REPORTS

This report investigates and develops the functional underpinnings for the concept originating from the African Development Bank (AfDB) of an innovative currency convertibility mechanism that leverages the natural resource endowments of African countries.
 

Africa requires significant financing for development and growth initiatives, especially if the pace of achieving these goals is going to be accelerated. According to the AfDB’s Ten-Year Strategy1 Africa will need to prioritise its investment into key Sustainable Development Goals (SDGs), including education, energy, infrastructure, and productivity to fast-track its structural transformation. To invest strategically in these areas would require closing a total funding gap of just over $400 billion2 per year, which will be challenging, given Africa’s fiscally constrained environment.

The continent currently accounts for only 3% of global energy investment, and a mere 2%3 or around $40 billion, of the world’s spending on clean energy in 2024. This pales in comparison with India or Latin America, where clean energy investments are estimated at around $70 billion in 2024 each, and far behind China’s estimated investment of $675 billion.

The AfDB, in its Ten-Year Strategy, estimates that Africa would require a total investment of around $200 billion4 each year to 2030 to achieve only SDG 7 goals - access to affordable, reliable, sustainable, and modern energy. In line with SDG 7, the African Development Bank is partnering with the World Bank Group and others on an initiative known as Mission 300, which aims to connect 300 million people to electricity in Sub-Saharan Africa by 2030. This goal also aligns directly with one of the AfDB’s high-5 operational priorities, namely Light up and Power Africa. Raising the required financing would be a substantial increase from the current level of around $90 billion5, and meeting this challenge would require a combination of financing sources including IFIs, international lenders, local lenders, investors and developers. In addition, it should be noted that undue reliance on financing using Hard currency such as USD or EUR has proven to be unsustainable.

African countries must maintain urgency to progress along their unique development pathways in a sustainable manner. To do so, the continent could pool its natural resources to allow the leveraging of these pooled resources to raise financing for its much-needed investment in energy and other developmental infrastructure. This would necessitate a shift in Africa’s project-financing paradigm.

Developing innovative financing mechanisms to narrow the funding gap while simultaneously leveraging the natural resource wealth of Africa would assist in accelerating Africa’s development agenda. It would also encourage African countries to develop their resource sectors and increase the benefits accruing from their resource endowments through gaining greater global influence and control in these markets.