The African Development Bank (AfDB) has warned that West Africa struggles with poorly mobilised, fragmented, and misallocated capital rather than a genuine shortage of funds. According to the West Africa Economic Outlook 2026 report, titled "Mobilising West Africa’s Development Financing at Scale in a Fragmented World," the region's financing gap reflects an intermediation failure where existing savings are not effectively converted into productive investment.
Structural Intermediation Failures Stifle Growth
The AfDB stated that gross capital formation in West Africa has stagnated at around 23% to 24% of GDP. This rate falls far below the average of over 33% seen in middle-income economies. The report noted that the gap is a measure of the region's structural inability to convert its own savings into productive capital, rather than an external shortfall awaiting donor funding.
Against a backdrop of higher global interest rates and elevated borrowing costs, international capital markets have become increasingly expensive. The AfDB urged West African nations to rely more heavily on domestic capital to fund their development goals.
Four Policy Levers to Mobilise Domestic Capital
The bank identified four key policy levers to address the financing challenge. First, countries must broaden their tax bases and rationalise tax expenditures. The report highlighted that Senegal foregoes 4.2% of GDP and Côte d’Ivoire foregoes 2.9% of GDP annually in tax expenditures, while digital tools like Nigeria's TaxPro-Max have shown measurable gains.
Second, resource-rich economies must transparently harness natural capital rents through sovereign wealth funds in Nigeria, Ghana, and Senegal. Third, governments need to formalise the informal sector, which accounts for 91.6% of regional employment.
Finally, the AfDB advised redirecting domestic institutional savings, such as pension assets and insurance reserves, away from short-dated government securities. These funds should go toward productive long-term investments, supported by regional capital market integration through the BRVM and the planned West African Securities Market Integration Council.
Public Investment Efficiency Gap Widens
The report flagged significant inefficiency in public spending across the region. Africa's average public investment efficiency score stands at 0.59, meaning that $41 of every $100 of public spending fails to translate into productive capital. This efficiency gap is far above the global average of 14%.
These findings align with concerns from Nigeria's 4th Gender Impact Investment Summit held earlier this year, where stakeholders warned of a $6.75 billion financing gap limiting capital access for women, youth, and persons with disabilities.
