African governments are increasingly seeking alternative ways to finance infrastructure beyond traditional external borrowing, towards capital market instruments, co-investment vehicles and domestically based funds.
Policymakers and market participants say the changes reflect tighter debt constraints, higher exchange rate risks and a policy push to mobilize long-term local capital for transport, energy and social infrastructure while reducing reliance on foreign currency financing.
“By pivoting to mobilizing domestic capital, countries are effectively seeking to finance long-term infrastructure debt with stable local funding, while deepening domestic financial markets,” said Shem Joshua, a Kenyan financial management expert.
The continent-wide infrastructure funding gap is estimated at between US$68 billion and US$108 billion annually, while domestic institutional capital, led by pension funds and insurance companies, currently exceeds US$1 trillion.
However, less than 5% of these long-term savings are invested in infrastructure and productive assets, according to the African Finance Corporation.
However, countries are moving to tap into these domestic capital pools. South Africa’s first Infrastructure Development Finance Bond in November 2025 marks this transition.
According to National Treasury, the government raised R11.8 billion (approximately US$693 million) in its first infrastructure bond sale, R7 billion (approximately US$412 million) in 10-year bonds at an interest rate of 8.575%, and R4.8 billion (approximately US$281 million) in 15-year bonds at an interest rate of 9.13%. The total bid amount exceeded R26 billion (US$1.5 billion), and the participation rate was 2.2 times higher.
The bond forms part of the government’s domestic borrowing program under the 2024 Medium-Term Budget Policy Statement, aimed at stimulating infrastructure investment and developing long-term financing instruments.
Finance Minister Enoch Godongwana described it as “a tool to expand the public sector pipeline and incorporate private sector participation”. Proceeds will fund projects approved under the Infrastructure Budgeting Scheme (BFI) across energy, water, transport and social infrastructure.
The revamped BFI has now increased its annual bid quota from one to four, increasing project throughput and predictability. We received 28 submissions in the first two quarters, nine of which progressed to further evaluation.
Disbursements will be made through the South African Development Bank’s Infrastructure Fund, linking capital releases to milestones and enhancing accountability.
Investor appetite has been strengthened by improving macro signals. South Africa’s first S&P Global Rating upgrade since 2005, easing power constraints, better-than-expected revenue collections and exports rose 2.8% to R192.2 billion (US$11.1 billion) in October.
Kenya also provides an example of countries charging towards alternative infrastructure financing. On December 15, 2025, the Cabinet approved a National Infrastructure Fund and a Sovereign Wealth Fund to pool privatization proceeds and concentrate pension, private equity and development funds for priority projects. Initial funding will be raised from planned asset sales and aims to support approximately KSh5 trillion (US$31 billion) in development over the next 10 years.
Elsewhere, Ghana’s bond market rebounded sharply, with GHS214 billion (US$12.8 billion) worth of transactions in 2025. Johnson Pandit Asiamah, Governor of the Bank of Ghana, has called this a “new era of regional financial leadership”, positioning the country as a hub under the AfCFTA financial integration framework.
During the domestic bond exchange period, trading volumes plummeted from GHS230 billion (US$13.8 billion) in 2022 to GHS98 billion (US$5.9 billion) in 2023. Activity fully recovered by October 2025, reflecting the return of investor confidence amid the macro upturn. Inflation fell from 54% to 8%, the cedi appreciated by 35%, and foreign exchange reserves covered almost five months’ worth of imported goods.
Innovations in the GFIM (Ghana Fixed Income Market), such as a centralized electronic trading platform and product diversification, have fostered transparency, liquidity, and private sector participation. Pension funds currently have over GHS90 billion (US$5.4 billion) in the market, but over 80% is left in short-term government bonds, leaving long-term savings underutilized.
Ghanaian market analysts and development finance experts estimate that by allocating 5-10% of pension assets to structured infrastructure products, around US$1 billion could be set aside annually for roads, solar power plants, water networks and digital infrastructure, while delivering inflation-hedged returns.
Precedent from other countries shows how pension-backed investments can fund hospitals, solar farms and climate-resilient digital networks, generating significant returns and jobs. The size and sophistication of pension capital is particularly evident in Nigeria.
The country’s total pension fund assets will reach £26.9 trillion (US$14.6 billion) by September 2025, up 5.9% quarter-on-quarter, with closed pension fund administrators (CPFAs) driving the surge in offshore holdings. Foreign money market instruments rose 111.8%, reflecting both currency hedging needs and the search for yield amid domestic market volatility.
Currently, about 60% of retirement savings remains in government debt and less than 10% in corporate bonds.
The National Pensions Commission (Pencom) has signaled a strategic shift, encouraging the diversification of funds into commercially viable infrastructure and private equity rather than grant-only public projects. In North Africa, Morocco is using capital markets to finance key infrastructure for the 2030 FIFA World Cup.
The government plans to issue its first euro-denominated bond since 2023 to raise about $2 billion for transport upgrades, stadium modernization, deep-sea ports, desalination plants and green energy projects. Lawmakers set the external debt ceiling in 2025 at $6 billion, with one-third expected to come from bonds and the rest from bilateral partners and institutional investors.
Morocco also leads Africa in sustainable finance. This represents more than 97% of the continent’s green bond issuance, including a €92 million wind high-speed rail bond in 2022. The central bank’s quota allows 10% of its reserves to be green or sustainable bonds.
Egypt is focusing on investor diversification. In October 2025, the government set a price for the dual tranche Sukuk at USD 1.5 billion and attracted orders worth over USD 9 billion.
Project-driven financing is also reshaping frontier markets. In Mozambique, an energy company led by Eni has reached a final investment decision on the Coral North FLNG project in 2025.
But Joshua says the model is both an opportunity and a challenge.
“Successful mobilization of local capital has the potential to reduce dependence on foreign borrowing, ease debt service pressures and foster a more resilient investable market ecosystem.”
“Conversely, failure to put in place strong regulatory, fiscal and operational frameworks risks disappointing investors and could undermine confidence in both local capital markets and broader economic reforms,” he added.
