Africa’s infrastructure development faces a major obstacle: the expense of borrowing. Nigeria’s finance minister, Taiwo Oyedele, stated during a United Nations climate finance dialogue that steep financing costs, currency risks, and what he described as a “prejudice premium” are complicating efforts to fund transport, energy, and housing initiatives. These extra expenses—often tied to risk perceptions rather than project feasibility—drive up capital costs, reducing the number of economically justifiable projects.
Financing issues extend beyond mere capital shortages. Infrastructure projects, such as roads, power grids, or water systems, demand long-term funding to cover decades-long construction and repayment periods. However, most available financing options are short-term or carry high interest rates, making many projects unworkable before they begin. Oyedele noted how this mismatch between project lifespans and financing terms creates a damaging cycle: raised borrowing costs reduce investor interest, which further restricts access to affordable capital.
The impact of these challenges extends far beyond construction sites. In Nigeria, widespread energy shortages hinder industrial growth and increase business costs. Insufficient transport links turn potentially viable land into undevelopable areas. Even in Lagos, where rail expansions have lifted property values near stations, broader market challenges persist due to financing gaps. Research cited in Oyedele’s remarks indicates Lagos requires about ₦6 trillion in fresh capital annually to keep pace with its housing needs. That figure illustrates why government revenue alone cannot meet the capital requirements of large-scale urban development.
Property developers encounter two primary difficulties. First, high infrastructure costs inflate land prices in well-connected areas while making underdeveloped locations harder to finance. Second, financing structures often fail to align with the lengthy payback periods typical of residential or commercial projects. For example, a housing development may need 20 years to recover infrastructure investments, yet lenders typically demand repayment within five to ten years. This mismatch forces developers to either absorb higher costs or abandon projects entirely.
The “prejudice premium” Oyedele mentioned adds another complication. African projects frequently face raised borrowing rates not due to their fundamentals but because investors view them as riskier because of currency fluctuations, political instability, or regulatory uncertainty. These additional costs, sometimes called “narrative costs”, can add millions to project budgets, making financing even more difficult to secure. The result is a self-sustaining cycle: fewer projects get built, reinforcing risk perceptions, which then raises costs further.
African leaders demand long-term climate finance
Oyedele’s comments came during a United Nations session focused on climate finance, where African leaders have repeatedly urged better access to long-term, concessional funding. The continent’s energy sector, in particular, faces a critical choice: without affordable capital, millions will continue without reliable electricity, and industrial and commercial expansion will remain stifled. The minister argued that financing structures must adapt to the realities of developing economies, offering terms that match the scale and timeline of infrastructure needs rather than imposing rigid conditions that render projects unfeasible.
The connection between infrastructure financing and property markets is straightforward. Improved transport, power, and water networks can unlock new development zones, but only if construction costs do not make projects unprofitable. In Lagos, for instance, rail-linked areas have seen rental yields increase. Private investors must balance risk-adjusted returns with the need to keep infrastructure costs manageable for end-users.
A key detail: Nigeria’s Central Bank recently reduced its benchmark interest rate to 23%, but commercial lending rates remain near 30%. The gap reflects additional risk premiums banks apply to infrastructure and property loans, worsening the financial strain on developers. The disparity between policy rates and real borrowing costs highlights how deeply embedded the financing problem is.
Patient capital needed for Africa’s infrastructure
Oyedele’s call for “patient capital”, funding that can remain invested for decades, points to a systemic issue. Most infrastructure assets take years to generate returns, yet traditional lenders prefer shorter investment horizons. Development finance institutions and institutional investors, such as pension funds, could help bridge this gap, but only if regulatory frameworks and currency-risk tools improve. Without these changes, high capital costs will continue limiting Africa’s ability to build essential infrastructure.
The financing challenge is not limited to Nigeria. Across Africa, nations face similar constraints in sectors like transport, energy, and water. Oyedele’s appeal for long-term capital aligns with broader regional needs, where projects often encounter the same structural barriers. While development banks, including the African Development Bank, have provided concessional loans, these remain insufficient to meet demand. Private sector involvement is essential, yet high borrowing costs and currency risks discourage many institutional investors from committing to long-duration projects.
Energy sector faces worst financing crisis
In the energy sector, the financing gap is especially severe. Oyedele stressed the need for investment in natural gas and other transitional energy sources to address this deficit while supporting economic growth. Stable electricity is not merely an energy concern; it directly affects property markets, industrial output, and commercial operations. Data centers, manufacturing plants, and residential developments all require consistent power to function efficiently. Without affordable financing for grid expansions and renewable projects, the continent risks sustaining cycles of energy poverty and underdevelopment. The minister’s advocacy for patient capital reflects the reality that energy infrastructure, such as solar farms, gas pipelines, or hydroelectric dams, takes years to deliver returns, yet lenders often demand faster repayment.
