Can South Africa and the AU make the G20 a key partner?

This week two seemingly unrelated Africa-focused events are taking place. First, the African Union (AU) will host the 8th Program for Infrastructure Development in Africa (PIDA) conference, and second, South Africa’s Presidency of the G20 – or rather the G21 as I believe it should be called now that the AU is part of the group – will begin. The reason they are related, however, is that these present an opportunity to put addressing Africa’s urgent infrastructure development needs high on the global agenda.

This is necessary. To achieve 2030 SDGs and the AU’s Agenda 2063, our own analysis of 13 African countries estimates a $108.9bn – $149.9bn annual financing gap for these countries to collectively build enough infrastructure to meet just the basic UN Sustainable Development Goals. By African Development Bank (AfDB) estimates, the continent needs about $86.7bn of external finance per year to achieve Agenda 2063 goals – 76% of which the AfDB say should target infrastructure, highlighting its huge impact on the continent’s resources.

Yet, in an upcoming report by our firm, analysing the top infrastructure financiers on the continent, we find that African governments themselves contribute about 38% of the continent’s infrastructure finance, making them the largest contributor, not external financiers. In addition, Africa’s own regional banks such as the AfDB, the Development Bank of Southern Africa, and the West African Development Bank contribute about 8% of the continent’s infrastructure finance.

Who is supporting African infrastructure?

That means that the continent itself funds about half of its own infrastructure. So, who else has been supporting African countries and institutions in infrastructure finance? Has the G20 played any role?

Given its own infrastructure-led development model, it won’t surprise many to know that of the G20, China has been the continent’s largest infrastructure development partner over the last 20 years. About $87bn or 8% of Africa’s external debt is currently owed to China, the bulk sourced as bilateral loans for infrastructure on the continent. African countries have been able to secure over half of Chinese loans from the China Export-Import Bank, the country’s only concessional lender. However, at least 30 other financial institutions in China have played a part in Africa’s infrastructure development, with funds sourced at both concessional and commercial rates.

After China, the Arab Coordination Group (ACG), represented by Saudi Arabia in the G20 has also been an important infrastructure financier in Africa. Five out of the 11 ACG institutions are state-owned, including the Saudi Fund for Development. Although Africa’s bilateral debt to the Kingdom stands at $12bn, African governments have sourced infrastructure finance through regional bodies Saudi Arabia contributes to such as the Arab Bank for Economic Development in Africa (BADEA), the Arab Fund for Economic and Social Development (AFESD), and the Organization of Petroleum Exporting Countries (OPEC) Fund for International Development. According to AfDB research, $2.2bn in infrastructure finance commitments has been made by the ACG.

After the ACG comes Europe. Africa’s collective debt to each European G20 bilateral lender is less than $15bn or just over 1% of Africa’s total debt, while debt to the European Union (EU) stands at about $1bn. For state-owned institutions, the European Bank for Reconstruction and Development (EBRD) has been the most important European infrastructure development partner for African countries – with recent commitments worth $345m, mainly targeting countries in North Africa.

Meanwhile, across the Atlantic, the United States remains the largest individual G20 economy, but plays one of the least prominent roles in Africa’s infrastructure development. US Foreign Assistance data shows that funding levels to African countries for “economic development” have ranged between $1bn – $2bn in the period 2012-2022. To put this in context, US finance for health and humanitarian assistance to Africa are each three times this much. Looking at Bretton Woods institutions, institutions the US is a significant shareholder, a reprioritisation of their global lending focus areas meant that infrastructure’s share of World Bank’s lending plunged from as much as 70% in the 1950s and 1960s, down to around 19% by the year 1999. With governance reforms, technical assistance, and social spending taking over as World Bank and IMF priorities, Africa’s infrastructure finance gap has been stretched further.

Three recommendations

So where does this leave Africa and its G20 infrastructure development finance agenda? I believe there are three primary takeaways.

First, more research is needed to ensure the G20 actually understand the infrastructure gap in Africa. While a G20 research mechanism already exists in the form of the Global Infrastructure Hub, but it covers just 15 African countries, and our analysis suggests that most of these estimates are based on old data and at the low end, not necessarily assuming that countries need to meet the SDGs or Agenda 2063. Thus, expanding its research portfolio to include all AU members and updating the data would reflect a more inclusive G20 membership and the collaborative partnership this multilateral body represents. As a low-hanging fruit, expanding the GI Hub should be high on South Africa’s G20 Presidency in 2025.

Second, the AU’s G20 partners must agree to take stronger steps to align with Africa’s development priorities. The fact is, PIDA is one of just six priority frameworks by the AU. G20 countries cannot on the one hand claim they are being helpful to Africa, especially regional integration and flagship initiatives such as the African Continental Free Trade Area, and on the other demonstrably ignore this priority through their financial decisions. Putting more money into concessional finance vehicles such as Export-Import banks or African multilateral instruments such as AfDB’s African Development Fund – due to be replenished in 2025 – will show the G20 is putting its money where its mouth is.

Third and last but not least, the AU’s G20 partners can and should be more innovative in their funding approaches to match Africa’s infrastructure finance needs, some of which are very specific to Africa, especially cross-border infrastructure. The G20 has an infrastructure working group, which has been studying cross-border infrastructure challenges, but several of their reports leave out Africa. Yet, there are opportunities for innovation when it comes to cross-border infrastructure. For example, as Paolo Gomes argued in an event our firm hosted back in 2022, a borrower’s club that pools risk for creditors could assure several multiples in returns for creditors in the medium to long-term.

Looking ahead, the AU’s second year in G20, as well as South Africa’s presidency of this pivotal coordination forum in 2025, are a key moment to prioritise Africa’s agenda for the continent’s urgent infrastructure development needs.