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Closing Africa’s Financing Gap

There is growing international recognition that the current shortfall in investment financing is a major threat to Africa's future. New investors, particularly private-sector debt funds, are needed to close the gap and realize the continent's enormous potential.

PARIS – Toward the end of 2018, the United States merged existing development agencies into the new US International Development Finance Corporation (IDFC). With a financing capacity of $60 billion in equity and debt – more than twice that of its predecessors – the new agency, which is scheduled to become operational by the end of this year, represents a major step in US development policy, particularly regarding Africa. It may also reflect rising global awareness that a huge investment-financing gap poses an existential threat to Africa’s future.

The continent’s potential is beyond doubt. Over the past two decades, Africa has entered a phase of structural change that is about to accelerate. Progressive – if uneven – political stabilization has allowed a number of African countries to rely less on raw-material exports and start becoming consumer economies. McKinsey, for example, forecasts that African consumer spending will increase by $645 billion between 2015 and 2025.

Yet massive challenges remain. The IMF recently forecast that Africa must create 20 million new jobs per year until 2035 – twice the current rate – just to absorb new labor-force entrants. This will require huge investment. But the three main existing sources of non-state financing in Africa are unable to meet these needs.

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