The African Development Bank estimates in its 2026 economic outlook for Southern Africa that the region faces an annual development financing gap of about US$55 billion. Roads, power stations, water systems, schools, hospitals and climate adaptation all require investment, and the figure shows how far the region remains from meeting these needs.
A financing gap of that size naturally draws attention to the shortage of capital. Yet Africa’s development experience shows that money alone has not always produced the expected results. Over several decades, countries across the continent have received substantial amounts through aid, concessional lending, commercial borrowing and foreign direct investment. Some have used that capital to modernise infrastructure and improve living standards, while others have accumulated debt and continue to struggle with unreliable electricity, weak industrial growth and poor public services.
More finance is still necessary. The question is why additional capital has so often failed to produce the transformation policymakers expected, and much of the answer lies in what happens after the money is raised.
What happens after financing.
Development finance is becoming harder to secure. Aid budgets are under pressure, borrowing costs remain high and investors have become more selective about where they place their capital. Governments across Africa are also spending significant shares of their revenue servicing debt, leaving less room for productive investment. The African Development Bank’s call for greater domestic resource mobilisation and stronger private investment reflects that pressure. But the usefulness of additional finance will still depend on the projects chosen, how they are executed and whether they can be maintained.
Two countries can each borrow US$5 billion and end up with very different results. One uses the money to expand electricity generation, modernise ports and improve freight rail, making it easier for manufacturers to invest. The other spends years redesigning projects, renegotiating contracts and supporting inefficient state-owned enterprises. The amount borrowed is the same, but the economic outcome is not.
Financing gap estimates do not capture these differences in execution. A project completed years late, far above budget or without enough money for maintenance can absorb large amounts of capital without producing the expected return.
South Africa is one example. Capital has never been entirely absent: the country has Africa’s most mature financial markets, a substantial pension industry and a relatively sophisticated private sector. Yet electricity shortages, deteriorating rail infrastructure and congested ports held back economic growth for years, with operational and institutional problems reducing what existing investment could achieve.
Some of these conditions have started to change. Electricity supply has become more stable, private renewable-energy generation has expanded and reforms are gradually changing the structure of the power market. The OECD argues that further progress will require greater private investment, an expanded transmission network and a more competitive electricity system. These changes create better conditions for new investment than existed during the years of severe infrastructure disruption.
Botswana followed a different path. Diamond wealth gave the country an unusual source of capital, while relatively strong public institutions, prudent fiscal management and long-term planning helped turn much of that revenue into infrastructure and public services. For many years, this contributed to one of the highest levels of income per person in Africa.
Botswana’s more recent difficulties show another side of that experience. Weak diamond demand contributed to economic contractions in 2024 and 2025, while limited diversification put greater pressure on public finances. Public debt rose from 22 per cent of GDP in 2023 to nearly 40 per cent in 2025. The country managed its diamond revenues relatively well, but remained heavily dependent on the industry, leaving it exposed when conditions in the diamond market deteriorated.
Broadening tax base
The African Development Bank’s 2026 Southern Africa outlook calls for stronger domestic resource mobilisation. That will require more than collecting additional revenue from the same relatively small formal sector.
Governments tend to raise more revenue as businesses grow, more workers move into stable employment and household incomes rise. Increasing the burden on formal businesses can discourage investment and give smaller firms another reason to remain informal, particularly where taxpayers see little improvement in the public services their contributions are meant to support.
Most workers in sub-Saharan Africa are still outside regular wage employment. The World Bank reported in 2025 that only 24 per cent of new workers in the region were entering wage-paying jobs, reflecting the continued importance of informal, agricultural and own-account work.
Expanding the tax base therefore depends partly on helping more businesses grow. Reliable electricity, affordable credit, relevant skills, digital infrastructure and access to larger markets can help firms become more productive, hire more people and eventually enter the formal economy. Investment in power, transport and education should, over time, be visible in stronger businesses, higher incomes and a broader base from which governments can raise revenue
The cost of uncertainity
Governments frequently compete for investment through tax incentives, subsidized land and special economic zones. These can attract interest, but investors also look at more ordinary things: whether electricity is reliable, regulations are reasonably stable, contracts can be enforced and goods can move across borders without unnecessary delays.
They also want to know whether permits will be issued on time and whether the rules are likely to change after an investment has been made. When there is too much uncertainty, investors may demand higher returns, commit less capital or decide to invest elsewhere.
That uncertainty can make finance more expensive. Transparent procurement, credible regulation and reliable project execution reduce some of the risk faced by lenders and investors, which can lower the cost of capital. Where institutions are weak, governments may end up paying more for finance while also finding it harder to turn that finance into productive investment.
What the investment actually delivers
The African Development Bank report also highlights regional integration, including investment in cross-border infrastructure. A modern highway delivers limited value if border procedures remain slow, just as an expanded port cannot operate at full capacity when rail links are unreliable. Additional electricity generation will also do little for regional industry if transmission systems and power-trading arrangements remain weak.
Infrastructure works best when the systems around it work too. Roads need functioning borders, ports need reliable transport links and power projects need networks that can move electricity to where it is needed. This is one reason headline financing figures can hide as much as they reveal.
Governments and lenders should look beyond whether financing has been secured and ask what a project is actually expected to change. Does it address a real economic constraint? Can it be completed within budget? Who will operate it? How will maintenance be financed? And can the promised results be measured?
The same questions matter when projects are already underperforming. Continuing to support an inefficient public enterprise or repeatedly refinancing a poorly designed infrastructure project can deepen the loss by directing more public resources towards an asset that is unlikely to deliver the expected return.
Southern Africa still needs substantial investment to expand energy systems, improve infrastructure and adapt to climate change. But the financing gap tells only part of the story. If projects are badly chosen, poorly executed or left without the institutions needed to make them work, more money will not automatically produce better outcomes.
Every delayed infrastructure project, every poorly managed public enterprise and every procurement process that fails to deliver represents capital that could have supported jobs, exports and higher living standards.
Sources and further reading
African Development Bank. “Regional Economic Outlook 2026: Southern Africa Must Mobilise Development Finance at Scale to Close Annual $55 Billion Financing Gap.”
OECD. OECD Economic Surveys: South Africa 2025 — Reforming South Africa’s Electricity Sector.
World Bank. “Sub-Saharan Africa Maintains Resilient Growth but Faces Urgent Jobs Challenge.”
World Bank. Botswana Economic Update: Seizing the Moment — How Botswana Can Turn Crisis into Opportunity.