Africa’s financing gap has risen above $400 billion despite substantial capital in the continent, highlighting the difficulty of connecting investors with bankable businesses and infrastructure projects capable of driving economic growth, the International Finance Corporation (IFC) has said.

Principal Investment Officer at the IFC, Dafe Oraka, disclosed this in Lagos at a media parley organised by the IFC and Africa Financial Industry Summit (AFIS) ahead of sixth edition of its summit scheduled for November in Luanda, Angola.

Oraka said the priority should be to strengthen the link between capital available on the continent and businesses and infrastructure projects requiring long-term funding.

“We see opportunities in connecting capital more effectively to finance businesses, to finance infrastructure, and to create jobs in Africa,” Oraka said.

He said the financing gap showed that Africa’s challenge was not simply a shortage of funds, but the difficulty of developing financing structures capable of moving available capital into productive activities.

Also speaking, Director of AFIS, Hicham Al Morabet, said the challenge was particularly striking given that pension funds, insurers, sovereign wealth funds and other institutional investors control more than $2 trillion in assets under management.

According to him, African banks are recording strong returns, with average return on equity of about 19 per cent, yet businesses continue to struggle to access affordable long-term financing.

He said more capital needed to be channelled into productive sectors rather than remaining concentrated in instruments that do not directly finance businesses and infrastructure.

Al Morabet said achieving this would require stronger project development, better risk-sharing mechanisms and closer cooperation among governments, regulators, financial institutions and development finance institutions.

He identified the shortage of bankable projects as one of the major barriers preventing institutional investors from committing more funds to infrastructure and other productive investments.

“Once you have the right volume of capital, then you need to unlock this capital, and then the last step is how to mobilise this capital into the right productive economy projects,” he said.

He said institutions such as the IFC and Nigeria’s InfraCredit were important because de-risking mechanisms could make projects more attractive to pension funds, insurers and other long-term investors.

Al Morabet added that companies also needed technical assistance to develop projects capable of meeting investors’ requirements and delivering appropriate risk-adjusted returns.

He said Africa must simultaneously expand its savings base by deepening pension and insurance penetration and developing digital savings instruments capable of mobilising more household savings.

Division Director for Nigeria and Central Africa at the IFC, Olivier Buyoya, said stronger collaboration among financial institutions, regulators and development finance institutions was necessary to unlock more financing for strategic sectors.

Buyoya said Nigerian financial institutions had an important role to play because the activities of major Nigerian banks could influence financial markets and financing conditions across Africa.

He said the objective should be to develop financing structures that bring different sources of capital together and enable financial institutions to respond more effectively to the needs of businesses.

Buyoya added that the impact of AFIS should ultimately be measured by the policy reforms, partnerships and financing transactions that emerge from its discussions.

The sixth AFIS summit, scheduled for November in Luanda, is expected to bring together regulators, financial institutions, investors, development finance institutions and other stakeholders to discuss ways of improving capital mobilisation and financing across Africa.