Africa Needs $495.6 Billion to Meet SDGs by 2030

The African Development Bank (AfDB) Africa said that the Continent has a vast infrastructure deficit, and estimated that Africa needs $495.6 billion annually until 2030 to meet its Sustainable Development Goals (SDGs), or $86.7 billion annually to accelerate its Agenda 2063 structural transformation process.

The financing gap for both these targets amounts to a staggering 81% of the total need. Insufficient domestic revenues and high debt servicing costs continue to limit the ability of African governments to fund infrastructure from general revenues.

In its report entitled “Africa Insurance Pulse 2025,” Faber Consulting, which published the report on behalf of the African Insurance Organisation (AIO), said that the Foreign direct investment (FDI) flows to Africa remain low compared to other developing economies and the Africa’s local capital markets are underdeveloped.

Alongside boosting donor inflows and concessional financing to help reduce debt vulnerabilities, alternative financing sources – DFIs, foreign governments, international organisations and the private sector must be further mobilised.

The private sector can help to accelerate infrastructure development and bring much-needed new technologies and management practices.

Role of Insurance Sector

As a risk expert and provider of diverse risk mitigation solutions over the full infrastructure lifecycle, supported by strong credit ratings, the insurance sector is a powerful enabler of infrastructure investment and provider of ongoing risk protection for the public and private sectors.

Understanding climate risk and transferring credit, political and performance risks are particularly important for infrastructure financing. Re/insurers with long-term liabilities can also be well-matched institutional investors for infrastructure, the report said.

Mitigating investment risk is essential for Africa and the key risks include political instability, economic risks, insufficient legal and regulatory frameworks, inadequate transparency, and a lack of cross-border planning and professional project preparation.

Fostering efficient, liquid domestic capital markets would help to boost infrastructure financing whilst reducing reliance on foreign investment and costs associated with currency risk. Even structuring projects as public-private partnerships (PPPs) helps to align government and private sector interests, enhancing stability.

Risk sharing is key given the scale of infrastructure projects. Diversification across African categories and geographies can also help to manage infrastructure risk.

Re/insurers should be involved early-on in projects to benefit from their risk expertise, increase project bankability for investors and improve resilience.

Increased investments by re/insurers in local risk and loss data, advanced technology and analytics, climate risk and catastrophe models, and underwriting and risk management tools, would help to improve infrastructure risk assessment and pricing accuracy, reduce high risk perceptions, and better manage exposures.

Recommendations

Recommendations to the governments and regulators include implementing reforms to promote intra-Africa coordination, involving re/insurers early-on in projects to benefit from the sector’s risk expertise and promoting public-private partnerships.

The report also emphasised the need to foster efficient, liquid domestic capital markets to mobilise domestic capital and reduce currency risk and external debt, including by recognising infrastructure as a unique asset class and reducing capital charges for infrastructure assets.

With respect to insurance sector, the recommendations include seeking domestic and international risk sharing solutions to strengthen underwriting capacity, developing Africa-wide shared risk databases and investing in data, advanced technology and analytics, climate risk and catastrophe models, and underwriting and risk management tools to improve risk assessment and pricing accuracy, reduce high risk perceptions, and better manage exposures.