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How Sub-Regional Development Banks(SRDBs) Can Contribute to the Development Financing Needs of African Countries
According to African Economic Outlook 2024, African countries need to close an annual financing gap of about US $ 402 billion before 2030 to fast track its structural transformation and catch up with high-performing countries in key Sustainable Development Goals(SDGs) such as education and energy.
African countries continue to grapple with critical development challenges and the adverse effects of climate change.
According to African Development(AFDB) 2021, Africa continues to receive a smaller share of global climate finance disbursement compared to other regions and the amount of funding received to both mitigate and adapt to the climate crisis remains below the estimated needs of the continent.
While efforts from the World Bank and other Multilateral Development Banks(MDBs) to address both under-development and climate change cannot be denied, there is a need for African countries to look inward. Most borrow-led Sub-Regional Development banks are based in Africa and have been making significant micro-level impact.
This will not only reduce over-reliance on the World bank and other MDBs but also help in closing the financing gap by meeting the overwhelming development needs of African countries.
But, how can these SRDBs mobilize funds to contribute to the development financing needs of African Countries?
The cheat sheet; Chasing Capital: African Sub-Regional Development Banks in Focus. Our recently released report on the sidelines of the Finance in Common Summit(FICS) in Capetown, South Africa, provides insights on how SRDBs can mobilize resources to fund development and climate change in African countries.
Here are 5 key recommendations to help SRDBs mobilize funds for development and climate finance:
- Strengthening Capitalization and Credit Ratings.
Diversification of Shareholding:
Banque de Développement des États de l’Afrique Centrale(BDEAC) and ECOWAS Bank for Investment and Development (EBID) should attract institutional investors and pension funds to stabilize their capital bases.
West African Development Bank (Banque Ouest Africaine de Développement, (BOAD) could expand its shareholder base beyond UEMOA (West African Economic and Monetary Union) nations to include Gulf countries and China.
Hybrid Capital Models- • BOAD could issue hybrid bonds, similar to AfDB’s $2 billion sustainable hybrid capital instrument launched in 2022.
Credit Rating Improvement- AfDB or World Bank guarantees could help SRDBs secure better ratings and reduce borrowing costs.
2. Expanding Debt and Climate Finance
Dedicated Climate Financing Facilities- BOAD and TDB should co-finance climate adaptation projects with MDBs and bilateral donors.
Accreditation to Global Climate Funds-EBID and BDEAC must gain direct access to the Green Climate Fund (GCF) and Adaptation Fund.
Sovereign Guarantees for Green Projects- Governments should provide credit enhancements to enable SRDBs to issue green bonds at competitive rates
3. Strengthening Market Access for SRDBs
Issuance of Thematic Bonds- BOAD and TDB should expand their green bond programs, following AfDB’s $10 billion sustainable bond initiative.
Regional Infrastructure Bonds- SRDBs should create a joint infrastructure fund backed by governments and private investors.
Risk-Sharing Mechanisms- SRDBs should seek risk-sharing facilities from AfDB to reduce borrowing costs.
4. Increasing Collaboration Between SRDBs and Global Partners
Co-Financing with AfDB and World Bank- SRDBs should secure co-lending arrangements with AfDB, World Bank, and EIB to scale up funding.
Leveraging the African Continental Free Trade Area (AfCFTA)-TDB and EBID should prioritize trade finance programs supporting cross-border investments under AfCFTA.
5. Institutional Governance and Policy Reforms
Enhanced Transparency and Risk Management- SRDBs must adopt stronger governance frameworks to build investor confidence.
National Policy Alignment- Governments must harmonize financial regulations to facilitate better investment flows through SRDBs.
SRDBs play a critical role in financing development and climate change in Africa, yet their full potential remains untapped. Discover how these banks can bridge Africa’s financing gap and drive sustainable progress in our latest report.