September 01, 2024

Here’s how blended finance can help develop Africa

topic:	Sustainable Development
located:	Kenya, Tanzania
editor:	Bob Koigi

Blended finance has positioned itself as a powerful tool in addressing Africa’s complex development needs. By combining public or philanthropic funds with private capital, blended finance has been attracting investment into sectors crucial for sustainable development, such as agriculture, healthcare, education and energy, but are often perceived as too risky or unprofitable by private investors alone.

The blend typically includes a mix of grants, concessional loans, equity investments, and guarantees. Blended finance has significantly contributed to sectors that drive economic and social growth across the continent such as agriculture, infrastructure and energy. 

Africa’s infrastructure deficit is a significant barrier to economic growth and development. Reports indicate that the poor state of infrastructure cuts down national economic growth of African countries by two per cent each year and reduces business productivity by up to 40 per cent.

Blended finance is playing a pivotal role in bridging this gap. For example, the Africa50 Infrastructure Fund uses blended finance to mobilise private capital for large-scale infrastructure projects across the continent. This fund has supported initiatives such as the Lake Victoria Pipeline Project and the Nairobi Expressway in Tanzania and Kenya, which are crucial for improving water supply and transportation.

Access to healthcare remains a significant challenge in many African countries. Blended finance initiatives address this by supporting healthcare infrastructure, supply chains, and service delivery. The Global Fund, for instance, uses blended finance to leverage additional resources for combating diseases such as malaria, tuberculosis, and HIV/AIDS. By combining public funding with private sector investments, the Global Fund has expanded healthcare access and improved health outcomes across the continent.

Africa’s energy sector faces challenges related to both access and sustainability. Blended finance is facilitating the transition to clean energy sources by reducing the risk for private investors. Initiatives like the Africa Renewable Energy Fund blend public funding with private investment to support solar, wind, and hydro projects. This approach helps increase access to reliable energy and contributes to the continent’s climate goals.

Agriculture is a cornerstone of Africa’s economy but remains underfunded and underdeveloped. Blended finance is helping to address this by investing in agricultural technologies, infrastructure, and value chains. For example, the Alliance for a Green Revolution in Africa (AGRA) uses blended finance to support smallholder farmers through innovative funding mechanisms that combine grants with private sector investments. This support helps enhance productivity, improve food security, and create economic opportunities for players across the agricultural value chain from farmers, food processors and traders. 

While blended finance offers significant benefits, it is not without challenges. According to researchers, its shortfalls include the complexity of designing and managing blended finance structures, strong governance and accountability channels, and aligning investments with local development priorities.

To enhance the impact of blended finance in Africa, policymakers should develop clear, transparent policies that can improve investor confidence and attract more private capital.

There should be an investment in local expertise to enhance the ability of governments and institutions to design and manage blended finance projects effectively. Studies have shown that strengthening partnerships between public, private, and philanthropic sectors can create more effective and scalable blended finance solutions.

Image by Nina Stock.

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