African banks should lead financing of urban infrastructure

Africa’s cities are growing. People are migrating from rural areas, seeking better access to jobs, education, and services – and avoiding natural disasters, land pressure, and conflict. It’s estimated that over 700m people live in Africa’s urban centres, a figure that will double by 2050. Megacities like Cairo, Lagos, and Kinshasa already have populations exceeding 17m residents.

This enormous influx of people requires significant investment in local infrastructure such as housing, transportation, energy, and sanitation.

But far too often, population growth outpaces essential upgrades. In Kigali, Rwanda, 80% of residents live in unplanned or privately built houses. Where infrastructure projects are delivered, they can incur huge costs. Nairobi’s Expressway road project alone costs $668 m to build.

The bigger picture is even more troubling. Africa requires between $130bn and $170bn annually to close its infrastructure deficit, yet current investment falls significantly short.

Despite available capital and investor appetite, 80% of infrastructure projects fail at the feasibility and business-plan stage. This represents not only delayed development, but diminishing opportunities for both economic growth and much-needed employment in cities.

While African countries have successfully deployed digital tools to advance financial inclusion – with mobile money platforms serving previously unbanked populations – the continent continues to lag in both physical and digital infrastructure construction needed to sustain long-term economic transformation.

That said, I’m confident we can turn infrastructure challenges into economic success stories. Urbanisation offers new business opportunities and the potential to create thriving hubs for commerce and trade. After all, Africa’s cities account for 55% of the continent’s GDP. But African nations must ensure that their banks and institutions take the lead on municipal infrastructure projects – and, crucially, become less reliant on international investment.

The foreign financing dilemma

International finance currently dominates African infrastructure projects. Chinese lenders have provided approximately $182bn in loans to 49 African countries between 2000 and 2023, making China Africa’s largest bilateral creditor. While this capital has funded critical projects, it has come with significant costs and complications.

Consider Ethiopia’s experience. The Addis Ababa Light Rail, constructed at $475m with 85% financing from China’s Export-Import Bank, was hailed as transformational upon its 2015 launch. Today, barely one-third of its 41 trains operate, carrying 55,000 passengers daily – a fraction of the projected 60,000 passengers per hour.

The system generated only $11.1m in revenue during its first four years while costing $154m to operate. Ethiopia’s auditor general later found that the feasibility study was inadequate, and had been conducted without sufficient information gathering.

This is not an isolated case. Across the continent, foreign-funded infrastructure projects frequently fail to deliver sustainable value due to inadequate feasibility studies, insufficient maintenance planning, and poor understanding of local needs.

Beyond the poor return on investment, cities are being saddled with expensive, high-interest repayment terms. Twenty per cent of revenue in Angola, Ghana, Zambia and Nigeria goes towards interest payments to Chinese creditors.

How African institutions can lead effectively

I’m not asking for a halt to foreign investment. It’s an important source of funding for African nations. But cities and townships shouldn’t have to suffer incomplete transportation projects and long, expensive borrowing terms.

African banks and institutions should reduce their reliance on external finance, and take control of municipal infrastructure projects. They understand regulatory environments, political cycles, and community dynamics that frequently derail foreign-funded projects.

Local institutions can manage rigorous, locally-informed feasibility assessments before committing capital, addressing the primary cause of project failures. Investors are crying out for local stakeholders with the expertise required to identify, design and implement projects with commercial potential.

As well as planning capabilities, local institutions are also best-placed to deploy the right blend of debt, revenue, and taxes to ensure that projects – like roads, railways, and sanitation systems – are financially viable over the long term.

Take commercial banks. They’re ingrained within local financial markets, and, significantly, an underutilised source of domestic financing, which can eliminate or reduce foreign exchange exposure that has plagued dollar-denominated infrastructure debt across the continent.

But people wrongly assume that commercial banks’ role in urbanisation projects ends with small projects. In reality, they can structure and execute large-scale infrastructure finance.

In my home country of Namibia, Standard Bank recently led a syndicate of local commercial banks, enabling Namibia to redeem its $750m Eurobond without accessing international markets, exercising financial sovereignty to navigate the continent’s debt challenges.  

Meanwhile, South Africa’s Nedbank partnered with Deutsche Bank and earmarked €450m for infrastructure projects in Tanzania, which will support the construction and rehabilitation of roads, the construction of new hospitals, the expansion of educational facilities, and water and electricity projects across the country.

This isn’t financial isolationism, it’s strategic autonomy. African nations must engage with foreign capital from a position of strength rather than desperation. Banks should collaborate with multilateral development banks and reputable foreign institutions while maintaining local control over project selection and monitoring. Together, they can deliver schemes that are cost-effective, locally relevant, and financially resilient.

Urban development – an economic multiplier

I recognise that foreign investment still has an important role to play in Africa’s developing economies. JPMorgan and the International Finance Corporation are injecting $200m each into Tangier’s port expansion, doubling the size of its truck terminal to one m units annually, supporting Morocco’s growing automotive and agribusiness exports to Europe.

I do not doubt that Tangier’s port scheme will boost Morocco’s economy and bring new jobs to local people. But I’d like to see African institutions manage more infrastructure projects in towns and cities, help keep investments within their own financial ecosystems, and ensure benefits stay within their countries – especially given that 80% of projects are failing to get off the ground.

Infrastructure investment has historically served as an economic multiplier. After World War II, the International Bank for Reconstruction and Development (later the World Bank), provided significant investment towards rebuilding cities – and generated employment in the process. Now it’s time for Africa to undergo a similar urban renewal.

In 25 years, African cities will have twice as many people. African banks must transition from auxiliary roles to leadership positions in infrastructure finance. They have the capital, deep local knowledge, and unrivalled perspective on how infrastructure investments can generate genuine economic transformation.