Why good African businesses and projects can struggle to cross the funding redline
Africa has never suffered from a shortage of ideas.
It suffers from a shortage of capital willing to believe in those ideas.
Across the continent, entrepreneurs are building businesses, engineers are designing infrastructure, farmers are developing agricultural value chains, innovators are creating technology solutions and governments are proposing projects capable of transforming entire economies.
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Yet again and again, they encounter the same wall:
Where is the money?
This is one of Africa’s great economic paradoxes. The continent has enormous natural resources, a young and expanding population, growing consumer markets and extraordinary entrepreneurial energy. Yet many African businesses and projects that could create jobs and generate wealth struggle to obtain the capital required to move from concept to implementation, or from a small enterprise to a large-scale business.
The uncomfortable truth is that Africa’s financing problem is not simply a shortage of capital.
There is plenty of capital in the world
The problem is that too much of that capital sees Africa first through the lens of risk — and only afterwards through the lens of opportunity.
That distinction matters.
The African funding redline
For years, African countries have effectively operated under a financial redline.
The language may be sophisticated: sovereign risk, country risk, credit risk, currency risk, liquidity risk and political risk.
But the consequence is simple:
Money becomes more expensive.
When the perceived risk of a country is high, investors demand a higher return. Governments pay more to borrow. Local financial institutions operate in a more expensive funding environment. Businesses then face higher interest rates and tougher investment requirements.
A project that might be financially viable at one cost of capital can become impossible when the financing cost rises significantly.
This creates a vicious circle.
A country perceived to be risky pays more for capital.
Higher borrowing costs put pressure on public finances.
Weak fiscal positions reinforce perceptions of risk.
Investors demand even greater returns.
And the cycle continues.
The entrepreneur at the end of that chain is often the one who pays the price.
This is not an argument that Africa has no risks.
Of course it does.
Every investment has risk.
The question is whether the financial system is sophisticated enough to distinguish between risk and opportunity — and between one African project and another.
Are we rating Africa instead of rating projects?
Perhaps one of the most important questions Africa should now be asking is this:
Are we properly assessing African projects, or are we allowing the reputation of the continent to influence our assessment before the project has even been examined?
A renewable-energy project backed by credible long-term agreements is not necessarily the same risk as a speculative start-up.
A profitable agricultural-processing company with established export markets is not the same proposition as an untested business.
An infrastructure project with predictable revenues is not the same as a project that exists only on paper.
Yet the African label can sometimes become an additional invisible risk premium.
This is where the conversation around international credit ratings and financial institutions becomes important.
Credit ratings have a legitimate purpose. Investors need independent mechanisms to assess creditworthiness.
But ratings also influence the cost of capital.
And when a continent is repeatedly perceived through a high-risk lens, the consequences extend far beyond sovereign borrowing.
They affect banks.
They affect businesses.
They affect infrastructure.
They affect entrepreneurs.
They affect the ability of African economies to convert natural resources, human capital and good ideas into productive investment.
The cost of being misunderstood
The greatest danger is not that investors identify genuine African risks.
The danger is that perceived risk becomes detached from actual opportunity.
Consider the African entrepreneur who has developed a viable business but cannot obtain expansion capital.
Consider the manufacturer who wants to build a factory but faces financing costs that make production uncompetitive.
Consider the farmer who wants to move from exporting raw commodities to processing them locally.
Consider the engineer who has designed an energy project but cannot secure affordable project finance.
In each case, the problem may not be the absence of an opportunity.
It may be the cost and structure of capital.
And this has consequences for entire economies.
If a factory is not built, jobs are not created.
If a processing plant is not financed, raw materials continue to leave the continent without capturing their full value.
If infrastructure is delayed, businesses face higher operating costs.
If businesses cannot scale, governments collect less tax.
If young people cannot find productive employment, demographic growth becomes a social challenge rather than an economic dividend.
So the financing question is not merely a question for bankers.
It is a question for anyone concerned about Africa’s development.
Something important may be changing
This is why a development announced by the Liquidity and Sustainability Facility deserves considerably more attention than it is likely to receive outside financial circles.
The LSF has welcomed the launch of the L&G LSF African Government Bond (USD) UCITS ETF, developed by Legal & General Asset Management and described by the LSF as the first of its kind available in Europe.
To the average African entrepreneur, an African government bond ETF may sound remote from the daily struggle to raise capital.
But it represents something much bigger:
an attempt to change the financial infrastructure through which the world accesses African markets.
The LSF has been working to address the structural problem of illiquid secondary markets for African sovereign debt, which can contribute to higher borrowing costs.
In 2024, it collaborated with S&P Dow Jones Indices to create the iBoxx LSF USD African Sovereigns Index, providing a standardized benchmark for African sovereign Eurobonds.
Now that benchmark has become the basis for a publicly accessible ETF.
That matters because capital likes familiarity.
Global institutional investors managing billions of dollars cannot individually analyse every African bond or every African opportunity.
They need benchmarks.
They need transparency.
They need liquidity.
They need standardized investment structures.
And when those structures exist, African assets become easier to access.
This is bigger than one ETF
The LSF says indices and ETFs can help broaden the investor base, increase secondary-market activity, improve price discovery and, over time, potentially reduce the liquidity premium paid by issuers.
That is an important development.
But it should also provoke a much bigger question:
What happens if this thinking is extended beyond sovereign bonds?
What if African infrastructure can be packaged into investment structures that global institutional investors can understand?
What if African renewable-energy projects become part of standardized investment portfolios?
What if African agricultural value chains can attract pension and insurance capital?
What if African companies can increasingly access corporate bond markets?
What if African pension funds can invest more effectively in African infrastructure?
What if global investors can obtain exposure to African growth through transparent, liquid and professionally structured vehicles?
That is where the conversation becomes transformational.
Because Africa does not merely need more money.
It needs better channels through which money can reach productive opportunity.
The entrepreneur is waiting
Somewhere in Lagos, Nairobi, Accra, Johannesburg, Kigali, Lusaka, Harare, Dar es Salaam or Dakar, there is an entrepreneur sitting on a business idea that could employ hundreds or thousands of people.
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Somewhere there is an engineer with a viable energy project
Somewhere there is an agricultural entrepreneur who knows how to turn raw commodities into higher-value exports.
Somewhere there is a technology founder building a solution for a market of hundreds of millions of people.
Somewhere there is an infrastructure developer who has completed the feasibility studies, identified the market and assembled the partners.
And somewhere there is a banker telling them:
“The project is good. But the risk is too high.”
That sentence has probably killed more African opportunities than a lack of African ingenuity ever has.
The answer should not be to pretend the risks do not exist.
The answer is to build financial mechanisms capable of distinguishing between bad projects and good projects in difficult markets.
That is a very different proposition.
Africa should not have to beg for capital
There is another mindset Africa needs to abandon.
The continent should not have to spend eternity travelling around the world asking investors to “believe in Africa.”
At some point, Africa must be able to say:
Here is the opportunity. Here is the data. Here is the structure. Here is the return. Here is the risk. Make your investment decision.
That is what mature capital markets do.
They do not require investors to fall in love with a continent.
They provide investors with information and instruments through which they can make rational decisions.
The LSF describes its ambition as moving beyond individual transactions and creating durable financial-market infrastructure for African economies.
That is the direction Africa should pursue.
The continent does not need another room full of people promising to invest.
It needs financial plumbing that makes investment possible at scale.
And if that plumbing can eventually connect global capital to African businesses, infrastructure and productive industries, the consequences could extend far beyond the financial markets.
Because the real prize is not an ETF.
The real prize is what happens when capital starts building an African industrial economy.
That is where the next conversation must begin.
