By Mounir Kpai, under the guidance of Kavazeua Katjomuise
Catalyzing Private Finance —To What End?
A decade after ‘Billions to Trillions’ took hold of the development finance agenda, the slogan has little to show for it. Narrowly focused on closing the highly publicized climate- and development-finance gaps, the Billions to Trillions approach centers leveraging international public finance to catalyze increased private investment. This approach aims to use tools like blended finance to ‘de-risk’ private involvement while orienting domestic regulatory environments toward attracting international investment. Only then would private capital be incentivized to scale investment in the developing world into the trillions. At first glance, this proposal sounds tempting. After all, less than 1% of the over $450 trillion in global net private wealth would meet the financing gap for the African Union’s Agenda 2063 and the UN Sustainable Development Goals (SDGs). Yet today, Billions to Trillions is widely accepted to have failed. Project derisking has not incentivized the promised scale of private financing, nor has the multilateral environment been conducive to expanding official development assistance (ODA) commitments needed for Multilateral Development Banks (MDBs) to catalyze private finance. Even the World Bank president called the initiative ‘unrealistic,’ while the group’s chief economist called it a ‘fantasy,’ pointing to the net outflow of $141 billion that private creditors extracted in debt service payments from the developing world since 2022.
Despite widespread discreditation, the logic behind this agenda—emphasizing private-sector mobilization through de-risking—remains a defining paradigm in development finance. By chasing funding gaps, however, we miss a more crucial question: How do we ensure that private financing targets Africa’s structural transformation and sustainable development, essential to both the 2030 Agenda for Sustainable Development and the African Union Agenda 2063? Moreover, financing is a means to achieve economic transformation and inclusive, broad-based growth. So far, it has failed to comprehensively tackle Africa’s persistent structural problems, notably the annual $88.6 billion lost in capital flight and the chronically low rates of domestic resource mobilization. If private financing is to be catalytic to development and help overcome Africa’s enduring dependence on raw material extraction, African national systems—anchored in local contexts and long-term visions—must embed financing within national development frameworks and regional industrial policies that center production, home-grown industry, and value addition.
De-risking and Disappointing Flows
The evidence is clear: Public funds have not unlocked private capital at the promised scale. The OECD reports that official development finance mobilized just $70 billion in private investment in 2023. Blended finance—one of the primary structuring methods for de-risking private investment by injecting public capital through grants, guarantees, and other financial instruments—equally fell short. It averaged $15 billion annually over the past decade, with blended deals in Sub-Saharan Africa peaking at just $6.5 billion in 2023. Despite the aim to crowd in private capital, blended deals remain largely publicly funded, with private investment accounting for just 38% in 2023. In practice, concessional public funds (such as grants) have mainly leveraged other public, non-concessional resources (such as development bank capital).
The results are worse when considering the uneven nature of investment. Globally, low-income countries with the most pressing developmental needs receive only 9% of mobilized private finance. A tough pill to swallow, considering almost half of Africa is low-income. Private capital instead flows to safety, as illustrated by the different rates of private capital mobilization per public dollar spent: $0.37 in low-income countries compared to $1.06 in lower-middle-income countries.
This reflects a basic reality. Investors search for predictable, lucrative, risk-adjusted cash flows. Just look at where the money continues to amass today: A decade after the Paris Agreement, finance for fossil fuel projects remains at over one trillion annually. Following this logic, de-risking attempts to make ‘development’ reap market-rate returns, competitive with typically profitable activities. The question is, at what cost? One cost may be finance’s avoidance of the very sectors most capable of delivering structural change, notably industry.
A Systemic Approach: Embedding Finance in Structural Transformation
Beyond the missing scale and uneven flow of investment, the deeper concern with an approach centered on de-risking private investment is that it diverts public resources away from long-term development and toward safeguards for investor returns on individual projects. When governments and DFIs prioritize investor confidence—ensuring payment stability and shielding portfolios from potential demand-, currency-, and political-risks—development strategy becomes confined to risk-management rather than structural transformation.
The consequences are dire. In one instance, a de-risked energy project contractually bound the Ghanaian state to purchase 90% of predetermined gas regardless of demand. The result is a bill of around $500 million annually or 0.7% of GDP for unused energy, posing a major fiscal threat according to the IMF. Similar guarantee-driven arrangements that strain limited fiscal capacities can be found across Africa.
Considering the continent’s historically subordinate integration into the global economy, Africa cannot afford a haphazard approach to development, especially industrialization. The problem is that de-risked projects are not embedded in long-term national development plans that coordinate public and private finance in line with sector-specific development priorities. Instead, these de-risked projects tend to unfold in isolation, as the impetus falls on private firms to initiate individual projects, driven primarily by bankability and returns. This is evident in the ‘safe’ sectors that typically attract blended finance in Sub-Saharan Africa, primarily financial services (41%) and infrastructure (37%). Isolated blended deals can surely yield localized gains. But without integration into national development frameworks, it is hard to imagine how they will create networks of diversified, mutually-reinforcing industries that underpin the competitive production systems of advanced economies.
Economists have long highlighted structural transformation—the transition from low- to high-productivity sectors, mainly manufacturing—as the key driver of economic growth. To initiate this, advanced economies pursue industrial policies that coordinate finance, trade, infrastructure, education, and innovation towards building diversified industrial bases with strong linkages across value chains. The spillovers expand employment, increase domestic savings, and strengthen state capacity to deliver social services. With industrial policy use quadrupling over the last 5 years (particularly in advanced economies), now is the time for Africa to integrate financing into its own industrial policies. To this end, the coordinated force of domestic and regional capital through national development banks, pension funds, and sovereign wealth funds could boost African ownership of industrial development.
Conclusion
The Billions to Trillions agenda successfully sold an alluring vision. It painted a picture in which derisking unlocks vast pools of private capital for development. In the process, it reshaped institutional priorities around de-risking isolated, ‘bankable’ projects. In the end, it delivered neither scale nor structural transformation. The task ahead is to embed all financing—domestic revenues, public investment, and private flows—within national development frameworks, including industrial policies that deliberately target structural transformation and build regional value chains. To this end, strong national systems capable of managing financial flows and domestic capital formation will be essential. Tools like the Integrated National Financing Frameworks (INFFs) are a significant step forward. The objective, then, is not simply to close the financing gap but to ensure private finance is aligned with nationally-coordinated project pipelines and specific sectoral goals. The emphasis on embedding financing within a coherent development strategy will determine whether Africa moves from extraction to transformation.
This article was written by Mounir Kpai during his internship at the United Nations Office of the Special Adviser on Africa, under the guidance and supervision of Kavazeua Katjomuise, Senior Economic Affairs Officer.