Look Forward — 17 November 2025
Breaking the mold: Institutional strategies for infrastructure success in Africa
Africa’s infrastructure development hinges on robust governance, legal clarity and institutional capacity to attract investment and drive economic growth.
By Pablo Lutereau and Diana Flores
Highlights
Africa needs critical infrastructure in the energy, transport and digital sectors to support industrialization, trade and social development.
Improving contractual foundations, institutional frameworks and regulatory predictability will help foster infrastructure development across the continent.
Effective policymaking, as seen in Botswana, Morocco and Mauritius, promotes balanced economic growth, higher domestic and foreign private investments, and more sustainable public finances, all of which can contribute to bridging the financing gap and facilitating the flow of private capital.
Sovereign creditworthiness and operating environments significantly influence the performance of financial transactions but are not hard ceilings for ratings.
Breaking the cycle of infrastructure underinvestment in Africa will require strengthened governance, clear legal frameworks in projects and strong institutional support to create a stable investment climate. With annual infrastructure requirements estimated at up to $170 billion, Africa needs to mobilize private and international capital and implement decisive reforms to attract investment. Without action, persistent infrastructure deficits will continue to limit industrialization and social progress across the continent.
The urgency of infrastructure development in Africa
Africa’s infrastructure needs range from $130 billion to $170 billion per year, according to studies published by the African Development Bank. The sectors most in need include energy, transport and logistics, water and sanitation, and digital infrastructure, which are all critical for industrialization, trade and social development. Energy is a strategic priority, as Africa must move from fragmented generation systems to integrated regional grids to meet rising demand and support industrial transformation. Considering the transformation that digital infrastructure brings, these needs could become even greater.
Reports from the African Development Bank and the Africa-Europe Foundation estimate an annual financing gap of $68 billion to $108 billion, with about 40% currently funded by African governments. Therefore, closing the financing gap will require private capital.
Without decisive action to mobilize domestic and international capital, infrastructure deficits will continue to hinder Africa’s economic potential and social progress.
The disparity between investment and demand is particularly evident in the energy sector. Africa added about 6.5 GW of utility-scale capacity in 2024, compared with 18 GW in India and nearly 49 GW in the US, according to Africa Finance Corp.’s 2025 infrastructure report. To achieve its development goals, Africa must double or triple its annual energy build-out, leveraging its abundant renewable resources, such as solar, wind, hydropower and geothermal energy.
Other types of infrastructure investment are also required across Africa. Transport and logistics need massive upgrades, including roads, railways, ports and airports, to facilitate trade and connect landlocked regions. Digital infrastructure is becoming a cornerstone of competitiveness, with investments needed in fiber networks, data centers and cross-border connectivity to support Africa’s growing digital economy.
The continent faces prevalent energy access challenges. While countries in North Africa have made significant progress powering their cities, some East African nations export electricity due to low domestic consumption. Ethiopia recently developed additional hydropower capacity that is exported to neighboring countries. Cooperation among countries is expected to expand as they optimize regional power pools across East, Southern and West Africa. North Africa could increasingly export green electricity to Europe as its renewable investments ramp up.
Creditworthiness and risk perception
Creditworthiness is a key factor for investors when allocating capital and determining risk premiums. High borrowing costs stifle project financing in Africa, curbing governments’ ability to pass budgets for needed investments. Additionally, factors such as foreign exchange volatility and liquidity constraints can significantly shape investment decisions. Weak public finances and foreign currency risks deter domestic private investors, as fluctuations in exchange rates can impact returns and increase uncertainty. Furthermore, limited liquidity in local markets can hinder investment opportunities, while lower-risk jurisdictions with stable currencies and robust liquidity tend to attract more foreign direct investments. Well-developed capital markets provide the liquidity that banks need to extend long-term credit to the private sector to maximize the impact of foreign direct investment across the economy. Security, institutional and regulatory frameworks, and predictability and enforceability of agreements are central considerations.
While investor appetite for infrastructure investment remains strong, weak contractual foundations and institutional deficiencies, combined with civil or military conflicts in some parts of the continent, remain major barriers and undermine the region’s development potential.
Legal enforceability, transparent procurement and impartial dispute resolution are critical to infrastructure investment viability, particularly considering the volume of investments and the very long tenor of the asset class. For example, Kenya’s legal framework, which incorporates English common law, can reassure investors about the execution of contractual obligations. Projects supported by reform momentum, such as in Egypt, tend to attract large amounts of foreign direct investment, while lingering conflicts have delayed LNG megaprojects in Mozambique. Similarly, political risk stemming from interference or instability could compound costs if projects do not benefit from a form of insurance, potentially leading to reconsideration of project feasibility.
Projects’ institutional strength in a tested regulatory environment fosters investment stability
Robust contract enforcement mechanisms, including standardized agreements, are central to protecting projects’ economic viability and avoiding misaligned risk allocation and costly renegotiations. Without predictable legal frameworks, even well-structured projects face delays, inflated costs and reduced bankability.
Untested or unpredictable regulatory frameworks and political interference further erode investor confidence. Sudden policy shifts, opaque or changing licensing regimes, and politically motivated contract reviews create uncertainty that deters long-term financing. Political instability often results in contract cancellations or unilateral amendments. These risks increase financing costs and discourage private participation in infrastructure. Strengthening governance, embedding projects in clear legal frameworks and building specialized procurement units are critical to creating a stable investment climate.
Several countries have passed laws to address these issues. Across Africa, 42 of 54 countries have public-private partnership (PPP) laws, and 41 have PPP units. Yet, deal flow is concentrated in a handful of countries (Egypt, Ghana, Morocco, Nigeria and South Africa), and many frameworks still grapple with project selection, transparent tendering and contract management. The African Legal Support Facility comparative survey and the World Bank PPP blog highlight uneven definitions, procurement methods and dispute mechanisms as the main roadblocks.
Nevertheless, simply passing laws will not ensure that private capital flows into a country. While laws are a necessary step to protect creditor rights and provide predictability of outcomes, countries also need effective, time-tested enforcement mechanisms that can endure adverse conditions.
Regional conflicts and civil unrest slow project execution
Armed campaigns in Africa have increased in the past decade, with approximately 28 conflicts in 2024, according to the Peace Research Institute Oslo, including civil wars, actions by militant Islamist groups and cross-border regional strife. These incidents have led to damaged physical infrastructure and contractual instability. Such uncertainty triggers force majeure claims, contract terminations and arbitration disputes while inflating security and insurance costs for investors.
TotalEnergies declared force majeure on the Area 1 LNG project in the Cabo Delgado province of Mozambique in April 2021 after a militant Islamist attack, with the company postponing the restart of the project to 2029. Additionally, Exxon Mobil delayed its final investment decision on the Rovuma LNG project. Conversely, conflict between Ethiopia and Eritrea did not directly impact the Grand Ethiopian Renaissance Dam. However, the Grand Inga Dam project in the Democratic Republic of Congo has been stalled by regional conflict in the Kivu region, while other infrastructure projects have been disrupted by Islamist insurgencies in West Africa (Nigeria, Mali and Burkina Faso). The destruction of physical assets, sometimes compounded by climate events, and disruption of governance structures make it nearly impossible to start or maintain project continuity. These dynamics exacerbate internal and regional tensions as instability deters investment and underinvestment perpetuates poverty and conflict.
Strengthening governance and institutional frameworks
To create a stable investment climate, Africa needs to strengthen governance, embed projects in clear legal frameworks and build strong institutions. This will enable the mobilization of domestic and international capital.
Ethiopia financed the Grand Ethiopian Renaissance Dam, costing approximately $5 billion, exclusively with domestic resources, relying on the Commercial Bank of Ethiopia and national contributions, including contributions from the Ethiopian diaspora. On the other hand, Egypt’s megaprojects, valued at tens of billions of US dollars, are more vulnerable to regional tensions and conflicts that slow fund allocations because of induced economic and financial stress. Given their large scale, Egypt’s megaprojects are financed by a combination of bilateral donors, multilateral financial institutions and government incentives to attract private investors. Geopolitical tensions have arisen between Egypt and Ethiopia related to the Grand Ethiopian Renaissance Dam over concerns that the dam could impact Nile River water supply to Egypt, which is downstream. Conflict-sensitive planning, community engagement and tested legal frameworks are all crucial to accelerate infrastructure projects.
The impact of sovereign ratings on risk perception
Sovereign ratings in Africa are largely at the lower end of the spectrum, with about half of the countries rated between B- and B+ and a third rated BB- and above. Out of 54 countries, S&P Global Ratings rates 26 African sovereigns at their request. The continent had more upgrades in 2024 than any other region globally, with five sovereigns on a positive outlook at the start of 2025: Benin, Egypt, Morocco, South Africa and Togo. At the time of writing, S&P Global Ratings has upgraded three African sovereigns from their positive outlook in 2025, moving one to investment-grade, resulting in a total of four sovereigns rated as investment-grade. Two sovereigns remain on a positive outlook. For the most part, country risk, sovereign creditworthiness and operating environments continue to negatively influence many projects.
Projects can overcome sovereign risks
Market participants tend to view sovereign ratings as ceilings. However, while sovereign ratings have a strong influence on the performance of financial transactions in a country, they do not necessarily cap the actual ratings of financing transactions. A transaction can be rated above the sovereign foreign currency rating if, in our view, there is an appreciable likelihood that the transaction would not default in the event of a sovereign default. To evaluate that likelihood, S&P Global Ratings simulates a sovereign stress scenario when determining ratings on entities in a given jurisdiction.
Entities that pass such a stress test can be rated up to two or four notches above the sovereign foreign currency rating, depending on whether we view their sector's sensitivity to country risk as high or moderate. Our rating methodology describes the steps that we follow, including the different approaches used based on the sovereign's credit quality.
An additional element that can constrain our ability to rate corporate and project finance transactions above the sovereign foreign currency rating is our assessment of transfer and convertibility (T&C) risk. This risk is particularly relevant for low-rated sovereigns, including some low- and middle-income countries.
The T&C assessment reflects our view of the likelihood of a sovereign restricting a project's access to foreign currency, thereby preventing it from transferring that currency to creditors to service the rated debt. Even if a transaction is expected to generate enough local currency under a sovereign stress scenario to buy the foreign currency to service the debt, our view of whether the sovereign would impose T&C restrictions in a default scenario could constrain our ability to rate the project higher than the sovereign foreign currency rating. This is why many emerging market transactions include structural features that aim to offset T&C risk.
Looking forward
Africa’s infrastructure needs are critical for industrialization, trade and social development. Cohesive government policies, comprehensive sector reforms and a trusted legal system help to lower risks and funding costs while mobilizing private capital to accelerate project implementation. Recent electoral upsets and political contestations from young populations are mounting pressure on governments to develop credible and actionable national development plans and optimize funding strategies to finance megaprojects critical to economic transformation, private sector growth, job creation and the achievement of sustainable development goals.
The effectiveness of regulatory frameworks is tested over time, particularly in adverse conditions. Therefore, it is not just about passing laws but about creating a stable environment that protects creditor rights and provides predictability of outcomes.
Closing the infrastructure financing gap requires a multifaceted approach that addresses the root causes of the challenges. By working together, African governments, private sector investors and international partners can create an environment conducive to infrastructure development, unlocking the continent's economic potential and advancing social progress.
This article was authored by a cross-section of representatives from S&P Global and in certain circumstances external guest authors. The views expressed are those of the authors and do not necessarily reflect the views or positions of any entities they represent and are not necessarily reflected in the products and services those entities offer. This research is a publication of S&P Global and does not comment on current or future credit ratings or credit rating methodologies.
Content Type
Theme
Look Forward Council Theme