African Diaspora As a Catalyst for Infrastructure Development in Africa

By Danilo Desiderio

A report by the Africa Europe Foundation, titled “The Missing Connection: Unlocking Sustainable Infrastructure Financing in Africa,” highlights Africa’s infrastructure challenges and explores opportunities for innovative financing through the Africa-Europe partnership. Launched at the 5th Finance in Common Summit (February 26–28) in South Africa, in collaboration with South Africa’s G20 Presidency, the report reveals that African governments’ annual financial commitments to infrastructure development cover less than half of the continent’s total needs, estimated at US$130–170 billion per year.

Furthermore, approximately 35 percent of these funds originate from multilateral and bilateral donors – led by the World Bank Group and China – raising concerns about the long-term sustainability of external financing.

The Role of External Funding in Africa’s Infrastructure

In 2020, the World Bank and China contributed US$7.1 billion and US$6.4 billion, respectively, to Africa’s infrastructure, accounting for nearly half of total donor funding. Other key contributors included Afreximbank (US$2.0 billion), the European Investment Bank (US$1.6 billion), the African Finance Corporation (US$1.4 billion), India (US$1.3 billion), the African Development Bank (US$1.2 billion), South Africa (US$1.1 billion), and the BRICS’ New Development Bank (US$1.0 billion).

These figures underscore Africa’s continued reliance on external funding for critical infrastructure, despite efforts by governments and initiatives such as the Programme for Infrastructure Development in Africa (PIDA).

This funding gap is not a new revelation. The African Development Bank’s 2018 Africa Economic Outlook provided similar estimates and emphasized the need for greater private sector involvement in infrastructure development. Public-private partnerships (PPPs), in particular, have been identified as an essential mechanism for sharing responsibilities and risks, especially in complex projects.

The Economic Impact of Africa’s Infrastructure Deficit

The Africa Europe Foundation report highlights the economic consequences of Africa’s infrastructure deficit, estimating that it reduces the continent’s annual GDP growth by 2 percent. Inadequate road, rail, and energy networks hinder industrialization, limit productivity, and constrain Africa’s economic potential.

A study by McKinsey confirms that Africa’s labor productivity remains among the lowest globally, largely due to deficient infrastructure. Reliable transportation and energy access are crucial for sectors such as agriculture – where Africa has significant growth potential due to its vast arable land and diverse climate – and manufacturing, which depends on efficient logistics and stable energy supply.

To bridge the infrastructure gap, the report advocates for a multi-faceted financing strategy. While PPPs remain a viable option, African governments must also focus on mobilizing domestic resources, including increasing tax revenues and curbing illicit financial flows. However, in the context of rising living costs and growing tax burdens, such measures must be carefully balanced to avoid social unrest and political instability.

Innovative Financing Solutions: Diaspora Bonds and Beyond

A promising alternative is leveraging diaspora investments. Several African nations – including Ethiopia, Egypt, Kenya, and Nigeria – have successfully issued diaspora bonds to finance major infrastructure projects.

These bonds enable governments to access lower-cost financing while tapping into the strong connection that diaspora communities have with their home countries. Issued at a “patriotic discount” or during fiscal crises, diaspora bonds offer extended repayment terms and diversify funding sources.

The Africa Prosperity Dialogues, held in Ghana on January 27, 2023, emphasized the need for comprehensive diaspora engagement policies to channel these resources effectively. Ghana and Ethiopia, each with over three million citizens abroad, have pioneered such initiatives, but more African nations must follow suit.

The potential impact of diaspora contributions is significant. The World Bank estimates that remittance flows to Africa reached US$72.5 billion in 2023, with US$54 billion directed to sub-Saharan Africa.

According to the International Organization for Migration (IOM), these remittances can boost aggregate demand, stimulate consumption, and drive economic growth. However, the IOM warns that remittances alone cannot substitute for sustainable economic development.

Instead, they must complement broader strategies, including: (a) fostering economic diversification, (b) attracting investments, and (c) ensuring a fair tax system where all citizens contribute equitably.

These three pillars – economic diversification, investment attraction, and equitable taxation – form a crucial trilemma that African governments must address in the coming years. Solving this challenge will be instrumental in closing the infrastructure gap and driving long-term economic growth across the continent.

Danilo Desiderio serves as the CEO of Desiderio Consultants Ltd in Nairobi, Kenya, specializing in African customs, trade, and transport policies. He is a customs and trade expert at the World Bank and a senior associate to the Horn Economic and Social Policy Institute (HESPI).