Cascading global crises, including COVID-19 and the war in Ukraine, has hit African economies hard. Reliance on foreign markets, volatile commodity exports, high debt and weak infrastructure have deepened the continent’s vulnerabilities. The report examines how African economies can strengthen resilience to trade risks caused by interconnected shocks across political, economic, energy, technological and climate fronts.
This article aims to shed light on these challenges, providing a comprehensive overview of the obstacles investors face in Africa. Africa’s economic future depends on addressing vulnerabilities and leveraging opportunities for regional integration and diversification. Improved infrastructure, financial systems and governance are vital to enhancing resilience, boosting intra-African trade and fostering sustainable growth.
Understanding Africa's Vulnerabilities
Using a new framework, the report analyses the continent’s vulnerabilities across six areas: economic, governance, connectivity, social, energy and climate. The report uses a new multidimensional framework to analyse vulnerabilities across six areas, highlighting how they are interconnected and amplify each other. Interconnected crises, including geopolitical conflicts, the pandemic and commodity price shocks, have disrupted supply chains, raised trade costs and hampered investment, aggravating Africa’s structural weaknesses and vulnerabilities.
Here's a breakdown of these vulnerabilities:
- Political: Coups, governance challenges and weakened democratic institutions
- Economic: High debt, trade imbalances and inflation
- Demographic: Rapid population growth and migration pressures
- Energy-related: Dependency on fossil fuels and limited renewable infrastructure
- Technological: Digital divides and under preparedness for disruptive innovations
- Climate-related: Extreme weather and dependence on climate-sensitive agriculture
For example, governance instability worsens economic conditions and deters investment. Since 1950, Africa has seen 220 of the world’s 492 coups attempts. Economic vulnerabilities like high debt levels further undermine stability. In 2023, nearly half of African nations had debt-to-GDP ratios above 60%, with many spending more government revenue on debt interest than on education or health.
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The Role of Trade and Investment
Between 2002 and 2023, Africa experienced strong economic growth, enhancing its appeal for trade and investment. From 2000 to 2010, the continent’s economy grew by 4.8% annually, outpacing the global average of 3.1%. Africa’s growth slowed to 3.1% between 2011 and 2020 but remained above the global average of 2.4%. However, this growth was closely tied to commodity price booms.
Over half of African nations depend on oil, gas or minerals for at least 60% of export earnings, leaving them vulnerable to volatile global markets. The 2014 commodity price downturn and the COVID-19 pandemic highlighted these vulnerabilities, severely impacting investment. Gross fixed capital formation - investments in physical assets like infrastructure - fell from 11.4% in 2014 to 4.8% in 2015. The pandemic caused a 4.1% contraction in 2020.
Macroeconomic risks, such as fiscal imbalances, further deter investment. In 2014, falling commodity prices led to an average fiscal deficit deviation - the gap between actual and planned deficits - of 2% of GDP across Africa. In 2020, pandemic-related spending and revenue losses pushed deficit deviations to 3.4%, underscoring how external shocks strain government revenues. The report calls for macroeconomic stability and fiscal reforms.
Intra-African trade remains one of the continents greatest opportunities but accounts for only 16% of its total trade. Over 50% of the continent’s imports and exports are tied to just five economies, all outside of Africa. Meanwhile, only 16 of 54 African nations source more than 0.5% of intermediate goods regionally, missing critical opportunities for value-added trade and manufacturing. Within Africa, a few major economies - Kenya, Nigeria, and South Africa - dominate as suppliers and users of value-added goods, leaving regional production networks vulnerable to disruptions in key markets.
Infrastructure Gaps and Trade Barriers
Strengthening and diversifying Africa’s trade networks is key to resilience, but infrastructure gaps - especially in transport and electricity - and non-tariff barriers hinder regional supply chains. For example, poor connectivity means road transport accounts for about 29% of the price of goods traded in Africa, compared to 7% for those traded outside the continent. Likewise, it costs less to trade within African regional blocks - for example, the East African Community - than across them. Technical requirements, inefficient customs processes and other non-tariff barriers restrict African trade three times more than tariffs.
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Despite these challenges, 61% of Africa’s regional exports consist of processed and semi-processed goods, highlighting opportunities for regional supply chain diversification. The African Continental Free Trade Area (AfCFTA) offers a pathway to reduce dependence on global markets and enhance resilience.
The report calls for reducing non-tariff trade costs, streamlining import and export processes, upgrading infrastructure and diversifying trade partners.
The Role of SMEs and the Business Environment
Improving the business environment is critical to building resilience in Africa. While the continent offers growing markets and high investment returns, businesses - especially small and medium-sized enterprises (SMEs) - face significant challenges. SMEs provide 80% of employment across Africa, but are particularly vulnerable to economic shocks.
In 2023, 32% of African firms cited limited access to financial tools as a major obstacle to growth. Currency volatility further strains small businesses reliant on foreign currency transactions. Energy dependency poses another major challenge. Over half of Africa’s energy supply relies on fossil fuels, leaving businesses vulnerable to volatile energy markets and risks during the global energy transition. In 2023, renewable energy investment in Africa totalled just $15 billion - only 2.3% of global renewable energy investment.
To help SMEs seize opportunities and drive economic transformation, African governments need to strengthen regional financial markets and enhance regulatory frameworks. Also, the 2023 adoption of the AfCFTA Protocol on Investment has created new opportunities for intra-African investment. That year, African investors financed 20% of international projects in services and manufacturing and 13% in resource-based industries.
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Success Stories and Policy Recommendations
However, countries like Botswana, Cabo Verde, Mauritius, Morocco, and South Africa show that resilience can be strengthened in Africa through stronger regulatory environments, connectivity, economic diversification and political stability.
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To foster sustainable capital formation and economic development in Africa, our report suggests policymakers should create favorable conditions for private equity and private debt investments, ensuring regulatory frameworks support long-term capital deployment. Governments should engage private investors in infrastructure and SME financing to alleviate pressure on public finances. Transparent and consistent financial regulations can increase investor confidence and reduce capital market fragmentation. Expanding digital financial services, such as mobile banking and fintech solutions, can democratize access to capital.
Sub-Saharan Africa: Growth and Challenges
Sub-Saharan Africa (SSA) is a highly diverse region that includes low-, lower-middle-, upper-middle-, and high-income countries. It also includes 20 fragile or conflict-affected countries and 13 small states with small populations, limited human capital, and constrained land area.
According to the latest regional economic update, growth in SSA is projected to rise from 3.3 percent in 2024 to 3.5 percent in 2025 and accelerate to 4.3 percent in 2026-27. An estimated 120 million Africans currently face acute food insecurity, 80 percent of whom live in conflict-affected countries. About 464 million people in the region were still living in extreme poverty in 2024. Expected per capita growth of 1.8 percent on average in 2025-27 will help reduce poverty only modestly. After peaking at 43.9 percent in 2025, the share of people living on $2.15 per day (2017 PPP) is projected to decline to 43.2 percent by 2027.
Africa can also lay the groundwork for more inclusive growth by investing in its people. Over the next three decades, the region will experience the fastest increase in working-age population of any region, with a net increase of about 740 million people by 2050. Up to 12 million youth will enter the labor market each year, yet only about 3 million new formal wage jobs are currently created annually.
Access to Global Capital Markets
African governments have long lists of investment ideas essential for improving living standards. Taxes, foreign and domestic investment, and foreign aid all fall short of the financing required to meet these investment needs. Ideally, there would be an abundant flow of long-term capital from, into, and among African countries that did not create any debt. However, this is not the reality. Rather than being viewed as a risk, access to these markets should also be seen as an opportunity to boost the region’s growth and development-especially as the sustainable development goals (SDGs) will fail if governments cannot access sufficient private capital.
Between 2007 and 2020, twenty-one African countries took the opportunity to access international debt markets, many for the first time. The instrument of choice has been eurobonds (foreign currency bonds issued in global financial centres). The stock of African eurobonds reached $140 billion in 2021, having provided governments with a financial boost to their investment in infrastructure, technology, and skills.
The cost of eurobond borrowing reflects market participants’ judgments on the quality of the bonds being issued. For sovereign bonds, this largely depends on the fundamentals, that is, how investors assess the issuing sovereign’s economic, political, social, and climate risks. There are also important market factors. Sentiment can shift quickly if a sovereign’s policies change, its economic outlook deteriorates, or even if something goes wrong in another part of the globe. This volatility, combined with the foreign currency risk and high cost of borrowing, can make eurobond borrowing hazardous.
Addressing Systemic and Policy Barriers
These systemic and policy barriers have been raised in several markets in sub-Saharan Africa. The research also discussed how the global shift from public to private capital markets involves risks that require careful management to support broader capital market development. One critical consideration is the role of international financial institutions and development banks in facilitating private market participation. By providing guarantees, co-investment structures, and risk mitigation mechanisms, these institutions can help de-risk private investments, making them more attractive to global investors.
Eurobonds and market access should remain part of most African countries’ financing mix, so that they can ensure the Sustainable Development Goals get the required financing.
Key strategies include:
- Tighter use of proceeds: Building systems for managing public investment are essential.
- Build a sustainable brand.
- Flexibility in bonds contracts: Simple tweaks to bond contracts could allow governments to repay bonds or push forward maturities in times of trouble.
- Provide parachutes: Instruments should be made available to help African countries if they are forced to issue in very bad markets.
- Rescue plan: A new scheme needs to be prepared and ready in the event of a shock that initiates a systemic debt crisis.
Access Bank's Role in Empowering Africa
During the first Access Bank Africa Trade Conference in Cape Town, South Africa, Seyi Kumapayi, Executive Director, African Subsidiaries at Access Bank plc, delivered a pressing message on the challenges which Access Bank is helping to solve for all stakeholders involved in trade in Africa in its bid to “connect the continent in trade”.
“Access Bank is at the forefront, pioneering financial solutions to try and see this growth through,” he said. In an interview ahead of the start of the conference, Kumapayi bemoaned the fact that, despite Africa’s 1.3bn population, trade between the continent and the rest of the world is only 3%, with intra-African trade accounting for only about 16% of the continent’s total trade. Access Bank is committed to change that: to ensure that “Africa starts to trade with itself”.
“We want to use our connections in and outside Africa and, working within the African Continental Free Trade agreement, to be a gateway between Africa and the world. We are working to bridge these glaring gaps to ensure we take intra-African trade to 30% to 40% over the next couple of years.”
The conference, with the theme “Empowering Africa through Trade, Innovation and Sustainable Growth”, brought together a range of stakeholders in the trade ecosystem to encourage discussion on trade solutions and strategies to expand markets in Africa. Delegates included small and medium enterprises (SMEs) and regional corporates, industry leaders, policymakers, importers and exporters, customs and government revenue agencies and trade financiers.
Kumapayi described the event as an opportunity to make connections, share insights, and to collaborate to solve Africa’s challenges and to seek opportunities to support intra-African trade.
The Three Challenges Identified by Access Bank
Turning to the challenge of access to capital, Kumapayi said many businesses across the continent are hamstrung because of an inability to access capital. The structure of capital is an obstacle, while the inhibiting cost of capital is often too high to enable businesses to engage competitively in business.
On access to information, Kumapayi said there are numerous businesses in Africa that do not have access to the information or business intelligence needed to make informed decisions about opportunities outside their national borders. He said the financial services sector and other stakeholders must make it a priority to share information and harness technology to ensure African businesses are able to analyse opportunities in other countries.
On the deficit of trust between trading partners, Kumapayi cited the numerous historic challenges between a number of countries in Africa, including a lack of reciprocity relating to regulations and a lack of uniformity in standards on the continent.
Kumapayi said Access Bank has always been committed to driving economic growth and fostering sustainable development across the African continent. “Our presence now spans 24 countries, where we play a crucial role in facilitating trade, supporting both corporates and SMEs, and empowering key demographics such as women and youth. This extensive footprint enables us to foster cross-border trade, offer tailored financial solutions, and stimulate job creation, thus contributing to the broader socio-economic development of the regions in which we operate.”
He added that Access Bank works closely with a number of Development Finance Institutions, such as International Finance Corporation, Africa Finance Corporation and the African Development Bank. Kumapayi said the conference was significant for the bank right now because Access Bank has built its business largely around trade.
Turning to Access Bank’s expansion strategy across the continent and its plans for the near future, Kumapayi said: “In line with our long-term vision, Access Bank continues to focus on expanding its capabilities across the continent. Between 2025 and 2027, our strategy will be centred on consolidating our market leadership by deepening relationships with our clients, enhancing our digital banking platforms, and expanding our services in key sectors such as agriculture, technology, and energy. We are also committed to continuing our support for women and youth empowerment, which remains a cornerstone of our corporate social responsibility initiatives.
The Entrepreneurial Landscape and Access to Capital
Across Africa, a burgeoning cohort of entrepreneurs is poised to address local challenges and scale up innovative solutions. However, securing adequate funding remains a significant impediment despite increasing investor interest and a dynamic entrepreneurial landscape. This funding shortfall is not merely a financial issue but is deeply rooted in structural factors, including policy constraints, risk perceptions, and institutional inefficiencies.
In 2022, African startups secured approximately $2.2 billion in funding, marking a 25% increase from the previous year (techpoint). However, this capital influx is concentrated in a few countries and sectors, leaving many regions and industries underfunded. Small and medium-sized enterprises (SMEs), which constitute approximately 95% of registered businesses and contribute approximately 50% of the total GDP of sub-Saharan African countries, continue to face funding challenges.
Barriers to Capital Access
- Complex Regulatory Environments: Entrepreneurs often navigate complex, inconsistent regulatory environments.
- Perception of Elevated Risk: Africa is frequently perceived as a high-risk investment destination because of factors such as political instability, currency fluctuations, and governance issues.
- Limitations of Traditional Banking: Conventional banking institutions in Africa tend to favor collateral-based lending, which poses a challenge for startups that lack substantial assets.
- Underdeveloped Capital Markets: Many African capital markets are characterized by low liquidity and limited instruments, restricting avenues for equity and debt financing.
Macroeconomic and financial instability can severely restrict access to capital. Zimbabwe illustrates how fragile macroeconomic fundamentals can severely restrict access to capital. In recent years, the country has experienced triple-digit inflation, with the Consumer Price Index peaking at over 191% year-on-year in mid-2022, according to ZimStat, Zimbabwe’s national statistics agency.
Despite the constraints, several African startups have successfully overcome capital barriers and scaled their operations. Flutterwave in Nigeria, a fintech company, raised over $170 million in 2021, reaching a valuation of over $1 billion. In Kenya, Twiga Foods raised $50 million to scale its agricultural supply platform, enhancing value chains and food access. These examples demonstrate the potential for startups to thrive when provided with access to capital.
Strategies for Overcoming Capital Barriers
- Diaspora investments: The African diaspora is a significant source of remittances, with over $100 billion flowing into the continent in 2024 (Afridigest).
- Development of capital markets: Efforts to deepen financial markets, such as creating SME-focused equity boards and regional bond markets, can expand financing options.
Africa’s entrepreneurial landscape is vibrant and holds immense promise. However, to translate this potential into tangible economic growth, the systemic barriers to capital access must be addressed.
Key Economic Indicators for Select African Countries
| Country | GDP Growth Rate (2024) | Inflation Rate (2024) | Debt-to-GDP Ratio (2023) |
|---|---|---|---|
| Kenya | 5.0% (Projected) | 7.5% | 68% |
| Nigeria | 3.0% (Projected) | 22% | 39% |
| South Africa | 1.2% (Projected) | 5.5% | 72% |
| Rwanda | 6.5% (Projected) | 6.0% | 45% |
| Zimbabwe | 3.5% (Projected) | Triple-Digit (Variable) | 75% |
