The Africa Finance Corporation (AFC) has called on African governments to shift their focus inward and harness the vast $4 trillion in capital held domestically by institutional investors to fund critical infrastructure projects.

According to the AFC, this substantial pool includes approximately $455 billion in pension funds and another $150 billion held in sovereign wealth funds.

When combined with commercial bank assets and foreign currency reserves, the total investable domestic capital available on the continent reaches a staggering $4 trillion.

With Africa’s population and economies expanding rapidly, the need for investment in infrastructure sectors such as railways and power generation is urgent.

However, traditional funding sources like foreign direct investment and official development assistance are falling short of meeting the continent’s growing infrastructure demands, Reuters reported.

African governments are increasingly constrained as rising interest payments consume larger shares of national budgets, making it harder to allocate funds for development projects.

At the same time, shrinking donor budgets and growing protectionist policies in advanced economies are further restricting the flow of external funds.

Despite this vast capital, much of it remains idle or invested in short-term, liquid assets due to restrictive legal frameworks.

The AFC highlights that “legal and regulatory hurdles remain,” with many countries lacking the regulatory clarity and financial instruments necessary to redirect pension fund investments toward long-term infrastructure projects.

This regulatory vacuum stands as one of the largest barriers to mobilizing domestic capital at scale.

Only a handful of African nations, including South Africa, Nigeria, and Kenya, have made strides in aligning domestic savings with infrastructure needs.

For example, Nigeria’s pension fund exposure to infrastructure has increased from less than 0.02% to 1% of total assets since 2017, yet this progress remains modest.

To fully unlock this potential, the AFC advises African governments to modernize the large informal sectors of their economies, which are largely untaxed and unregulated, and to reform pension fund regulations to allow for greater investment in long-term infrastructure projects.

Without these reforms, the continent risks leaving trillions of dollars in domestic capital untapped, while its infrastructure deficits continue to hinder economic growth and development.