African Banks Turn to Guarantees to Unlock Infrastructure Funding

African development banks are increasingly using debt guarantees to attract private investment into infrastructure projects as governments seek new ways to close the continent’s annual infrastructure financing gap.

The continent requires an estimated $100 billion in additional infrastructure investment each year to meet demand for roads, railways, ports, power plants and digital infrastructure. However, shrinking development assistance and rising borrowing costs have made it harder for governments to finance major projects through traditional public funding alone.

To bridge the gap, lenders are expanding the use of guarantees that protect investors against risks such as borrower defaults, political instability and project failures.

By reducing perceived risks, the guarantees help projects secure stronger credit ratings, lower borrowing costs and attract institutional investors that would otherwise avoid frontier markets.

The African Development Bank has placed guarantees at the centre of its proposed New African Financial Architecture, arguing that risk-sharing instruments can mobilise significantly larger pools of private capital than conventional lending. The initiative is designed to encourage greater participation from pension funds, insurance companies, sovereign wealth funds and international asset managers in financing African infrastructure.

Africa Finance Corporation Chief Executive Samaila Zubairu said the continent also needs to mobilise its estimated $4 trillion in domestic institutional savings instead of relying predominantly on external financing.

He argued that African pension funds and insurance companies could become major infrastructure investors if projects are properly structured and supported by credible guarantees.

The World Bank’s Multilateral Investment Guarantee Agency has also expanded its guarantee programmes to support investment in developing economies, while other multilateral lenders are increasing the use of similar risk-sharing instruments. Development finance institutions believe guarantees can help unlock billions of dollars in private capital without placing additional pressure on already constrained public finances.

Private investors are already responding to the shift. Investment firms including Gemcorp and Ninety One have increased allocations to African infrastructure, citing growing confidence in projects backed by multilateral guarantees. Industry executives say well-structured transactions with strong credit enhancement are attracting increasing interest despite persistent concerns over political and sovereign risks.

Financial leaders also warned that fragmented guarantee schemes across different countries could limit their effectiveness. They are calling for regional guarantee platforms that standardise risk assessment, improve market efficiency and make it easier for international investors to participate in infrastructure financing across multiple African markets.

As governments struggle to finance infrastructure through public budgets alone, guarantees are emerging as one of the continent’s most important tools for mobilising private capital. Development banks believe wider adoption of these instruments could accelerate investment in critical infrastructure, improve regional connectivity and support long-term economic growth while reducing reliance on sovereign borrowing.

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