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Africa’s energy transition is often described as a problem of scarcity: there is not enough capital, not enough concessional finance, and not enough international support. But this diagnosis is increasingly misleading.
The continent is not short of money. It is short of mobilisation.
According to the Africa Finance Corporation (AFC), Africa holds more than $1.1 trillion in domestic capital across pension funds, insurance pools, sovereign wealth funds, public development banks, and other institutional investors. Senior leaders at the African Development Bank (AfDB) have placed the figure even higher, closer to $2 trillion when broader institutional assets are included.
Yet Africa’s clean energy sector, from grid upgrades to solar mini-grids, remains overwhelmingly dependent on external capital. The result is a structural contradiction: a continent rich in savings, but poor in investment; flush with long-term capital, yet unable to finance its own transition.
Why?
Where Africa’s Capital Actually Sits
Africa’s domestic capital is not hidden. It is visible, regulated, and professionally managed.
- Pension funds in South Africa, Nigeria, Kenya, and Morocco now manage hundreds of billions of dollars in long-term assets.
- Insurance companies across the continent sit on large, stable pools of capital designed for predictable, long-duration returns.
- Sovereign wealth funds in countries such as Nigeria, Angola, Libya, Botswana, and Algeria collectively manage tens of billions more.
- Public development banks and national infrastructure funds operate in almost every major economy.
The OECD’s Africa Capital Markets Report 2025 makes this clear: institutional investors are growing rapidly, but their portfolios remain heavily skewed towards government securities and short-term instruments.
In other words, Africa’s capital exists, but it is parked and not deployed.
The Clean Energy Mismatch
Clean energy should, in theory, be an ideal match for domestic capital.
Solar, wind, hydro, transmission infrastructure, and battery storage are long-lived assets. They generate stable, predictable cash flows over 15–25 years. They align perfectly with the liabilities of pension and insurance funds.
Yet in practice, African institutional investors allocate less than 1–2 percent of their portfolios to infrastructure, and an even smaller share to renewable energy.
The problem is not a lack of interest, but a lack of investability.
Why Domestic Capital Stays on the Sidelines
Three structural barriers keep African capital out of clean energy.
1. Currency Risk
Most clean energy projects generate revenue in local currency, but require equipment priced in dollars or euros. Currency depreciation can wipe out returns overnight. Without affordable hedging instruments, domestic investors understandably stay away.
2. Credit and Offtaker Risk
State-owned utilities, the primary buyers of power, are often financially distressed. Payment delays and contract breaches make even well-structured projects unattractive to conservative investors such as pension funds.
3. Weak Project Pipelines
Africa does not lack ideas; it lacks bankable projects. Fragmented procurement, inconsistent power purchase agreements (PPAs), and unclear regulatory frameworks raise transaction costs and deter scale.
As the AfDB’s African Economic Outlook 2025 notes, Africa’s biggest constraint is not savings mobilisation, but the translation of domestic resources into productive investment.
What Mobilisation Would Actually Look Like
Unlocking domestic capital does not require reinventing finance, but it requires reforming the ecosystem.
First: Currency Risk Hedges at Scale
African central banks, development banks, and regional financial institutions must expand local-currency hedging facilities. MDB-backed currency buffers could absorb first-loss risk, making projects investable for domestic funds.
Second: Credit Enhancement, Not Just Loans
Partial risk guarantees, payment insurance, and first-loss tranches matter more than concessional debt. Domestic capital does not need cheap money; it needs reduced risk.
Third: Standardised PPAs and Regulation
Clean energy projects should not be renegotiated country by country, ministry by ministry. Standardised contracts backed by law, lower transaction costs, and build investor confidence.
Fourth: Aggregation and Scale
Pension funds cannot invest efficiently in dozens of small projects. Platforms that bundle mini-grids, rooftop solar, or storage assets into investable vehicles are essential.
This is precisely where domestic development banks and sovereign funds should play a catalytic role, anchoring deals, setting standards, and crowding in private capital.
The Diaspora Opportunity
Africa’s diaspora sends home over $100 billion annually, more than foreign direct investment and official development assistance combined. Yet very little of this flow supports productive energy investment.
Diaspora bonds, green infrastructure notes, and digital investment platforms remain underdeveloped. With the right governance and transparency, diaspora capital could become a powerful and politically resilient source of clean energy finance.
African diaspora communities already demonstrate a strong willingness to invest back home in property, education, family businesses, and philanthropy. What they lack are credible, well-governed vehicles that allow them to invest in national or regional infrastructure with confidence.
Successful examples elsewhere are instructive. Countries such as India and Israel have used diaspora bonds to finance infrastructure, stabilise foreign exchange reserves, and deepen national solidarity. Africa’s attempt at similar instruments has been sporadic, poorly marketed, or undermined by governance concerns. Trust, once broken, is slow to rebuild.
Yet the opportunity remains substantial. Properly designed diaspora-backed green bonds, linked to clearly identifiable assets such as solar plants, transmission upgrades, mini-grid portfolios, could channel long-term capital into energy projects while offering returns denominated in hard currency or inflation-protected terms. Digital platforms could further reduce barriers to entry, allowing smaller investors to participate transparently.
Why External Capital Alone Is Not Enough
Foreign capital will always matter. But a transition financed almost entirely from outside is fragile.
External funding is cyclical. It responds to global interest rates, geopolitics, and donor priorities. Domestic capital, by contrast, is patient. It is tied to local growth, jobs, and political stability.
A clean energy system financed by African savings is more likely to survive currency shocks, policy changes, and global downturns.
It is also more likely to align with Africa’s development priorities, powering industry, clinics, schools, and households, not just meeting global climate targets.
Over-reliance on external capital has structural consequences. It distorts project selection towards what is most “bankable” for international investors, rather than what is most transformative locally. It privileges export-facing renewables and flagship projects over distribution networks, storage, and last-mile access, the unglamorous infrastructure that underpins development.
External finance also comes with embedded vulnerabilities. Shifts in global monetary policy can freeze capital flows overnight. Geopolitical tensions can delay disbursements or alter priorities. Donor fatigue can quietly hollow out long-term commitments. Africa has experienced all of these cycles before.
By contrast, domestic capital pensions, insurance funds, and sovereign pools are structurally aligned with national time horizons. These institutions exist to meet long-term obligations to citizens. Their natural investment horizon mirrors the lifespan of energy infrastructure itself.
A Question of Political Will
Ultimately, the constraint is not technical. It is political.
Mobilising domestic capital requires regulators willing to modernise investment rules, governments willing to strengthen utilities, and institutions willing to share risk rather than outsource it.
Africa doesn’t need permission to finance its own transition. It needs coordination, confidence, and courage.
The capital is already here. The question is whether Africa will continue waiting for others to fund its future, or finally invest in itself.
“Africa’s energy transition will not fail for lack of money. It will fail for lack of mobilisation.”
Political will manifests in choices. It shows up in whether pension regulations allow long-term infrastructure allocations. Whether power utilities are reformed or merely subsidised, and whether governments prioritise standardised contracts and credible regulators over discretionary deals.
It also shows up in whether public institutions are prepared to take the first risk, to anchor projects, absorb early losses, and crowd in private capital. Too often, African institutions ask foreign partners to lead, de-risk, and validate investments that could be supported domestically with the right policy backing.
Mobilisation requires leadership that understands that risk avoidance is itself a risk. Delay has costs. Underinvestment has consequences, and waiting for perfect conditions guarantees continued dependence.
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