Africa's development financing gap exceeds $1.3 trillion annually, according to the African Development Bank (AfDB), despite the continent remaining one of the fastest growing regions in the world over the past two decades.
In its 2026 African Economic Outlook report, the AfDB said Africa has recorded average real GDP growth of 3.8 percent annually over the past 20 years, but weak domestic resource mobilisation, a fragmented financial system and falling external financial flows are hindering the development financing needed to achieve the Sustainable Development Goals (SDGs).
The bank said Africa's revenue-to-GDP ratio declined sharply from between 23 percent and 30 percent in the 2000s to 16.2 percent in 2024, reflecting tax collections that have failed to keep pace with economic growth due to a narrow tax base, weak compliance, exemptions and limited taxpayer coverage.
The report also showed that household debt to the private sector averaged only 23.7 percent of GDP between 2020 and 2024, less than half the 51.9 percent recorded in Latin America and the Caribbean, underscoring the continent's weak financial intermediation capacity.
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“Beyond the financing gap, the issue is also about deploying capital effectively,” the report said, adding that Africa could access $1.43 trillion annually through stronger tax collections, improved public investment efficiency, reduced illicit financial flows and corruption, deeper capital markets, diaspora financing and expanded public-private partnerships.
The AfDB estimates that strengthened tax and non-tax mobilization alone could generate an additional $469 billion annually, while improved efficiency in public investment could save $299 billion annually.
The report highlights Africa's growing but underutilized institutional investment base, noting that pension funds, insurers and sovereign wealth funds collectively manage about $4 trillion of assets, with less than 2.7 percent allocated to infrastructure and productive sectors across the continent.
It said public-private partnerships remain a major opportunity for infrastructure financing, estimating that each additional dollar of public investment could attract about $1.40 in private capital.
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The Bank called for accelerated reforms to deepen Africa's financial systems through integrated capital markets, pan-African banks, climate finance and Islamic finance instruments under the proposed New African Financial Architecture for Development (NAFAD), which aims to mobilize over $4 trillion within Africa's financial ecosystem.
The report also highlights the newly launched African Credit Rating Agency as a potential tool to address alleged biases in sovereign risk assessment, which have increased borrowing costs for African countries.
While Africa's stock market capitalization is set to grow nearly sixfold in two decades to reach $1.2 trillion in 2024, equivalent to about 40 percent of the continent's GDP, activity is concentrated in South Africa, Egypt, Morocco and Nigeria.
The AfDB stressed the need to strengthen continental financing mechanisms, including the African Financial Stability Mechanism, to help countries manage debt refinancing risks, ease liquidity pressures and improve financial stability.
Despite financial constraints, the Bank maintained a relatively flexible growth outlook for the continent. West Africa's economy is projected to grow by 4.8 percent in 2025 and contract slightly to 4.7 percent in 2026 and 4.5 percent in 2027, supported by agricultural expansion, agro-processing, mining, hydrocarbons and continued infrastructure investment.
Nigeria and Algeria are projected to record real GDP growth of 4.1 percent in 2026, although Nigeria's growth is expected to slow to 3.7 percent in 2027, while Algeria's growth could reach 4.2 percent.
