The role of multilateral lending institutions in accelerating capital market development in Africa

Vibrant and deep capital markets support monetary policy transmission and provide financing for governments and the private sector by channeling domestic savings toward opportunities with returns, which fuels the investment cycle and accelerates economic growth. Across much of Africa, capital markets remain in the early stages of development, with the exception of South Africa. Progress in this area requires sustained effort and long-term commitment, with multilateral lending institutions (MLIs) playing an important role in prioritizing market development as part of their broader mandate.

The size of developed economies’ domestic equity and debt capital markets averages about 240% of GDP, according to data compiled by S&P Global Ratings. This far exceeds the scale of emerging and frontier markets, though market sizes vary widely between countries. The issuer profile is also different: Developed markets have a more balanced mix of private and public sector issuance, whereas frontier markets are largely dominated by the public sector. 

Data on African capital markets reflects a high level of fragmentation due to small market sizes and low capital formation, but S&P Global Ratings estimates that about two dozen African countries have markets comparable to other frontier or, in some cases,  emerging economies globally. The remaining African countries have smaller markets. South Africa is a notable exception, with deep equity and debt markets that exceed those of some developed economies. Nigeria, Egypt, Côte d'Ivoire, Kenya and Morocco also have sizable domestic markets, which, while potentially expensive, offer a valuable source of financing. 

Deep and well-functioning capital markets help support sovereign credit profiles and foster long-term economic growth. They strengthen monetary policy by enabling local-currency transactions and open market operations, giving central banks more effective tools to manage the economy. Reforms that encourage greater issuance and participation can fuel new investments and drive economic growth.

Financial institutions also benefit directly from deeper markets, which reduce funding risks and improve financial system resilience, especially when domestic issuances are actively traded and have longer-term tenors. Corporate issuers also gain from stronger local debt markets, which can enhance access to financing and support broader industry stability.

MLIs are increasingly focused on supporting capital market development in Africa. While progress has been limited, MLIs are providing local-currency loans, raising funding in these markets to boost liquidity, and offering guarantees to de-risk investments for local and international investors. Beyond balance sheet support, MLIs provide crucial technical assistance, advising on regulatory frameworks, building human capital and developing essential infrastructure. Although funding amounts raised to date remain modest, these efforts represent a growing commitment to strengthening Africa’s capital markets. 

Capital market development is a long-term process requiring coordinated efforts from various sources, including MLIs. For example, the Islamic Corp. for the Development of the Private Sector, a subsidiary of the Islamic Development Bank, has been an anchor investor in domestic sukuk issuance in West Africa and has provided technical support to develop the legal framework of the West African Economic and Monetary Union. A blend of financial support, technical assistance and policy reforms have been effective in promoting access to capital markets, including for sharia-compliant fixed-income instruments.

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