Africa’s Resilience Financing Test: Who Carries the Risk—and Who Captures the Return?

TAY | Decision Maker’s Corner

Week 45 · November 2026

Africa’s Resilience Financing Test: Who Carries the Risk—and Who Captures the Return?

The next phase of development finance must be judged not by the volume of capital mobilised, but by whether its allocation of risk creates stronger institutions, productive economies and lasting financial resilience.

Executive perspective

Africa does not simply need more resilience financing. It needs a better allocation of risk, stronger domestic financial institutions and a clearer connection between capital committed and productive capacity created.

Across the continent, governments are under pressure to finance infrastructure, energy, food systems, transport networks and climate adaptation while managing expensive debt, constrained budgets and increasingly unpredictable external conditions.

Development finance institutions (DFIs), multilateral development banks (MDBs), commercial lenders and institutional investors are responding with guarantees, blended finance, first-loss instruments, political-risk insurance and other forms of credit enhancement.

These instruments matter. They can make investments possible where commercial capital would otherwise remain unavailable. They can extend financing tenors, improve investor confidence and support projects with substantial development value.

But they also raise a more difficult question:

When a resilience investment fails to deliver, who absorbs the loss—and when it succeeds, who captures the economic return?

That question should become central to how African governments assess development finance.

A transaction can reach financial close without resolving the underlying economic risk. A guarantee can attract investors while creating a contingent public obligation. A project can become bankable without strengthening the wider market on which its long-term success depends.

Africa therefore needs to move beyond measuring capital mobilised. It must assess how risk is distributed, whether financing is genuinely additional, and what productive capacity remains after external support has been deployed.

1. The changing risk environment

The regional outlook makes this issue more urgent.

The IMF's October 2026 Regional Economic Outlook projects Sub-Saharan African growth of 4.5% in both 2026 and 2027. However, this regional performance masks substantial differences between countries and sectors. High interest burdens, low reserves in many economies and declining aid flows leave limited room to absorb another adverse shock. The IMF also assesses the balance of risks as tilted to the downside.

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The challenge is not only macroeconomic.

Climate shocks, food insecurity, conflict, displacement, disrupted trade and fragile livelihoods continue to expose weaknesses in the systems that sustain production and household welfare.

On 3 November 2026, the African Union Commission and the International Federation of Red Cross and Red Crescent Societies convened around durable solutions towards zero hunger in Africa. The emphasis on locally led resilience, country ownership and coordinated investment reflects a wider recognition: emergency responses alone cannot substitute for stronger productive systems.

The underlying financing tension is clear:

• Governments must preserve fiscal stability while financing development.
• DFIs must mobilise investment into markets that commercial capital considers too risky.
• Private investors require credible risk-adjusted returns.
• Enterprises and communities need affordable, reliable infrastructure and access to productive markets.
• Domestic financial institutions need instruments and opportunities that allow them to finance longer-term investment.

These interests are not inherently incompatible. But they will not automatically align.

The central question is whether the financing architecture distributes responsibilities and rewards in a way that strengthens the underlying economy.

2. The new capital architecture: mobilisation is not transformation

The Africa Financial Summit in Luanda, held on 3–4 November 2026, placed domestic capital mobilisation and Africa's financial architecture at the centre of the policy discussion.

The African Development Bank highlighted its proposed New African Financial Architecture for Development (NAFAD), alongside instruments such as guarantees, first-loss structures, risk-sharing arrangements and local-currency finance.

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This direction is important.

Africa cannot rely indefinitely on public budgets and external concessional finance to fund the infrastructure and productive investment required for transformation. Domestic savings, pension assets, insurance capital, commercial banks and regional financial institutions must play a much larger role.

But the volume of capital mobilised is only one measure of success.

Three separate questions should be asked of every major financing arrangement:

First: How much capital was mobilised?

What resources were committed, by whom, in what currency and for what purpose?

Second: What risk was genuinely reduced, and what risk was transferred?

Did the financing structure address an underlying market failure, or did it simply shift exposure from private investors to a government, DFI or another public institution?

Third: What productive capacity was created?

Did the investment strengthen electricity supply, reduce logistics costs, improve food security, expand industrial capacity, deepen domestic financial markets or increase the competitiveness of local enterprises?

The third question is the ultimate development test.

A project may reach financial close and still fail to deliver broad economic transformation. A guarantee may improve an investor's risk profile without establishing whether the project would have proceeded without public support. An infrastructure asset may become operational while local suppliers, enterprises and workers remain disconnected from its wider economic benefits.

The distinction matters because financial closure is a transaction milestone, not a national development outcome.

3. The risk allocation question: who carries the downside?

Development finance instruments are often presented as mechanisms for reducing risk. But different instruments address different risks, and their consequences depend on how the underlying contracts are structured.

Four categories deserve particular attention.

A. Sovereign and fiscal risk

Governments can support private investment through sovereign guarantees, minimum-revenue commitments, availability payments, termination payments and other contractual arrangements.

These obligations may not appear as conventional public debt when they are initially created. Nevertheless, they can become substantial fiscal exposures if the conditions triggering payment occur.

A government may therefore improve the bankability of a private project while creating future obligations that compete with spending on public services and productive investment.

The correct question is not simply whether a guarantee has been issued.

It is:

• What obligation has the government accepted?
• What event triggers payment?
• What is the maximum exposure?
• How likely is that exposure to materialise?
• Where is it recorded, monitored and disclosed?
• What happens if several supported projects experience stress simultaneously?

The World Bank's guidance on government guarantees and public-private partnerships emphasises the importance of identifying and managing these fiscal risks, including obligations that may arise outside conventional debt reporting.

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B. Financial and currency risk

Currency mismatch is one of the most important structural risks in African infrastructure finance.

A project that earns local-currency revenue but borrows in foreign currency can become increasingly expensive to service when the domestic currency depreciates.

The question is who absorbs that difference.

Possible arrangements include:

• Higher tariffs or charges paid by users.
• Government support or foreign-exchange guarantees.
• Currency hedging, where available and affordable.
• DFI risk-sharing arrangements.
• Equity investors accepting lower returns or absorbing losses.

Local-currency financing can reduce one important source of vulnerability, but it does not remove construction, demand, operational or credit risk.

C. Productive and market risk

An investment can be commercially viable as an individual asset while failing to strengthen the wider productive system.

A cold-storage facility, for example, may be well constructed and financed. Yet if farmers lack access to affordable transport, inputs, credit, processing capacity and reliable markets, the wider agricultural value chain remains vulnerable.

The same applies to energy, transport and industrial infrastructure.

The resilience of the asset is not necessarily the resilience of the economy around it.

D. Institutional and delivery risk

Land acquisition, procurement, regulatory uncertainty, project preparation, maintenance and accountability are not risks that can simply be transferred to a financial institution.

They require capable public institutions and credible private operators.

Where institutions are weak, guarantees may make individual projects financeable without addressing the reasons investment is difficult in the first place.

The long-term objective must therefore include institutional capacity, not merely financial risk protection.

4. Three African transactions: what the financing structures reveal

The strongest way to understand the difference between capital mobilisation and economic transformation is to examine how actual African transactions have allocated risk.

These cases are not presented as equivalent projects or as proof that every outcome is successful. Each demonstrates a different financing challenge.

Case 1 — Nigeria's Azura-Edo: the public backstop behind private power investment

NIGERIA · POWER GENERATION · SOVEREIGN AND POLITICAL RISK

View the Azura-Edo project photographs in the official image gallery

The Azura-Edo independent power project is an important precedent in African project finance.

The 459 MW gas-fired power plant reached financial close in December 2015, with approximately US$876 million in financing. The project brought together private sponsors, commercial lenders and development finance institutions. It received World Bank guarantee support and MIGA political-risk insurance.

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The project's financing structure was designed to address a fundamental weakness in Nigeria's electricity market: the ability of the public electricity purchaser to meet its contractual payment obligations.

Nigeria Bulk Electricity Trading PLC (NBET), a state-owned enterprise, purchased electricity from generators and resold it to distribution companies.

The difficulty was that investors needed confidence that contractual payments would be made, even where the wider electricity market was experiencing financial stress.

The Nigerian government was reluctant to issue a conventional sovereign guarantee. The project therefore used a Put and Call Option Agreement (PCOA), under which specified early-termination circumstances could require the government and/or NBET to purchase the project company's shares or assets at a contractually determined price.

The World Bank's documentation explains that the PCOA was developed as an alternative to a conventional government guarantee. It could require the government to pay a purchase price that, at a minimum, covered outstanding project debt in specified circumstances.

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What the arrangement achieved

The project demonstrated that a complex independent power project could attract international financing through a carefully structured combination of credit enhancement, political-risk protection and contractual government support.

Where the risk remained

• Private lenders received defined protection against specified payment and political risks.
• MIGA assumed covered political-risk exposures under its insurance arrangements.
• The World Bank provided guarantee support within the terms of its instrument.
• The Nigerian government retained contractual exposure through the PCOA.
• The wider electricity market remained dependent on the financial capacity of the public purchaser and distribution system.

The crucial lesson is that avoiding a conventional sovereign guarantee does not necessarily eliminate public exposure.

A government may assume an economically significant obligation through a different contractual structure.

The strategic question for African governments: Are all contractual public exposures being assessed together, including termination payments, guarantees, letters of credit and other contingent obligations?

The available documentation establishes the financing structure. It does not, on its own, establish the total realised fiscal cost over the project's life. That distinction must remain explicit.

Reading the PPA, PCOA and payment support separately

The distinction is important because the instruments address different obligations.

Under the PPA, NBET was required to pay for both capacity and energy. The World Bank's transaction case study explains that the capacity-payment component was structured to cover scheduled principal and interest under the project loan agreements. This is a description of the project's revenue and debt-service architecture; it should not be read as evidence that every PPA payment or tariff component was itself guaranteed by the PCOA.

Azura Power West Africa Limited's 2020 audited annual report provides a useful further breakdown of PPA revenue. It identifies capacity payments, energy delivered, reimbursable items and start-up revenue. The reimbursable items included gas-supply payments, gas-transport payments, gas take-or-pay payments and regulatory licence charges, charged back to NBET under formulas in the PPA. These are wider PPA payment components. They should not be described as PCOA liabilities, nor assumed to be direct sovereign obligations NBET's public ownership, on its own, does not establish that every contractual payment is a direct sovereign obligation.

The PCOA is a separate, termination-related mechanism. Azura's annual report states that, following early termination of the PPA, the agreement sets out when the Federal Government and/or NBET may have a right or obligation to purchase the company's shares or assets, with the purchase price determined under the agreement's valuation mechanism. The World Bank's case study explains that, in specified circumstances, the put price could at a minimum repay outstanding project debt. That is a contingent asset-purchase obligation—not a standing guarantee of the full tariff stream.

The World Bank's payment-security structure is distinct again. Azura's 2020 annual report records a US$120 million letter of credit securing NBET's PPA payments, with an IBRD Partial Risk Guarantee providing additional support to that letter of credit. The guarantee therefore operated through the defined payment-security arrangement; it should not be characterised as an unlimited guarantee of every tariff, reimbursable or future payment.

The fiscal-risk lesson is therefore more precise: debt-service coverage, ordinary PPA payment obligations, the payment-security/PRG structure and PCOA termination-purchase exposure must be assessed separately and then considered together when evaluating the potential public-sector exposure. The existence of these contractual channels does not prove that all amounts will be called, that all PPA charges fall on the sovereign, or that a particular fiscal loss has occurred. Establishing actual exposure requires the executed agreements, their triggers and caps, payment and guarantee utilisation records, and the relevant public-sector accounts.

Case 2 — Kenya's Acorn platform: using blended finance to build a market

KENYA · HOUSING · BLENDED FINANCE AND DOMESTIC CAPITAL MARKETS

View Acorn's official student-accommodation project photographs

Kenya's Acorn platform demonstrates a different application of development finance.

The challenge was not simply a shortage of student accommodation. Kenya's corporate bond market had experienced a period of inactivity following governance failures and defaults. Long-term domestic capital remained underutilised, while institutional investors required stronger credit protection and credible investment structures.

The Private Infrastructure Development Group (PIDG) deployed several instruments to address different barriers:

The initial KES 4.3 billion green bond was supported by a partial credit guarantee. A subsequent KES 1.4 billion medium-term note programme was oversubscribed, demonstrating the development of investor appetite beyond the first transaction.

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The platform also created a structure through which domestic pension funds could participate in housing investment through regulated REIT vehicles.

The OECD's September 2026 case study reports that the project has delivered 7,000 student beds in Nairobi, generated 1,195 short-term construction jobs and 178 long-term operational positions. It also reports that the original green bond was redeemed early in October 2024.

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What the arrangement achieved

The important outcome was not only the financing of housing assets.

The transaction addressed several market barriers simultaneously:

• Credit enhancement improved the initial bond's attractiveness.
• An anchor investor reduced placement uncertainty.
• Technical assistance helped overcome high first-mover transaction costs.
• Development equity supported the investment structures.
• Domestic institutional investors gained a new route into housing assets.

Where the risk remained

Acorn retained responsibility for developing and operating the housing assets. Investors continued to carry risks outside the guarantee's coverage. GuarantCo assumed defined credit exposure under its guarantee.

The broader market still needs to demonstrate that future transactions can be financed sustainably, with less reliance on public or concessional support.

The strategic question: When should development-finance institutions reduce their guarantee and anchor-investment role because domestic investors and markets have become capable of carrying more of the financing themselves?

Acorn provides evidence of market development. It does not yet establish that all future housing projects will be commercially viable or that the model has solved the wider affordability challenge.

Case 3 — Nigeria's InfraCredit: turning domestic savings into long-term infrastructure capital

NIGERIA · INFRASTRUCTURE BONDS · LOCAL-CURRENCY CAPITAL

View InfraCredit's official project portfolio and infrastructure photographs

Nigeria's InfraCredit model addresses a structural weakness in infrastructure finance: the gap between domestic institutional savings and the long-term financing requirements of productive investment.

Pension funds and other institutional investors hold substantial domestic financial resources. Yet infrastructure issuers have historically struggled to obtain the credit ratings and protections required to attract this capital.

Established in 2017, the Nigerian Infrastructure Credit Enhancement Facility (InfraCredit) provides naira-denominated guarantees to improve the credit quality of local-currency debt instruments used to finance infrastructure.

The OECD's September 2025 case study reports that, as at 31 December 2024:

• 24 transactions had been guaranteed.
• More than NGN 200 billion in private investment had been mobilised.
• Nearly NGN 150 billion in bond issuances had been supported.
• The average tenor of supported bonds was 11 years, compared with a reported Nigerian market average of 3.2 years without InfraCredit support.
• More than 21 domestic institutional investors had participated.
• Pension funds accounted for 56.16% of investors in the supported issuances.

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One illustrative transaction is North South Power's 2019 NGN 8.5 billion, 15-year infrastructure bond, which was supported by InfraCredit. In 2021, the company issued a further NGN 6.325 billion bond without requiring another guarantee, using its earlier performance and credit history.

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What the arrangement achieved

The model helped channel domestic institutional capital into longer-term infrastructure financing.

It also demonstrated how a local-currency guarantee institution can address credit constraints while reducing dependence on foreign-currency borrowing for projects whose revenues are largely domestic.

Where the risk remained

• InfraCredit assumed defined guarantee exposure.
• Issuers remained responsible for repayment.
• Investors continued to carry risks not covered by the guarantees.
• The guarantee institution itself needed sufficient capital, risk controls and portfolio diversification to remain credible.

The model's long-term success depends on the financial strength of the guarantee provider and the continued development of creditworthy infrastructure issuers.

The strategic question: Can African economies develop enough credible domestic guarantee institutions, infrastructure issuers and institutional-investor capacity to finance a growing share of their own productive investment?

The case demonstrates the potential of local-currency credit enhancement. The reported mobilisation figures should not be confused with realised guarantee losses, net additional investment or independent proof of causal impact.

5. What the three cases reveal

The transactions are different, but together they expose the choices facing African governments and development-finance institutions.

The comparison reveals three important principles.

First, risk transfer is not the same as risk reduction.

A guarantee may transfer risk to a DFI or government without removing the underlying economic weakness.

Second, market-building is a stronger outcome than repeated transaction support.

A successful first transaction should create conditions for subsequent investments to require less concessionality and less external protection.

Third, domestic financial capacity is itself a development outcome.

The ability of African pension funds, banks, insurers and guarantee institutions to finance long-term productive investment should be treated as part of economic transformation.

6. The missing test: does development finance create additional value?

The question of additionality is central to the credibility of blended finance.

Development finance is scarce. It should not be used simply to improve returns for investors who would have financed a project anyway.

The OECD DAC Blended Finance Guidance 2025 calls for additionality to be assessed, documented and publicly disclosed at both transaction and systemic levels. It distinguishes between financing that makes a particular investment possible and financing that contributes to lasting market development.

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For African institutions, this should become a practical decision framework.

Four tests of additionality

1. The necessity test

Would the investment have happened without development-finance support?

If commercial capital was already available on reasonable terms, why was public or concessional support required?

2. The risk test

What specific risk was the instrument designed to address?

Was it construction risk, currency risk, political risk, counterparty risk, demand risk or another clearly identified constraint?

Was the instrument appropriately targeted, or did it absorb risks that investors could reasonably have carried?

3. The transformation test

Did the intervention create value beyond the individual transaction?

Did it develop domestic institutions, improve market confidence, strengthen local supply chains or enable future investment?

4. The exit test

What conditions would allow the development-finance institution to reduce its support?

A successful market-building intervention should not create permanent dependence on subsidised capital.

This is not an argument for withdrawing development finance prematurely. Some sectors and markets will require long-term public support. It is an argument for defining the intended role of that support and measuring whether it is producing the desired change.

The OECD guidance also emphasises targeted risk allocation, effective partnering and the importance of bringing local entities into financing structures where they can help reduce currency and other risks.

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7. What this means for African institutions

The financing challenge is not simply a question of finding another lender.

The African Development Bank's 2026 Mozambique Country Focus Report illustrates the scale of the structural problem.

The country requires approximately US$11 billion annually to meet its Sustainable Development Goals and Agenda 2063 commitments. Infrastructure needs are estimated at approximately US$6.4 billion annually, with a financing gap of around US$6.2 billion.

The report identifies domestic resource mobilisation, stronger public financial management, deeper financial markets and greater long-term private investment as central priorities. It also highlights the strategic potential of the Maputo, Beira and Nacala corridors.

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The implication extends beyond Mozambique.

A financing gap cannot be addressed sustainably by simply increasing borrowing. It requires a stronger system for converting public and private resources into productive investment.

Governments and finance ministries

Governments need a consolidated picture of their financial exposures.

This should include sovereign guarantees, PPP commitments, termination payments, state-owned-enterprise obligations, foreign-exchange exposures and other contingent liabilities.

Fiscal transparency should be treated as an investment condition, not an administrative afterthought.

Development finance institutions

DFIs need to demonstrate the additionality of their interventions.

They should identify the market failure being addressed, explain why the chosen instrument is appropriate, disclose the nature of the risk assumed and set out how the intervention contributes to long-term market development.

Commercial banks and institutional investors

African banks, pension funds and insurance companies need deeper opportunities to finance productive infrastructure.

Guarantees can support this process, but domestic investors should progressively develop the capacity to assess and price infrastructure risk themselves.

Regional institutions

Regional institutions need to connect infrastructure financing to cross-border trade, energy integration, logistics, industrial corridors and productive value chains.

An isolated asset may be commercially viable. A connected network of productive assets can change the competitiveness of an economy.

Enterprises and productive sectors

Financing must ultimately reach businesses, farmers, manufacturers, logistics operators and other productive actors.

Infrastructure that does not reduce the cost of production or improve market access risks becoming an asset without sufficient economic linkages.

8. Where the next investment opportunity lies

The greatest opportunity is not necessarily in creating more standalone financing products.

It is in connecting capital to productive ecosystems.

Several areas deserve strategic attention:

• Water and irrigation: investments that reduce agricultural vulnerability and improve reliable access to productive water.
• Storage and cold-chain infrastructure: systems that reduce post-harvest losses and connect producers to domestic and regional markets.
• Agro-processing: infrastructure that supports value addition, manufacturing and stronger local supply chains.
• Regional food and trade logistics: transport, border infrastructure and trade facilitation that improve the movement of goods.
• Local-currency finance: instruments that deepen domestic capital markets and reduce currency mismatch.
• Project preparation and institutional capacity: credible pipelines, sound feasibility work, procurement systems and accountable project management.

The strategic shift is from financing isolated assets to financing connected productive systems.

This also changes how projects should be assessed.

A cold-chain project should not be evaluated only by its construction cost, capacity and expected revenue. Its assessment should also consider the farmers it can serve, the markets it can connect, the losses it can reduce and the businesses it can enable.

The same principle applies to energy, transport, water and industrial infrastructure.

9. The leadership decisions that cannot be postponed

Africa's financing architecture needs more than additional capital. It requires stronger decision-making and accountability.

Five priorities should guide the next phase.

1. Make public exposure visible

Governments should publish consolidated information on guarantees, PPP commitments, termination payments and other material contingent liabilities.

The objective is to make public risk visible before it becomes a fiscal crisis.

2. Assign risk before financial close

Every major transaction should clearly identify who carries construction, currency, demand, operational, political and counterparty risk.

Risk should be assigned to the party best positioned to manage it, rather than automatically transferred to the public sector.

3. Make additionality demonstrable

Public and concessional support should be supported by a clear explanation of why the investment would not otherwise proceed on comparable terms and what additional development value the intervention creates.

4. Build domestic financing capacity

African pension funds, insurers, banks, capital markets and guarantee institutions should become increasingly important sources of long-term productive investment.

5. Connect financial commitments to delivery accountability

Every major project should have clearly identified institutions responsible for implementation, monitoring, maintenance and corrective action.

A financing agreement should not become a substitute for public accountability.

10. A practical measurement framework for African decision-makers

The financing architecture needs a more useful performance framework.

Instead of reporting only capital mobilised, governments and development-finance institutions should publish a more complete account of financial and development performance.

This framework would help decision-makers distinguish between a financing transaction that simply reaches financial close and one that produces a measurable economic contribution.

It would also improve the quality of public debate.

Citizens, investors and policymakers would be better positioned to understand not only how much capital was raised, but what obligations were accepted and what value was delivered.

11. Five questions African leaders should be asking

Before approving the next major resilience-financing arrangement, leaders should ask:

1. Who carries the loss after the next shock?

Have all public, private and institutional exposures been identified, including obligations that may not appear as conventional debt?

2. Who benefits from the protection?

Does the guarantee or subsidy create genuinely new investment, or does it mainly improve the risk-return position of existing investors?

3. Where does the economic return remain?

Do local enterprises, farmers, workers, financial institutions and communities capture a meaningful share of the value created?

4. What happens when support ends?

Will the project and its wider market remain viable, or will they continue to depend on guarantees and concessional finance?

5. Who is answerable for delivery?

Which institution is responsible for the economic outcomes, and what happens when the project fails to meet its commitments?

These questions should become part of the normal decision-making process, not an exercise conducted after a project encounters difficulty.

The decision before Africa

Africa's resilience challenge is ultimately a question of economic architecture.

The continent needs more investment, but it also needs financing structures that build domestic capacity, strengthen institutions and reduce the cost of productive activity.

Guarantees, blended finance, concessional capital and private investment will remain important. Their value, however, should be judged by what they make possible beyond the transaction itself.

A financing arrangement that protects investors while leaving public institutions exposed, local markets underdeveloped and productive sectors disconnected has not completed the transformation task.

A stronger arrangement would mobilise capital, allocate risk transparently, strengthen domestic financial institutions, improve productive capacity and progressively reduce the need for exceptional support.

That is the standard African decision-makers should demand.

Africa needs capital that does not merely absorb risk. It needs capital that helps transform risk into productive capacity, economic value and lasting resilience.

The next shock will test more than the financial strength of individual projects. It will test whether the institutions and financing structures built today have made African economies more capable of withstanding disruption.

The question is no longer only how much Africa can mobilise.

When the next shock arrives, will Africa be better equipped to withstand it—or will it discover that it financed protection for individual investments while leaving its underlying vulnerabilities intact?