Portfolio Manager Pranav Khamar on why Africa's financing gap is one of private credit's most overlooked and compelling frontiers

<p>Africa may not be the first region on the list of allocators contemplating an allocation to emerging market private credit. In our latest study of 250 institutional investors examining the opportunities and risks in EM private credit, just 28% rate the continent attractive over the next two years – behind Asia at 80%, Latin America at 62% and Central and Eastern Europe at 53%.¹ Among North American investors, the figure is just 18%. Africa is the only emerging region in the survey that more investors rate unattractive than rate it attractive.</p><p>Yet sentiment towards Africa is at odds with what data tells us. Africa has the largest structural financing gap of any emerging region, the fastest population growth on the planet, the mineral base the energy transition depends on and default and recovery statistics that compare favourably with other emerging markets and even many developed markets. Arguably nowhere in private credit is the disconnect between perceived risk and underlying opportunity more pronounced than in Africa.</p><p><br></p><h2 style="margin-left: 0" data-pasted="true">Closing the gap</h2><p data-pasted="true">African infrastructure needs US$130-170 billion of investment a year, against which the annual financing gap is estimated to be between US$68 billion and US$108 billion.³ These figures highlight that there is a massive shortage of capital available to finance potentially productive and collateral-backed assets, the type of assets that private credit is well-placed to fund.</p><p>Domestic capital cannot close the gap alone. Africa’s domestic banks lack the balance-sheet capacity to finance long-dated infrastructure, while international development finance can address only a fraction of the need.³ This creates room for institutional private capital and reflects a key finding in our study: 62% of investors globally believe strong economic growth within emerging markets will create demand for finance that local banks cannot provide. In Africa, that dynamic is pronounced.</p><p>Demand should prove durable because of demographics and economic tailwinds. Africa's urban population is set to double to 1.4 billion by 2050, making it the world's fastest-urbanising region at around 3.5% a year; by mid-century, the continent is expected to have 159 cities of more than a million people and 17 megacities.⁴ The International Monetary Fund, meanwhile, expects sub-Saharan Africa to grow at an annualised rate of 4.6% between 2026 and 2031, against 1.6% for advanced economies and 3.8% for China.⁵ If capital follows growth, Africa could be a major beneficiary.</p><p><br></p><h2 style="margin-left: 0" data-pasted="true">Mispriced risk</h2><p data-pasted="true">In our study, investors ranked fraud and corruption, lack of legal protection and default risk among the biggest barriers to increasing their EM private credit allocations. While caution is warranted, it should not automatically lead to a blanket discount that is unsupported by data, especially as it can be mitigated through effective structuring. This is particularly important to emphasise given that the competitive dynamics we see on deals in Africa tend to be quite supportive of robust underwriting standards.</p><p>Take credit risk, for example. Moody's Analytics, drawing on a database of 6,389 infrastructure projects worldwide, found that sub-Saharan Africa had among the lowest infrastructure default rates globally at 2.7% – below every other region apart from the Middle East (see Figure 1).⁶ The European Investment Bank's (EIB) default and recovery statistics, covering four decades of sovereign and sovereign-guaranteed lending, put the African default rate at 0.99%, comparable to Asia and North America and lower than Latin America.⁷ Just as striking is what happens when loans default: the EIB reported an average recovery rate on African exposures of 95.8%, higher than Asia at 86.6% and Europe at 88.4%.⁷</p><p><strong>Figure 1: Average default rate of infrastructure projects by region (per cent)</strong><br><img loading="lazy" src="/getContentAsset/a4e458c0-725d-419d-afbf-20e1467d36e9/cb87803a-320c-480f-ab75-7b9029eaaf79/average-default-rate-of-infrastructure-projects-by-region.png?language=en" alt="average-default-rate-of-infrastructure-projects-by-region" title="average-default-rate-of-infrastructure-projects-by-region" style="width: 100%" class="fr-fic fr-dib fr-fil"><em>Source: Moody’s Analytics, ‘Infrastructure default and recovery rates, 1983-2022,’ December 12, 2023.</em></p><p data-pasted="true">Credit quality is also on an upward trajectory. S&amp;P upgraded seven African sovereigns in 2025 on the back of improving growth and reform momentum, and half of corporates and financial institutions are rated BB or above.⁸ GCR Ratings, a Moody's affiliate, puts the ten-year average three-year cumulative default rate for African BB corporates at 1.58% and for BBB credits at 0.11%, figures that would not look out of place in developed markets.⁹&nbsp;</p><p>While this does not mean African credit is risk-free, it at least highlights that the risk is quantifiable, has been measured over decades and has proven consistently lower than perceptions that have influenced allocation decisions.</p><p><br></p><h2 style="margin-left: 0" data-pasted="true">Commercial, not concessional</h2><p data-pasted="true">Africa is seen as a prime destination for development finance – a place capital goes to do good, with returns a secondary consideration. But we see a clear investment case based on commercial grounds. The energy transition is an obvious example. Africa holds close to 60% of the world's best solar resources,^10&nbsp;with solar and wind capacity forecast to grow 600% as the continent builds out renewable power generation at scale.¹¹ Meanwhile, universal electricity access on the continent could unlock an estimated US$500 billion in GDP.¹²&nbsp;</p><p>In our study, 67% of institutional investors cited energy and renewables among the most compelling themes in EM private credit, with 70% viewing it as the best return opportunity among sustainability themes. Financing this build-out has a strong commercial rationale that also happens to carry potential development benefits.&nbsp;</p><p>The continent’s natural resource wealth reinforces the point. Africa holds roughly 30% of the world's known mineral reserves, including large shares of cobalt, manganese, platinum-group metals and rare earths on which the energy transition depends;¹³ Sub-Saharan Africa alone accounts for around a quarter of global graphite resources.¹⁴ The continent is also beginning to move up the value chain rather than simply exporting raw minerals: in May 2025, Namibia opened Africa's first industrial-scale green iron facility, powered entirely by renewables.¹⁵&nbsp;</p><p>Yet Africa attracts less than 10% of global mining exploration spending, highlighting a clear disconnect between geological potential and capital allocation.¹⁶ Digital connectivity follows a similar pattern, with around US$100 billion of investment needed for Africa to reach universal broadband by 2030.¹⁷ We see each of these themes as providing asset-backed, cashflow-accretive opportunities.</p><p><br></p><h2 style="margin-left: 0" data-pasted="true">The smart money is already there</h2><p data-pasted="true">One of the strongest arguments for investing in Africa comes from allocators who know it well. While only 28% of global allocators rate the continent as attractive, the figure rises to 57% among Middle Eastern institutional investors.^&nbsp;Their conviction reflects proximity and capital flow: GCC states have invested more than US$100 billion in Africa over the past ten years, with the UAE alone committing US$59.4 billion.¹⁸&nbsp;</p><p>There is also a large pool of domestic capital that can be put to work. African pension funds, insurers and sovereign wealth funds hold around US$1.1 trillion in assets, part of a domestic savings pool that exceeds US$4 trillion.¹⁹&nbsp;</p><p style="margin-left: 0">The financing gap is vast and structural. Growth outpaces most other regions. Credit quality is higher than many investors assume, while the continent’s resource base is indispensable to the global energy transition. Markets rarely offer such a large disconnect between perception and reality. For investors willing to look beyond the headline risks, the opportunity may not lie in waiting for Africa to be re-rated, but in deploying capital while the gap between perception and reality persists.&nbsp;</p><p style="margin-left: 0"><br></p><p style="margin-left: 0" data-pasted="true"><strong>References</strong></p><p data-pasted="true">^1&nbsp;Gemcorp Capital, Gemcorp Emerging Market Private Credit Study 2026: From Conviction to Capital, June 2026. All figures are drawn from this source unless otherwise stated. <em>No statement in this text, including any references to specific securities, assets classes and/or financial markets is intended to or should be construed as investment, legal, accounting, business or tax advice.</em></p><p>^2&nbsp;International Finance Corporation, MSME Banking in the Digital Era, September 2025.</p><p>^3&nbsp;African Development Bank, Infrastructure Demand Boosts Investment Opportunities, March 2025.</p><p>⁴ OECD / African Development Bank / UCLG Africa, Africa's Urbanisation Dynamics 2025, March 2025; UNECA, Africa's Urban Boom, 2025.</p><p>⁵<strong>^&nbsp;</strong>International Monetary Fund, World Economic Outlook, April 2026.</p><p>^6&nbsp;Moody's Analytics, Infrastructure Default and Recovery Rates 1983-2022, December 2023.</p><p>^7&nbsp;European Investment Bank, Default and Recovery Statistics 1984-2024, October 2025.</p><p>^8&nbsp;S&amp;P Global, Africa Credit Rating Trends 2025 in Review, February 2026.</p><p>^9&nbsp;GCR Ratings, Transition and Default Study Africa, February 2025.</p><p>^10&nbsp;International Energy Agency, Renewable energy in Africa, 2025</p><p>^11&nbsp;Wood Mackenzie, Asset Rich, Energy Poor, November 2025</p><p>^12&nbsp;Boston Consulting Group, Universal Electricity Access in Africa, August 2025.</p><p>^13&nbsp;African Development Bank, Natural Resources Action Plan, February 2025.</p><p>^14&nbsp;International Energy Agency, Global Critical Minerals Outlook 2025, May 2025.</p><p>^15&nbsp;Namibia Green Hydrogen Programme, Namibia Inaugurates World's First Green Iron Plant, August 2025.</p><p>^16&nbsp;BDO, Annual Mining Report 2026, February 2026.</p><p>^17&nbsp;World Bank, Broadband for All, April 2024.</p><p>^18&nbsp;Chatham House, Gulf Investment in Africa: opportunity, asymmetry and the risk of dependence, June 2026.</p><p>^19&nbsp;Africa Finance Corporation, State of Africa's Infrastructure Report 2025, 2025.</p>