Get audio access with any FP subscription. Subscribe Now ALREADY AN FP SUBSCRIBER? LOGIN

Get audio access with any FP subscription.

ALREADY AN FP SUBSCRIBER? LOGIN

For decades, the promise of development finance in Africa rested on a simple bargain: that capital from wealthy countries, channeled through aid budgets, multilateral banks, and private investors would unlock the continent’s economic potential. The formula shifted, but the underlying assumption held that external finance would lead, and Africa would follow.

That promise is now unraveling. Western aid budgets are shrinking, the United States has gutted its development finance ambitions, and European banks are retreating from the continent. China, too, is changing course, as private companies assume the role once filled by ambitious state lenders, shifting the model from state debt to corporate ownership. Africa is increasingly receiving capital on terms it did not set, in sectors it did not choose, through instruments it cannot control.

For decades, the promise of development finance in Africa rested on a simple bargain: that capital from wealthy countries, channeled through aid budgets, multilateral banks, and private investors would unlock the continent’s economic potential. The formula shifted, but the underlying assumption held that external finance would lead, and Africa would follow.

That promise is now unraveling. Western aid budgets are shrinking, the United States has gutted its development finance ambitions, and European banks are retreating from the continent. China, too, is changing course, as private companies assume the role once filled by ambitious state lenders, shifting the model from state debt to corporate ownership. Africa is increasingly receiving capital on terms it did not set, in sectors it did not choose, through instruments it cannot control.

This leaves the African Development Bank (AfDB) at a crossroads. The bank was designed to be the continent’s financial architect—mobilizing capital, derisking investment, and building the institutions that markets alone would not. In practice, it has instead operated largely as a project lender to sovereign borrowers. That model functioned tolerably when external aid and lending filled the gaps around it, but now those gaps have become chasms. The AfDB’s balance sheet is too small to substitute for the capital that is leaving, and its traditional sovereign-lending model was never built to mobilize private finance at scale. The bank can now continue business as usual, or it can reinvent itself.

The path forward for the AfDB is a wholesale approach: anchoring syndicated deals that pull commercial lenders into transactions they would not otherwise touch, channeling credit through African financial institutions, and making its capital conditional on reforms intended to break the sovereign-bank nexus. Done right, this would provide the institutional architecture for a continent to fund its own transformation on its own terms.

Development finance has long swung from one big idea to the next. The so-called big........

© Foreign Policy