Project

Finance in Africa 2024 - Chapter 2: Economic development and access to finance

European Investment Bank

DOI: 10.26303/d1yh-q502

What is it about?

Progress on development indicators in Africa in the last 20 years is disappointing. Africa’s share of global gross domestic product (GDP) has been stagnant in this period and convergence with advanced country living standards has been limited. The continent remains characterised by a relatively low level of industrialisation.

Improving industrialisation and private sector development means overcoming key structural constraints, such as gaps in skills and infrastructure. Limited access to finance is another constraint, with domestic and external finance sources becoming scarcer over time.

Domestically, government revenue as a share of GDP is 18% in Africa, well below that of other developing regions. Meanwhile, private sector credit in sub-Saharan Africa was 36% of GDP in 2022 (a decline from 56% of GDP in 2007), while growth in private capital stock (the productive base of the economy) has not kept pace with other regions.

Why is it important?

For Africa’s development to accelerate, it is important to understand why progress has been slow over the last 20 years. While many factors hinder development, this chapter explains the impact of a structural lack of finance.

Over the last 15 years, various global shocks have conspired to reduce the external finance available to Africa from various sources such as foreign direct investment, aid, portfolio flows and bilateral lending.

Domestically, government finances are under pressure following the COVID-19 pandemic, and bank lending to the economy as a share of GDP has shrunk dramatically. This coincides with a weak evolution of the private capital stock, the productive base of the economy. This lack of finance comes at a time when financing requirements to meet both sustainable development goals and climate targets are increasing.

Perspectives

Progress on development indicators in Africa in the last 20 years has fallen short of expectations and one of the key areas where Africa is different to other developing regions is weaker evolution of the private sector. A lack of industrialisation has likely been linked to the scarcity of firm finance.

Resources9 total

Who is involved?