Published by the European Investment Bank, the report “Finance in Africa” analyzes recent developments in Africa’s financial sector, emphasizing investments in the era of digital transformation and climate transition.
"Unlocking Investment in the Age of Digital Transformation and Climate Transition" is the title chosen by the European Investment Bank (EIB) for its latest annual report on finance in Africa. Based on a survey conducted among 51 sub-Saharan banks between February and March 2024, this report, released on November 7, 2024, outlines the challenges and opportunities within Africa’s financial sector amid a shifting global economy and significant geopolitical divides.
For years, the European Union (EU) has viewed its partnership with Africa as a strategic priority. In response to climate and digital challenges, the EU is now more committed than ever to strengthening this connection. The joint EU-Africa strategy targets critical priorities such as sustainable growth and human development, aligned with the “Global Gateway” initiative, which aims to bridge investment gaps. This program, through the "Africa-Europe Investment Package," plans to mobilize €150 billion in cooperative projects with African nations. The EIB, a central player in this strategy, is involved in 110 of the 168 initiatives led by Team Europe, reaffirming its crucial role in Africa's growth.
The EIB report highlights Africa's substantial financial needs, estimated at $194 billion annually to achieve the Sustainable Development Goals (SDGs) by 2030. This necessity arises amid underdeveloped domestic credit markets and reduced global financial flows. Development banks appear as essential levers to stimulate economic growth and support the private sector in Africa, channeling international capital to national markets.
Despite a global trend of declining inflation, it remains high in some African countries, complicating efforts to ease monetary policies. Nevertheless, the report predicts an acceleration in economic growth from 2024 to 2028, potentially reaching levels not seen since the previous decade, despite persistent economic uncertainties.
Bond Markets
The report also highlights the EIB’s financial conditions index, now extended to ten African countries. This index shows a gradual easing of financial conditions since the end of 2023, particularly in countries like Benin and Côte d'Ivoire, which have thus been able to re-enter international bond markets. The decline in bond yields in Africa reflects growing investor confidence, dispelling fears of a new wave of sovereign defaults.
Sustainable bonds, including green and social bonds, continue to attract investors. In Southern Africa, in particular, the issuance of such bonds has increased, supported by multilateral institutions and the public sector. The “green premium” (greenium) observed on certain green bonds reflects this appeal, although it remains moderate.
Despite positive signals in financial markets, the path to sustained economic development remains challenging. The low level of industrialization and the significant share of agriculture in GDP limit Africa’s integration into global value chains. Infrastructure shortages, a lack of skilled workers, and restricted access to financing hamper private sector dynamism.
In response to these obstacles, Africa’s financial sector must enhance its support for the private sector. Although African banks have benefited from high-interest rates, their profitability relies mainly on government bond portfolios at the expense of private sector loans. The declining private sector credit-to-GDP ratio since 2007 highlights a strong crowding-out effect, where bank loans to the public sector encroach on resources available for businesses.
The report reveals an interest among African banks in gender equity in credit allocation. Nearly 90% of African banks have or plan to adopt a gender equality strategy. Additionally, women-led businesses have lower non-performing loan rates, justifying increased support for them.
The EIB also focuses on advances in Africa’s fintech sector, which, despite slowing after rapid growth from 2020 to 2022, now includes more than 1,263 companies. Fintech enterprises are primarily concentrated in Nigeria, South Africa, Kenya, and Egypt, which capture around 80% of fintech funding on the continent.
