways and cables, and megawatts of energy infrastructure.
5. The estimated differences of infrastructure stocks between each country and its benchmark are then re-calibrated based on cost-effectiveness, using the strength of the relationship between a given type of infrastructure and productive transformation levels (established in step 2) and a set of original unit cost data.
6. To quantify the required investment, the estimated total infrastructure needs for each country are translated from stocks into monetary terms using the perpetual inventory method (OECD, 2009[17]). To approximate the additional cost for the maintenance and operation of infrastructure stocks, the annual depreciation value from the previous year is added to the investment need for additional infrastructure stock.
A limitation of the methodology is its reliance on historical data. The results are thus based on the assumption that the effects of infrastructure on productive transformation will be similar in the future to those in the past. However, how infrastructure actually contributes to productive transformation will depend on future developments, such as technological innovation and policies (see Rozenberg and Fay (2019[18]) for a detailed scenario analysis).
Source: Authors’ compilation.
Investments in specific types of infrastructure can be more cost-effective than others for achieving productive transformation
Specific infrastructure types have a more direct relationship to productive transformation than others. The results of the economic modelling conducted for this report (Box 1.2; Annex 1.A) suggest that only certain types of infrastructure have a direct, statistically significant relationship with productive transformation. This does not diminish the importance of other infrastructure types, which may yield substantial socio-economic benefits in other areas, such as improved water and sanitation infrastructure resulting in a healthier population (Banerjee and Morella, 2011[19]).5 However, in the context of productive transformation, only roads, railways, fibre-optic cables, installed solar power and fossil fuel capacity were found to be correlated with productive transformation.6 The magnitude of the effect of additional investments depends on how much of a certain infrastructure type a country already has, i.e. its level of density (Figure 1.5; Annex 1.A). The modelling defined the infrastructure densities as i) the length (in kilometres [km]) of roads, railways and fibre optic cables, and ii) the installed capacity in megawatts (MW) for solar and fossil fuel-based power generation, per 100 km² of non-desert land area.
Road density resulted in an inverse U-shape: benefits peak at around 18 km per 100 km2 of land area.
Railway density shows positive correlations with mildly diminishing returns.
Fibre-optic cables and solar panels have a strong linear correlation with productive transformation, with consistent gains per unit increase.
Installed power capacity from fossil fuel exhibits a U-shaped relationship: every additional megawatt is associated with a decrease in productive transformation until turning positive for countries with a fossil fuel density of 78 MW per 100 km2 of land. (No African country surpasses this threshold, suggesting that additional fossil fuel capacity would be associated with lower productive transformation levels for any African country.)
Note: Only infrastructure types with significant marginal effects are displayed. Lines show fitted values from regressions estimating the relationship between each type of infrastructure and the index of productive transformation. Bars show confidence intervals. Dots represent the raw data points. Details are in Annex 1.A.
Source: Data sources are listed in Annex 1.A.
The cost-effectiveness of infrastructure investments depends on a country’s initial infrastructure endowment, with different types of infrastructure offering varying returns. This report compiles unique infrastructure cost data (USD per additional kilometre or megawatt) to determine cost-effectiveness (Table 1.3; Annex 1.A). Road infrastructure is highly cost-effective in low-transport-density countries, where expanding road stocks yields strong returns. However, as road density increases, the marginal benefits decline, making further investments less cost-effective. On average, building railways and installing fibre-optic cables are cost-effective options for productive transformation. While railways have the highest unit costs, they also deliver substantial returns (they have the highest marginal effects). In contrast, fibre-optic cables offer the lowest returns but are also the least expensive infrastructure type per unit. Solar energy also provides substantial benefits, especially in countries with high transport density.
Note: The detailed methodology is explained in Annex 1.A.
Source: Data sources are listed in Annex 1.A.
Investing in transport, energy and digital infrastructure can boost regional value chains and firm productivity
Africa’s investment needs for specific infrastructure types are the largest for roads, followed by railways, solar panels and fibre-optic cables. The monetary investments that African countries need to reach the infrastructure stocks of peer countries with top-performing productive transformation levels can be estimated based on the cost-effectiveness of each infrastructure type (Table 1.3). The continent’s investment needs are particularly large for building and maintaining roads (32% of the total), railways, fibre-optic cables and its solar power capacity. Overall, 58% of the investment needs is for building new infrastructure and 42% for maintenance7 (Figure 1.6).
Note: Results show modelled estimates of the total expenditures required both to maintain existing infrastructure and to provide enough new infrastructure to match the infrastructure levels of similar high-performing countries in productive transformation, as determined by a methodology explained in Annex 1.A. Due to rounding, the percentages do not necessarily add up to 100%.
Source: Data sources are listed in Annex 1.A.
Transport infrastructure is a key enabler of productive transformation in Africa, as it supports both structural change and regional trade integration. For roads and railways to contribute to productive transformation, this report estimates average annual investment needs of, respectively, USD 50 billion and USD 38 billion. Such investments can generate multiple benefits: they can enable a structural change from agriculture to higher-value services and manufacturing while improving firm productivity through better access to inputs and markets (Fiorini and Sanfilippo, 2022[20]); they can also significantly reduce trade costs, which are over five times higher in Africa than in other world regions (Porteous, 2019[21]). By lowering these costs, improved transport infrastructure can boost intra-African trade – particularly in processed and semi-processed goods – and lead to higher export volumes (AUC/OECD, 2022[22]). For instance, operationalising regional transport networks laid out in the PIDA initiative is estimated to augment exports by 11.5% and overall GDP growth by up to 2% (Fontagné et al., 2022[23]).
Investment in energy infrastructure is vital to achieve productive transformation, meet access and clean energy goals and respond to growing demand. Africa’s annual productive transformation investment need for energy infrastructure is estimated at USD 31 billion, with renewable energy infrastructure accounting for 97% of this amount. However, to reach Africa’s overall energy access and clean energy goals, a further USD 180 billion of investments per year may be required until 2030 (IEA, 2024[24]). Currently, 44% of Africa’s population does not have access to electricity,8 and the percentage of manufacturing firms reporting outages (68%) is higher than in any other world region (Figure 1.7). Energy demand is predicted to increase by one-third between 2020 and 2030, and deploying new energy sources can support sustainable development (IEA, 2022[25]).
Source: Authors’ calculation based on World Bank (2024[26]), Enterprise surveys (database), https://www.enterprisesurveys.org/en/data/exploretopics/infrastructure-and-climate.
The development of digital infrastructure supports connectivity and regional integration. The continent’s annual investment needed to achieve productive transformation through digital infrastructure is estimated to be USD 36 billion. This is smaller than the investment needed for transport, in part because significant gains in digital infrastructure development have already been made in the last decade. For instance, Africa’s operational fibre-optic cable network reached 1.3 million km in 2024, compared to about 466 000 km in 2010. As a result, Internet access was multiplied by 4, reaching 41% in 2022. However, remaining concerns include affordability, the availability of localised digital services and the need to reach underserved populations (AUC/OECD, 2021[27]). In 2024, the average cost of broadband Internet per month for Internet users across 18 African countries was USD 56, higher than in Latin America and the Caribbean (USD 46) and developing Asia (USD 17).9 Enhanced digital public infrastructure – systems that offer digital building blocks for businesses and enable public service delivery – can be an important complement to digital connectivity infrastructure. In particular, digital public infrastructure can streamline customs, allow for cross-border digital services and trade, support renewable energy system integration in Africa, and expand access to trade finance for small and medium-sized enterprises (ACET, 2025[28]).
While improved water infrastructure has limited effects on productive transformation, it is vital for the climate resilience of agriculture and other industries and for human well-being. Africa’s water and sanitation investment need to fill the gap in productive transformation is estimated to be less than USD 1 billion per year. Yet, as the effects of climate change intensify, increasing water demand from individuals (especially in rural areas) and firms (particularly those requiring water for agricultural irrigation), further investments are likely to be necessary. Currently, agricultural activities account for 59% of Africa’s total water usage, followed by municipalities (31%, including domestic use) and industries (10%) (OECD, 2021[29]). Investments in water-efficient irrigation systems can increase the productivity of land usage and help the continent adapt to the effects of climate change. In West Africa, for instance, only about 10% of irrigable land was irrigated in 2017 (AUC/OECD, 2022[22]).
Improving infrastructure within and between cities is key for productive transformation and narrowing rural-urban divides
Despite progress in rural areas, cities continue to offer far better access to infrastructure. Rural-urban divides are starkest for energy infrastructure: in 2021, less than 20% of rural households had access to electricity, compared to 58% of households in cities with fewer than 50 000 inhabitants and 80% in cities with over 1 million inhabitants. In the same year, only 7% of rural households could access piped water, compared to 25% in small cities and 33% in large cities (OECD/UN ECA/AfDB, 2022[30]). Representative survey results across 39 African countries confirm that rural-urban access divides are widest for water and energy infrastructure (51 and 49 percentage points, respectively), followed by access to a paved road (34 percentage points) at generally lower levels of access, while over 80% of rural respondents reported to have access to a mobile phone service (Figure 1.8).
Note: The results are based on a survey of 53 444 individuals aged 18+ from covering 39 African countries. The data are weighted to obtain a representative sample. The selected questions are the following: Transport: “Thinking of your journey here [to the location where the survey is taken]: Was the road at the start point in the PSU/EA [primary sampling unit/enumeration area] paved or unpaved?”; Energy: “Is there an electricity grid that most houses can access in the primary sampling unit (PSU)/enumeration area (EA)”; Digital: “Is there a mobile phone service that most houses can access in the PSU/EA”; Water: “Is there piped water or a sewage system that most houses can access in the PSU/EA?”.
Source: Authors’ calculations based on Afrobarometer (2023[5]), Merged Round 9 (database), https://www.afrobarometer.org/data/merged-data/.
Infrastructure investments in urban clusters are more conducive to growth and productive transformation but should be well-planned to be cost-effective. Due to agglomeration economies (e.g. higher population density and economic clustering), a given quantity of infrastructure stock can benefit more individuals and firms in larger cities compared to smaller cities and rural areas (OECD/UN ECA/AfDB, 2022[30]). Rapid urbanisation also increases the demand for infrastructure and thereby the political and financial incentives to develop it. For example, a 10% increase in urbanisation can raise electricity consumption by 3.92% (El-Bouayady et al., 2024[31]). Between 2005 and 2016, almost half (45%) of urban infrastructure spending needs, approximately USD 320 billion, originated from cities with over 10 000 inhabitants/km2 (OECD et al., 2025[32]). Urban infrastructure development can help reduce poverty and increase economic growth in African cities (Castells-Quintana, 2017[33]; Mallek et al., 2024[34]). However, planning and investing in urban infrastructure is far more cost-effective ex ante than intervening ex post (Africa Urban Forum, 2024[35]). In cities like Kigali, Lagos and Kampala, early investments – such as basic road grids, around which settlements can be established more coherently, or serviced plots with utilities and land demarcation – can cost as little as 1% to 12% of the expense of building and servicing public housing after unplanned expansion (Collier et al., 2019[36]).
Strengthening infrastructure for intermediary cities10 can reinforce rural-urban linkages and local capacities. Promoting productive activities in intermediary cities is crucial for strengthening Africa’s rural-urban supply chains and helping local firms meet regional demand. Expanding transport networks can be particularly instrumental: for instance, a study focusing on Mozambique found that reducing farmers’ travel time to the nearest intermediary city from 24 to 4 hours led to a 16-fold increase in the ratio of actual crop production over potential crop production (AfDB/OECD/UNDP, 2016[37]; Dorosh et al., 2012[38]). Improving firms’ access to energy, water and digital technologies in intermediary cities can help foster the processing, storage and distribution capacities necessary for developing agricultural value chains and creating local employment (OECD/PSI, 2020[39]; AUC/OECD, 2022[22]).
African governments and development funders are the dominant sources of infrastructure financing. From 2016 to 2020, these two groups accounted for 89% of the USD 83 billion average annual commitments to infrastructure in Africa (Figure 1.9.A). Most of their investments target transport, energy and water infrastructure. In contrast, in digital infrastructure, private sector investments account for 55% of the total. Nonetheless, even this higher level of private sector investment in digital infrastructure remains below the 76% recorded across developing countries (World Bank (2017[40]); Figure 1.9.B).
Note: The members of ICA (Infrastructure Consortium for Africa) were the G20 countries, Spain, and several African and international development organisations and finance institutions. Due to rounding, the percentages in the columns of Panel B do not necessarily add up to 100%.
Source: ICA (2022[13]), Infrastructure Financing Trends in Africa 2019-2020, https://www.afdb.org/sites/default/files/documents/publications/04112022ift_africa_report_2019-2020-2_english.pdf.
Limited fiscal space and growing sovereign debt burdens constrain African government spending on infrastructure
African governments allocate to infrastructure a share of their GDP which is similar to that of other world regions. Over 2010-17, direct budgeted spending from governments ranged from 0.5% to 4.0% of national GDP across 23 African countries, compared to 0.5% to 8.0% across 5 countries in developing Asia and 0.1% to 3.0% across 13 countries in Latin America and the Caribbean (Figure 1.10). This spending is similar to or above the amount high-income countries invest in transport infrastructure (averaging 0.9% over 2018-21) but below China’s and Viet Nam’s average infrastructure investments (at 6.7% and 5.1%, respectively over 2010-14).11 In addition to direct budget allocations, public spending on infrastructure in Africa is channelled through state-owned enterprises (30%) and public-private partnerships (10%) which often require off-budget interventions such as fiscal injections or contract renegotiation (World Bank, 2017[40]; 2023[41]).
Source: World Bank (2024[42]), Boost initiative: Open Budget Portal (database), https://www.worldbank.org/en/programs/boost-portal/boost-data-lab.
African countries face high debt burdens and fiscal tightness. The continent’s sovereign debt burden is approaching the levels from before the major debt relief initiatives in the early 2000s. In 2024, public debt reached 67% of Africa’s GDP – surpassing the 62% of 2000 – of which external debt accounted for around 22% of GDP. Eight African countries are in debt distress (out of 11 globally), and 15 others are facing a high risk of overall debt distress,12 including 12 for which the risk arises from external debt positions (World Bank/IMF, 2025[43]). In addition, between 2009-13 and 2019-23, fiscal tightness – the number of tax years it would take to repay the public debt –increased on the continent by 2.1 years; Africa’s fiscal tightness rose faster than in developing Asia (+1.3 years) and Latin America and the Caribbean (+1.2 years) (Figure 1.11). African countries with medium-level scores on the Human Development Index (HDI) saw the sharpest increase in fiscal tightness, rising from about 2 years to over 4.5 years. The increase for medium-HDI countries is linked to their reduced access to concessional low-interest debt and generally rising interest rates. Yet, African countries with low HDI scores face the tightest fiscal conditions, as they would need over 5 tax years to repay their debts, up from 3.2 years a decade ago.
Note: Fiscal tightness is represented as the number of tax years it would take to repay the public debt. See Aizenman and Jinjarak (2010[44]); Calderon et al. (2018[45]).
Source: Kose et al. (2022[46]), A Cross-Country Database of Fiscal Space (database), https://www.worldbank.org/en/research/brief/fiscal-space.
African governments, on average, spend more on debt service than on infrastructure, partly due to higher interest rates. Median debt service – ongoing loan repayments and interest payments for sovereign debt – grew from 3.5% of government expenditure in 2010 to 12% in 2024. Debt service payments amount to over 10% of public spending in 24 out of 49 African countries for which data is available. African governments spend, on average, 7 times more on debt service than on infrastructure. This ratio increases to 9.5 for low-HDI countries and about 4 for medium- to high-HDI countries (Figure 1.12). The large increase in overall debt service can be partly explained by the high interest rates applied to sovereign debt. Africa’s top infrastructure financiers, such as the World Bank, China, the AfDB and bilateral creditors, apply vastly different interest rates to different African countries, ranging from 0.2% to 7.7% (World Bank, 2024[47]). Over 2018-22, 11 countries13 borrowed from private creditors at interest rates above 5%. As a result, government spending just for interest payments surpasses spending on infrastructure in 15 African countries (on health in 25 countries and on education in 7 countries) (UNCTAD, 2024[48]).
Note: This indicator is calculated based on an average of available data over the past five years for public infrastructure spending (2019-20) and debt servicing (2019-23).
Source: Authors’ calculation based on ICA (2022[13]), Infrastructure Financing Trends in Africa 2019-2020, and World Bank (2024[47]), International Debt Statistics (database), https://www.worldbank.org/en/programs/debt-statistics/ids.
Private sector investments remain limited, partly due to risk perceptions and macroeconomic conditions, increasing the cost of capital
Most African countries are unable to tap into the growing pool of international and domestic private capital that could be allocated to infrastructure investments. Global private infrastructure investment14 almost tripled in recent years, from approximately USD 160 billion in 2013 to USD 420 billion in 2022. During this period, Africa accounted for only 6-8% of annual investment, compared to 20-25% for Asia, North America and Western Europe (GI Hub, 2023[49]; Auriol and Saussier, 2025[50]). While the volume of private capital deals to Africa more than doubled between 2012-23, the average value of these deals remains low (AVCA, 2025[51]). Assets under management by African institutional investors have also increased in the last decade. However, less than 3% are allocated to infrastructure investment, below the target of the 5% Agenda of the African Union Development Agency – New Partnership for Africa’s Development (AUDA‑NEPAD) (AfDB/IFC, 2022[52]; AUDA-NEPAD, 2017[53]). High perceived risks contribute to limited investment flows and lead investors to demand higher returns. Infrastructure project costs and timelines are estimated to be as much as 60% higher in Africa than those in developed countries, while expected returns on early-stage infrastructure projects can reach up to 20% (BCG/AFC, 2017[54]; MiDA, 2018[55]).
Rising costs are contributing to a drop in private investment in African infrastructure projects. Private investments in infrastructure fell from USD 1.8 billion in 2023 to USD 1.2 billion in 2024, reflecting a general slowdown in private capital deals, particularly in large deals in the energy and digital sectors (AVCA, 2025[56]; 2024[57]). This slowdown is partially due to rising costs that make investments less profitable. Estimates suggest that the total cost for a typical solar project increased by 45% in 2023-24 due to deteriorating macroeconomic conditions, even before adjusting for currency cost (World Bank/PwC, 2024[58]).
For investments in infrastructure assets, the cost of capital for private investors is higher in Africa than in other world regions. The cost of capital is the minimum rate of return or profit a company needs to earn to generate financial value from its investment. A higher rate generally implies greater risks for the investor: the greater the risk, the higher the expected return must be for the investor to consider the investment worthwhile. This report estimates the weighted average cost of capital for infrastructure projects to be 13% in Africa, compared to 10% in developing Asia and 8% in OECD countries (Annex 1.B). On average, the cost of equity is 1.6 times higher in Africa than in OECD countries, while the cost of debt is 2.5 times higher. However, since several input data points were either missing sector-specific values or offered only developing country averages, these findings likely underestimate the actual cost of capital in African countries. This is suggested by a study focusing on the energy sector which estimated that the weighted average cost of capital for projects in some African countries can be up to 7 times as high as in developed economies (IEA, 2022[25]). Currently, equity investments remain far more prevalent than debt financing for private investors in Africa, accounting for 88% of private capital deal volume. This demonstrates the potential for high returns but also the need to develop infrastructure debt markets (AVCA, 2025[51]) (Figure 1.13).
Note: The cost of debt corresponds to the interest rate that an investor will be able to secure from lenders proxied by commercial lending rates. The cost of equity captures the rate of return from an investment with zero risk in addition to the compensation expected by an investor from an equity investment relative to a risk-free investment based on sectoral and country risks. See Annex 1.B for the methodology.
Source: Authors’ calculation based on Damadoran (2025[59]), Discount rate estimation (database), https://pages.stern.nyu.edu/~adamodar/; World Bank (2024[60]) World Development Indicators (database), https://databank.worldbank.org/source/world-development-indicators/Series/FR.INR.LEND; and Tax Foundation (2024[61]), Corporate tax rates around the world (database), https://taxfoundation.org/data/all/global/corporate-tax-rates-by-country-2024/.
Private finance mobilised through development funding is concentrated in only a few African countries. Over 2013-23, almost USD 57 billion was mobilised from the private sector by official development finance for infrastructure in Africa (averaging USD 5.1 billion per year), mostly through the provision of guarantees (45% of the total), direct investment in companies or special purpose vehicles (32%) and syndicated loans (16%). Five countries – Ethiopia, Egypt, Nigeria, Kenya and Côte d’Ivoire, by order of magnitude – attracted 52% of the total, due to market size, bankable project pipelines and institutional capacity to regulate and manage financing effectively. The private investments mobilised targeted primarily the energy sector (52%) and digital infrastructure (25%), due to their higher profitability, followed by transport (14%) and water (8%). Globally, Africa accounted for 38% of the amounts mobilised for infrastructure, compared to 25% in developing Asia and 26% in Latin America and the Caribbean. However, these higher amounts could reflect the larger attention to Africa from development financiers, driven by perceived barriers to private investments compared to other regions (OECD, 2025[62]). For example, the ratio in Africa between private capital mobilised through development finance institution interventions and public resources invested remains low, at 0.46, comparable to Southeast Asia and the Pacific (0.44) and lower than in Latin America and the Caribbean (0.66) (AIIB et al., 2023[63]).
Transparent information on credit risk and infrastructure project performance could help reduce the cost of capital.15 According to investor surveys, more information on credit risk at the country and sectoral levels would be required to better identify opportunities and assess risks (GEMs, 2024[64]). As of 2024, only 33 African countries had ever received a rating from one of the major global credit rating agencies (UNDP, 2024[65]). Even where credit ratings are available, subjectivities in the underlying assessment methodologies have been estimated to cost Africa USD 74.5 billion annually in excess interest and foregone funding (UNDP, 2023[66]), equivalent to 48% of the continent’s annual infrastructure investment needed by 2040. A cost of capital commission, as proposed by the G20, could contribute to investigating claims through a review of the rating agencies’ methodologies, macroprudential regulations and debt sustainability assessments (SAIIA, 2024[67]). The African Union Commission plans to establish an African Credit Rating Agency. The African Virtual Investment Platform of the African Union and the OECD offers more information for investors and examples of best practices.
Improved sustainability reporting, including on gender, could help attract additional investments and ensure better development outcomes. Enhanced environmental-, social- and governance-related information could help attract institutional and commercial investors, development agencies and philanthropists. Recent experiences show that disclosure requirements may inhibit institutional investors from holding assets in emerging markets where data availability is weaker (ODI, 2025[68]). Expert interviews suggest that the voluntary adoption of environmental, social and governance standards for infrastructure projects varies widely across the continent. Gender, in particular, is an important sustainability aspect. As of 2023, one-quarter of infrastructure projects in Africa financed by members of the OECD Development Assistance Committee (DAC) integrated gender equality objectives, up from 18% in 2010 (OECD, 2025[69]). For example, the 2X Challenge aims to mobilise USD 20 billion (2024-27) for women’s empowerment through investments that meet global gender standards – such as ensuring at least 20% female representation in senior management and 30% among full-time staff in infrastructure projects (Biegel et al., 2024[70]).
While bilateral development funders have shifted their priorities, large development funders have increased their commitments to infrastructure
Official development finance dedicated to infrastructure has increased in the last decade, due to rising commitments for energy and digital infrastructure. Official development assistance and other official financial flows towards infrastructure in Africa increased from around USD 10 billion in 2010 to almost USD 15 billion in 2023. While official flows recovered following a decrease during the COVID-19 pandemic, they remain at risk due to current macroeconomic and geopolitical conditions. The share of infrastructure-related disbursements to Africa remained stable throughout the 2010-23 period. In 2023, they accounted for 19% of total development finance transactions to Africa and 26% of global disbursements to infrastructure (which totalled USD 56.4 billion). Energy received the largest amount, growing from USD 3.6 billion in 2010 to USD 5.7 billion in 2023, followed by transport and storage (USD 4.7 billion in 2023), water and sanitation (USD 3.5 billion), and communications (USD 0.7 billion) (Figure 1.14). While disbursements for communications (used here to approximate digital infrastructure) remain small in absolute terms, development finance commitments to this segment have increased sixfold in just seven years (2016-23).
Note: RHS = right-hand scale. Official development finance disbursements include official development assistance (ODA) and other official financial flows (OOF) that do not meet the conditions for eligibility as ODA (either because they are not primarily aimed at development, or because they have a grant element of less than 25%). “Communications” includes Communications policy and administrative management, Telecommunications, Radio/television/print media, information and communication technologies (ICT), and Education and training in ICT, telecommunications and media. “Transport and storage” includes Transport policy and administrative management, Road transport, Rail transport, Water transport, Air transport, Storage, and Education and training in transport and storage. “Water supply and sanitation” includes Water sector policy and administrative management, Water resources conservation (including data collection), Water supply and sanitation – large systems, Water supply – large systems, Basic drinking water supply and basic sanitation, Basic drinking water supply, and Education and training in water supply and sanitation. “Energy” includes Energy policy, Energy generation – renewable sources, Energy generation – non-renewable sources, Hybrid energy plants, Nuclear energy plants and Energy distribution.
Source: OECD (2025[71]), Creditor reporting system (database), https://www.oecd.org/en/data/datasets/development-finance-statistics-data-on-flows-to-developing-countries.html.
The allocation of development finance to infrastructure remains unequal across African countries, with those with low levels of development receiving comparatively little. Increasing risk perception has negatively impacted the most fragile countries.16 In 2022-23, the proportion of DAC members’ official development assistance (ODA) for this group reached its lowest level in the last 20 years (OECD, 2025[72]). In 2023, only 10 African countries17 (including four medium and high-HDI countries), captured 59% of official development finance to infrastructure. Relative to population size, low-HDI countries received USD 39.1 million per million inhabitants, compared to USD 65 million for medium-HDI and USD 62.7 million for high-HDI countries. The contrast is especially stark in the energy sector, where only USD 16.3 million per million inhabitants were disbursed to low-HDI countries, compared to USD 22.0 million and USD 20.3 million in medium and high-HDI countries, respectively (Figure 1.15).
Source: OECD (2025[71]), Creditor reporting system (database), https://www.oecd.org/en/publications/creditor-reporting-system_22180907.html.
Lower development finance budgets and shifting political priorities have led to a reduction in bilateral contributions to infrastructure development. While still accounting for 30% of total official development finance disbursements reported to the OECD, bilateral donors reduced disbursements from their peak of over USD 7 billion in 2018 to just USD 4.4 billion in 2023 (Figure 1.16.A). For 2024, preliminary estimates suggest that net bilateral ODA flows from DAC members to all sectors in Africa fell by 1% in real terms compared to 2023 (OECD, 2025[73]). Reduced development finance budgets may engender a further prioritisation of humanitarian assistance and social sectors (such as education or social protection) over economic infrastructure and services (UNCTAD, 2025[74]).
China has been reducing its development finance commitments to Africa’s infrastructure since 2016 (Figure 1.16.B). The Belt and Road Initiative (BRI) launched in 2013, contributed to the rapid development of large-scale infrastructure projects. However, it received criticism for its lack of adherence to environmental, social, and governance standards and its role in growing African governments’ sovereign debt burden (Springer et al., 2023[75]). Following the COVID-19 crisis, China shifted its focus inward and is expected to limit its economic engagement in Africa to smaller and more targeted projects (Ray, 2023[76]).
Note: DAC = OECD Development Assistance Committee. Official development finance disbursements include official development assistance (ODA) and other official financial flows that do not meet the conditions for eligibility as ODA (either because they are not primarily aimed at development, or because they have a grant element of less than 25%). Analysis of China’s development finance relies on AidData (see Custer et al. (2024[77]) for details).
Source: OECD (2025[71]), Creditor reporting system (database), https://www.oecd.org/en/publications/creditor-reporting-system_22180907.html; AidData (2024[78]), Global Chinese Development Finance (database), https://china.aiddata.org/.
Multilateral and regional development finance institutions have grown in importance, while default rate data could be used to improve the targeting and efficiency of private investment mobilisation. Development banks doubled infrastructure-related disbursements from USD 4.2 billion in 2010 to USD 8.2 billion in 2023 (Figure 1.16.A). Development banks and other development finance institutions have room to further scale up direct financing and de-risking of projects to mobilise institutional and commercial investments from within and outside the continent. In particular, the growing participation of regional development finance institutions can help identify ways to increase private sector participation tailored to local contexts (Table 1.4). Using information on default and recovery rates from private deals facilitated by multilateral development banks and development finance institutions can also enable investments. Recent data on investment risks suggest that infrastructure-related investments in Africa in energy, utilities and communications exhibit default rates of about 4-5% – the lowest value of all sectors. Such low default rates are suggestive of investors’ caution and of potentially missed opportunities. However, default rates in the three sectors were higher for Africa than for other regions (GEMs, 2024[64]).
Source: Authors’ compilation.
The European Union’s Global Gateway and the Partnership for Global Infrastructure and Investment have expanded financing for Africa’s infrastructure, emphasising strategic value chains. The European Union’s Global Gateway, introduced in 2021, and the G7’s Partnership for Global Infrastructure and Investment, initiated in 2022, aim to promote infrastructure development, green energy and digital connectivity throughout Africa. These initiatives focus on similar sectors, such as energy, the digital economy, transportation and healthcare, and promote adherence to quality infrastructure and sustainability principles (see Chapter 2). While both initiatives serve to co-ordinate international strategies, the Global Gateway programme, including through the European Union’s delegations, pursues a more hands-on approach in Africa, directly supporting priority value chains through 12 strategic priority corridors (EU, 2023[89]; ITC, 2022[90]). Beyond the provision of financing, the programme seeks to strengthen mutually beneficial trade relations and advance the near-shoring of Europe’s production, for instance, of green hydrogen. Global Gateway aims to leverage the European Union’s grant financing with direct investments and risk-sharing instruments offered by the European Fund for Sustainable Development Plus, to ultimately mobilise investments of up to EUR 150 billion in the years 2021-27. At the end of 2024, Global Gateway had allocated close to EUR 624 million in grants to regional infrastructure projects, mostly in the energy sector (EUR 311 million) and the transport sector (EUR 304 million) (AUDA-NEPAD YouTube channel, 2024[91]). These investments were part of the EUR 750 million committed in 2021 to mobilise infrastructure investments through blending approaches. As of 2024, an additional EUR 600 million was approved.
To balance infrastructure’s effects on productive transformation and growth, environmental and social sustainability risks can be better managed, especially in African countries with lower levels of development. While productive transformation is an essential policy agenda for Africa (AUC/OECD, 2018[92]; 2019[3]), it may require being balanced with environmental and social sustainability outcomes.18 Infrastructure development can do more to actively reduce common sustainability risks that have materialised in African countries. Risks and the ability to mitigate them vary across countries and depend on available resources and capacities (see Chapter 2 for more details). African countries with low development levels are more vulnerable to the consequences of climate change and population growth, which create rising demands on infrastructure. Africa faces the largest loss and damage due to climate change of all world regions, and the continent is unlikely to achieve Sustainable Development Goal indicators related to economic loss from natural disasters (Africa UN, 2025[7]).19
Infrastructure in African countries has typically had mixed outcomes for social sustainability and mostly negative ones for environmental sustainability. According to a systematic review of 110 academic papers conducted for this report,20 in aggregate, infrastructure in African countries has had significant positive effects on resource efficiency (environmental outcomes), human development, poverty reduction, access to and quality of employment, and access to energy and basic services (social outcomes). However, common negative effects include increased carbon emissions, biodiversity and habitat loss (environmental outcomes), displacement of poor populations and reinforcement of gender divides in earnings, and increasing inequalities (social outcomes) (Table 1.5). For instance, transport contributed to 289 premature deaths per million population due to ambient particle matter in 2019 (see also Roy (unpublished[93])).
Note: Based on a systematic literature review of 110 academic articles. Key findings represent stylised facts derived from 65 studies that were deemed relevant and sufficiently rigorous. Of those, a large share of studies (29) were conducted at the national level of analysis, using various regression techniques. Unless indicated, sustainability outcomes were not specific to transport, energy, digital or water infrastructure.
Source: Authors’ compilation.
Overall, transport, energy and digital infrastructure have substantial positive social sustainability effects, but inadvertent effects in the form of rural-urban and regional inequalities should be considered with care. Transport, energy and digital infrastructure that provides new access to jobs, information, utilities and services can help increase human development, alleviate poverty and create employment (Acheampong, Erdiaw-Kwasie and Abunyewah, 2021[94]; Mallek et al., 2024[34]; Ali et al., 2015[95]). However, infrastructure investments can inadvertently increase inequality and fragmentation, for example when they focus on populations and locations with prior economic advantages (Desalegn and Solomon, 2022[96]; Gambino and Reboredo, 2024[97]). Infrastructure investments can have opposing effects on peripheral places, depending on the setting. For example, while a study in Tanzania found that roads for rural populations increased competition and thereby reduced aggregate household earnings (Dumas and Játiva, 2025[98]), a study in Kenya showed how the port infrastructure of Lamu, a coastal peripheral city, increased its influence vis-à-vis the capital (Chiyemura, Gambino and Zajontz, 2023[99]). Infrastructure therefore requires careful planning and risk management (see Chapter 2 for details).
Infrastructure development can increase formal employment, but existing informal livelihoods require attention. Infrastructure improvements in African countries have consistently improved formal employment opportunities (Moneke, 2020[100]; Mensah, 2024[101]). For instance, household surveys of populations affected by 103 Chinese-supported transport projects and 69 energy and water projects found, by the second year after implementation, a 6 percentage point increase in employment for transport and an 8 percentage point increase for energy and water, with more lasting and pronounced effects for formal employment than for informal (mostly focused on construction) (An, Guo and Jiang, 2025[102]). However, an overall increase in formal employment can mask the displacement of informal livelihoods, for instance, where informal street vendors depend on slow-moving traffic on smaller roads (Gambino and Reboredo, 2024[97]).
Gender-responsive infrastructure development can improve women’s access to formal employment and safety. While infrastructure improvements can enhance economic inclusion, projects primarily benefit formal industries, which are often male-dominated, reinforcing existing gender inequalities (Marire and Iqbal, 2024[103]). A lack of essential services, such as childcare facilities and safe public transport, restrict women’s ability to transition into formal employment. Without targeted interventions such as gender-responsive urban planning and improved water infrastructure, infrastructure development risks widening these disparities (Small and van der Meulen Rodgers, 2023[104]). Low-cost but effective gender-responsive measures include providing access to safe and secure washing facilities along transport corridors, considering everyone, not just land owners (predominantly male), in land use planning, ensuring clear lines of sight in public spaces, and installing sufficient street lighting and security cameras (Chege, 2021[105]).
Investments in transport and water infrastructure can significantly reduce the burden of unpaid domestic labour and increase women’s working hours, though not always their pay (Marire and Iqbal, 2024[103]). In many African countries, inadequate infrastructure forces women to allocate a disproportionate amount of time to domestic tasks. For example, in Benin and Madagascar, women spend approximately 273 and 164 hours per year, respectively, collecting water – equivalent to 14.4% and 8.8% of their total working time (Agenor and Canuto, 2012[106]). Households in southern Zambia that gained access to piped water were found to reduce their water-fetching time by 80%, with the majority of the time saved benefiting women and girls (Winter, Darmstadt and Davis, 2021[107]). Similarly, an increase in electrification for rural populations in South Africa translated into a 1.3 percentage point rise in employment for men and a 1.8 percentage point increase for women. However, hourly wages rose for men by around 16% but fell for women by around 20% (Dinkelmann, 2011[108]).
Planned action to make infrastructure more climate-resilient would prevent significant losses. Damages from extreme weather undermine infrastructure reliability, disrupt critical supply chains and inflate maintenance costs. Recent estimates show that African countries would need to set aside USD 10.2-11.4 billion each year to recover asset loss and damages due to climate change, mostly in energy (36%) and transport (25%) (CRDI, 2023[109]). Road repair and maintenance costs could increase by 270% (African Climate Resiliency, 2016[110]). In view of long project planning phases, infrastructure developers in Africa need to anticipate drastically changing local contexts to minimise maintenance costs while supporting capacity and inclusivity (Mayaki, 2014[111]).
A study of 20 roads and 20 railway lines highly exposed to floods spanning across Kenya, Tanzania, Uganda and Zambia showed that strengthening their resilience would cost USD 101 million but would avoid losses as high as USD 1.1 billion across future climate scenarios (Hickford et al., 2023[112]).
Green infrastructure and nature-based solutions (GI-NBS) could be further expanded with more funding. GI-NBS consist of infrastructure that is environmentally and socially more sustainable than traditional infrastructure because it offers certain benefits (e.g. capturing rainwater for freshwater provision and preserving green spaces), reducing harm and pollution (e.g. low-carbon construction materials) and increasing climate resilience (e.g. maintenance using locally available materials and flood buffers). Practical experience shows that GI-NBS in Africa have been effective at reducing risks of low-intensity hazards, especially when financial contributions from the public sector were balanced with in-kind contributions (such as labour and organising) from beneficiaries (Dupar, Henriette and Hubbard, 2023[113]). A review of 492 project case studies of water-focused GI-NBS in Africa found that the solutions reliably improve water quality, while their ability to increase water quantity and prevent floods was more mixed and context-dependent (Acreman, Smith and Charters, 2021[114]). Both the number of projects and total funding have grown steadily: a recent study covering 48 African countries between 2012 and 2023 found that 297 new projects were launched, securing over USD 21 billion (Collins et al., 2025[115]). Until recently, access to finance for GI-NBS has mostly been fragmented (Pettinotti and Quevedo, 2023[116]), but new international initiatives seek to blend and expand funding.
The Alliance for Green Infrastructure in Africa (AGIA) seeks to enable investments in green and climate-resilient infrastructure projects in domains such as renewable energy, green hydrogen, sustainable transport, e-mobility solutions and energy storage. The Alliance was launched at COP27 in Egypt under the leadership of the African Development Bank, the African Union and Africa50, in partnership with African institutional investors and development funders (including the Agence française de développement, European Investment Bank, European Bank for Reconstruction and Development, and Private Infrastructure Development Group). By the end of 2024, USD 265 million in pledges had been secured towards a first fund of USD 275-300 million (AfDB, n.d.[117]; Africa50, n.d.[118]) .
The estimation of the infrastructure investment needs of African countries and the cost-effectiveness of specific types of infrastructure presented in this chapter offers a methodological innovation beyond the approach used by the Global Infrastructure Hub (GI Hub, 2018[119]). The methodology uses up-to-date data that were collected and compiled for this report. The full methodology and data sources are available online at https://www.oecd.org/en/publications/africa-s-development-dynamics-2025_c2b40285-en/support-materials.html.
This report provides an estimate of the weighted average cost of capital (WACC) – i.e. the minimum rate of return or profit a company needs to earn to generate financial value from its investment – for infrastructure projects in African countries. While the present methodology employs a current and established approach to WACC calculations, the results can only serve as approximations of the real WACC, due to data limitations and the multiple factors influencing specific project-level values (e.g. country-specific risks, company-specific financial positions and technology-specific aspects).
The WACC is typically computed according to the following formula (see, for example, Dato et al. (2024[120]); IEA (2023[121]); Calcaterra et al. (2024[122])).
WACC = Share of debt * Cost of debt * (1 – Corporate tax rate) + Share of equity * Cost of equity
The cost of debt corresponds to the interest rate that an investor can secure from lenders. In the present approach, it is proxied by commercial lending rates available at the country level that were sourced from World Bank (2024[60]), in line with the approach of other authors (see Dato et al. (2024[120])). Since interest payments are tax deductible in most countries, the cost of debt is expressed on an after-tax basis, relying on corporate tax rates sourced from the Tax Foundation (2024[61]).
The cost of equity is assessed through the asset pricing model, in the following way:
Cost of equity = Risk-free rate + β * Equity risk premium
The risk-free rate is the return that can be earned by investing in a risk-free asset. The present methodology uses the ten-year US government bond yield. This rate is based on Bloomberg (2025[123]).
Beta (β) refers to the volatility or riskiness of a financial stock in a given sector relative to all other stocks on the market. Beta is thereby the main parameter that is specific to the sector of interest (energy, water, digital or transport). Beta values were calculated by Damadoran (2025[124]) from all publicly traded companies listed at the start of 2025 on S&P Capital IQ, augmented with data from a Bloomberg terminal. Betas are available for global, emerging and other selected markets (China, Europe, India and the United States). For the present approach, betas for emerging markets are used as a rough proxy: In 2025, the sample included 2 475 firms from Africa and the Middle East, accounting for 9.3% of firms within the emerging markets category. The other firms were from Asia (38.7%), China (28%), India (18%), and Latin America and the Caribbean (3.7%) (Damadoran, 2025[124]). The selected betas are averaged over the last five-year period (Annex Table 1.B.1.)
Source: Damodaran (2025[125]), “Damodaran online”, stern.nyu.edu (website), https://pages.stern.nyu.edu/~adamodar/ (accessed on 25 March 2025).
The equity risk premium (ERP) is defined as the yield that can be earned in addition to the risk-free rate by investing in a riskier equity investment. The report relies on estimates from Damodaran (2025[125]) for country-level ERPs, which are computed in the following way:
Step 1: Estimate the mature market risk premium by computing the rate of return of the S&P 500 (stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States), calculated against the rate of return of the ten-year US treasury bond.
Step 2: Estimate the default spread for the country of interest based on the local currency sovereign rating from Moody’s (or the S&P rating converted into Moody’s). Each rating class is associated with an estimate of typical spreads computed by averaging credit default swap spreads and sovereign USD bond spreads by rating class, at the start of every year.
Step 3: Convert the default spread into a country risk premium. Damodaran (2025[124]) scales the default spread up to reflect the higher risk of equity in the market, relative to the default spread. Damodaran (2025[124]) uses the ratio of the S&P Emerging Market Equity Index standard deviation to the iShares Emerging Market Bond Index standard deviation.
Step 4: Add the mature market premium from step 1 to the country risk premium from step 3 to arrive at a total equity risk premium.
Step 5: If no sovereign rating is available for a given country, the country risk score from the Political Risk Services (PRS) database is used to determine the ERP based on that of countries with sovereign ratings and similar country risk scores according to the PRS.
Finally, the methodology assumes an 80:20 debt-equity ratio to calculate the WACC, following patterns of private investment in infrastructure projects observed in the literature (see GI Hub (2023[126]); World Water Council (2018[127]); UNECA et al. (2021[128]); IEA (2019[129])).
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← 1. Throughout the chapter, the term “stock” refers to physical stock of infrastructure, unless explicitly stated otherwise.
← 2. Despite differences in methodology and benchmarking, this report’s projections of Africa’s infrastructure investment needs are broadly consistent with other studies focusing on Africa. The Global Infrastructure Hub (2018[119]) projects USD 192 billion for 2025-40, while the African Development Bank (2018[131]) estimates USD 130-170 billion annually for 2018-30. Larger investments may be required to meet specific policy and climate goals: the African Development Bank (2024[132]) foresees the need for USD 410 billion for roads and energy by 2030 to meet infrastructure and energy-related SDGs and USD 72 billion by 2063. Rozenberg and Fay (2019[18]) estimate that achieving the SDGs and limiting climate change to 2°C would require annual spending of 9.2% of GDP between 2015 and 2030 in Africa, excluding North Africa, which in 2024 was equivalent to USD 257 billion.
← 3. Eritrea, South Sudan, Central Africa Republic, Seychelles and Djibouti are excluded from this calculation due to missing data.
← 4. Authors’ calculations based on ADB (2017[133]). More recent data for all types of infrastructure is unavailable. However, data for China's investments on transport infrastructure suggests that spending may have further increased, with only transport infrastructure spending reaching 5.8% of China's GDP in 2020 (OECD/ITF, 2024[136]).
← 5. The need to balance infrastructure’s effects on growth and productive transformation with environmental and social sustainability outcomes is discussed in the last section of this chapter and in Chapter 2.
← 6. The infrastructure types whose (capacity) densities were not found to be correlated with productive transformation are container ports, wastewater treatment plants, wind energy infrastructure, hydroelectric infrastructure and other renewable energy infrastructure.
← 7. Maintenance is approximated by the total value of depreciation of infrastructure stock.
← 8. Authors’ calculations based on IEA (2023[121]).
← 9. Authors’ calculations of average costs of consuming 60 megabits or more, having an unlimited data subscription or a cable/ADSL subscription in the period of April 2024-April 2025 (NUMBEO, 2025[134]).
← 10. Many varying definitions of intermediary cities exist. “Intermediary cities are agglomerations which – for geographic, historical and economic reasons – act as bridges between metropolitan and rural areas. They represent strategic nodes within urban networks at the national or international level. Their population can range from 50 000 to 1 million inhabitants”. For more information see OECD/ PSI (2020[39]), p. 81.
← 11. Authors’ calculation based on OECD/ITF (2024[135]) and ADB (2017[133]). More recent data for all types of infrastructure is unavailable. However, data for China's investments on transport infrastructure suggests that spending may have further increased, with only transport infrastructure spending reaching 5.8% of China's GDP in 2020 (OECD/ITF, 2024[136]).
← 12. As of April 2025, the Republic of the Congo, Djibouti, Ethiopia, Malawi, São Tomé and Príncipe, Sudan, Zambia and Zimbabwe were in debt distress. Burundi, Cabo Verde, Cameroon, the Central African Republic, Chad, Comoros, Gambia, Ghana, Guinea-Bissau, Kenya, Liberia, Mozambique, Sierra Leone, South Sudan and Togo were at high risk of overall debt distress.
← 13. Angola, Egypt, Gabon, Ghana, Kenya, Madagascar, Niger, Nigeria, Tanzania, Tunisia and Zambia.
← 14. GI Hub (2023[126]) focuses on project-based private investment. It refers to private sector investment in primary market projects, including greenfield projects (new projects on undeveloped sites), brownfield projects (construction on previously developed sites, such as upgrades) and investment via the privatisation of public sector assets.
← 15. Determining the cost of capital of an infrastructure project relies on two kinds of information: i) the cost of debt, assessed primarily through credit ratings or alternatively by evaluating the financial stability, the ability to repay and the overall creditworthiness of a country relative to similar borrowers; and ii) the cost of equity, assessed by appraising country risks (i.e. political, macroeconomic/financial, legal and regulatory, business environment, and environmental-, social- and governance-related) and project-related risks (i.e. commercial, construction and operational) (PwC, 2024[130]).
← 16. Fragility, according to the OECD, is the combination of exposure to risk and insufficient coping capacities of the state, system and/or communities to manage, absorb or mitigate those risks. It occurs in a spectrum of intensity across six dimensions: economic, environmental, human, political, security and societal.
← 17. Côte d’Ivoire, Egypt, Ethiopia, Kenya, Mozambique, Morocco, Nigeria, Senegal, Tanzania and Tunisia.
← 18. Environmental and social sustainability outcomes were not factored into the economic modelling underlying this chapter’s first section (Box 1.2). The modelling results of investment needs can therefore be seen as a lower bound, given that mitigating sustainability risks may require additional investments.
← 19. For instance, as of April 2025, indicator 11.5.2 "Economic loss from disasters" and Indicator 1.5.2 "Economic loss and affected infrastructure & services from disasters" ranked first and third, respectively, out of a total of 247 indicators in terms of their gaps in achievement.
← 20. From September 2024 to January 2025, a systematic literature review was conducted to address the research question,”What are the positive and negative environmental, social and governance sustainability effects of economic infrastructure?” The review identified a total of 110 studies published since 2010, with 65 studies offering results that were relevant to the research question. Ninety-four studies were identified through a systematic keyword search on Google Scholar, 13 from Foster et al. (2023[12]) and 3 from ad hoc follow-up searches.