Africa's Growth Story Runs Ahead of Its Financing
Strong quarters in Nigeria and a turnaround at Eskom point one way; borrowing costs and thin capital markets point another. The gap between them is the continent's central economic question.
Two data points from this week tell a story that is genuinely encouraging. Nigeria's economy grew 4.43% year on year in the second quarter. South Africa's Eskom reported a second consecutive profitable year, having spent a decade as the continent's most-cited example of state-owned failure.
Set against them is a structural problem neither quarter touches: the cost and availability of capital.
The financing gap
African economies borrow at rates that bear little relation to their actual default history. The consequences compound:
- Infrastructure projects that would clear a return hurdle in most markets do not get built.
- Governments spend a growing share of revenue on debt service rather than on health, education or capital investment.
- Domestic capital markets remain thin, so large projects depend on foreign currency borrowing — which converts an exchange-rate movement into a fiscal crisis.
Why the Dangote listing is a test case
Against that background, the N2.15 trillion IPO approved this week for Nigeria's Dangote refinery is more interesting than a single corporate event. It is an attempt to finance a strategic industrial asset through domestic capital markets rather than external creditors.
If it prices and absorbs, it demonstrates that domestic institutional money — pension funds in particular — can carry assets of that scale. That is the mechanism by which capital markets deepen anywhere: a few large listings that give institutions somewhere to put long-duration money.
The uneven picture
Aggregating a continent of fifty-four economies into a single narrative is the standard error in coverage of African growth. This week alone: Nigeria posted solid growth, South Africa's utility stabilised, Sudan's war continued to displace millions, and DR Congo confirmed a new Ebola case in territory its own government does not control.
All four are Africa. Only two of them are a growth story.
The measure to watch
Not the headline growth rate, but the spread African sovereigns pay over benchmark rates — and whether domestic listings like Dangote's start to offer an alternative to paying it.