Foreign aid may be shrinking, but with fair pricing, smarter investments, and the AfCFTA’s financing innovations, Africa can finance its own future, and do so on its own terms, writes Mercy Randa, Founder and CEO of P&L Consulting Group.
On March 17, a Reuters alert caught my attention. That Sarasin, an institutional investor representing more than six hundred backers, had decided to sell its stake in the Norwegian energy giant Equinor. The reason given was simple: frustration with the company’s slow transition to green energy.
I wondered whether this was premature. Did the investors truly have all the information they needed to make such a weighty decision? After all, Equinor is at the center of Africa’s largest single foreign direct investment project, a US$ 42 billion liquefied natural gas development off Tanzania’s coast in Lindi. The project has faced delays, but the Tanzanian government has shown commitment completing the paperwork and commissioning production. From our operations in Tanzania, I knew the project was very much alive and that the administration was determined to see it through. That raised a bigger question: had the investors been swayed by incomplete or distorted information?
This incident was not just about climate concerns versus fossil fuel realities. It was a story about perception, and how flawed narratives can influence billion-dollar decisions with enormous consequences for citizens, investors, and governments alike.
Africa is Paying a Perception Premium
Contrary to common belief, Africa is not the riskiest region in the world for infrastructure investment. In fact, it is the least risky. A fourteen-year study by Moody’s Analytics covering more than eight thousand project finance loans between 1983 and 2018 revealed that Africa had the lowest default rate on infrastructure investments worldwide, at just 5.5%.
When Moody’s updated its analysis in 2020, the picture became even clearer: Africa’s default rate had dropped to 1.9%. By comparison, Eastern Europe stood at 12.4%, Latin America at 10.1%, North America at 6.6%, and both Asia and Western Europe at 4.6%. Put simply, African projects are repaid more reliably than many global investors assume.
And yet, despite this track record, African countries face borrowing costs that often exceed 10%, while high-income nations borrow at just 2-3%. This mismatch creates what can be called a perception premium. African borrowers are punished twice: once at the sovereign level, and again at the private sector level where companies peg their financing costs to sovereign benchmarks. Entrepreneurs in some markets end up paying interest rates as high as 18%, compared to just 4% in wealthier economies.
This distortion feeds a negative cycle. High borrowing costs suppress investment, which in turn weakens economies. Weaker economies struggle to meet obligations, which deepens the perception of risk. The cycle repeats itself, locking countries into a trap of high costs, shrinking fiscal space, and stalled development.
The impact is not abstract. It translates directly into the lives of citizens. When sovereign borrowing costs are inflated, governments have less to spend on schools, hospitals, and infrastructure. Roads, energy grids, and clean water projects that could unlock productivity are delayed or abandoned, while ordinary people pay higher taxes, tariffs, and service fees.
We can draw a vivid illustration from Uganda’s Bujagali Hydropower Project. Launched in 2007 to address crippling power shortages, the project was constrained by perceptions of high risk. Competition was limited to just two engineering, procurement, and construction bidders. With little pressure to deliver value, the winning consortium gained what the World Bank later described as “an inadequate negotiating advantage.” Costs spiraled, and Ugandan households were locked into higher electricity tariffs for decades. In this case, perception inflated costs and left citizens footing the bill.
Strong Frameworks Attract Genuine Competition
Another one that tells a similar story is the Mozambique’s US$ 20 billion dollar LNG venture with TotalEnergies. Approved in 2019, it was hit by a perfect storm of challenges. The insurgency in Cabo Delgado and the ‘tuna bond scandal’ were genuine risks. But those risks were amplified by exaggerated governance concerns and investor panic.
Financing costs shot up, and by the time the United States Export Import Bank stepped in with a US$ 5 billion package in 2025, hundreds of millions had already been lost through bribes, delays, and inflated costs. The burden fell on a country that is still among the poorest in the world.
Kenya’s experience with Independent Power Producer contracts dates back to the 1990s and 2000s. These agreements were designed to attract private investment into energy generation. Instead, opaque deals and inflated premiums locked the country into long-term commitments that have made electricity some of the most expensive in the region. For both factories and households, the squeeze has been real. Bills have risen not only due to fuel and foreign exchange shocks, but also because risk was priced far above actual fundamentals.
By contrast, South Africa’s Renewable Energy Independent Power Producer Procurement Programme, launched in 2011, shows what happens when transparency and predictability shift perception. Strong frameworks attracted genuine competition. With each round of bidding, tariffs fell, projects became more efficient, and electricity became more affordable. Here, correcting perception unlocked cheaper capital and better services for citizens.
The lesson is clear. Perception matters. When risk is exaggerated, projects are overpriced or stalled. When it is accurately assessed and properly communicated, capital becomes cheaper, projects are delivered more efficiently, and citizens benefit.
As aid flows recede, Africa cannot afford to let mispricing substitute for mismanagement. The African Continental Free Trade Area (AfCFTA) has taken on a new dimension in 2025, not only as a trade integration pact but as a continental financing proposition. Its latest framework emphasizes capital market harmonization, regional guarantee facilities, and pooled infrastructure funds designed to reduce sovereign risk premiums.
To put it into perspective, this means that a project in Lusaka, Lagos, or Lamu could draw financing on terms closer to Johannesburg or Cairo, anchored in a continent-wide backstop rather than fragmented national credit profiles. This is more than symbolism: it is a structural attempt to correct the “perception premium” that has kept African capital expensive. If implemented well, the AfCFTA’s US$ 3.4 trillion market can also become a de-risking instrument, enabling investors to treat African projects as regional opportunities rather than isolated country bets.
The Real Risk is Misperception
Investors too lose out if perception is left unchecked. By sitting on the sidelines, they miss opportunities in high growth markets where infrastructure investments have well-documented multiplier effects. Research shows that every dollar invested in efficient infrastructure can lift GDP by one and a half times within five years.
Crucually, African governments must strengthen governance, enforce contract transparency, and build institutional capacity. Investors must also refresh their models with real performance data rather than outdated narratives. Development finance institutions must bridge the gap, offering blended finance and risk-sharing mechanisms that draw in private capital on fairer terms.
Aid may be shrinking, but with fair pricing, smarter investment, and the AfCFTA’s financing innovations, Africa can finance its own future, and do so on its own terms. Governments must move with urgency, investors must look beyond the noise, and development finance institutions must play their catalytic role. Fixing risk misperception is not just about lowering borrowing costs. It is about unlocking Africa’s potential to grow, compete, and thrive on the global stage.
The real risk is not default. It is misperception. If Africa continues to be priced on outdated fears rather than actual performance, the cost will be borne twice: once in lost capital inflows and again in inflated tariffs and taxes for ordinary citizens. But if perception and reality can be brought into alignment, Africa can be seen not as a continent of risk but as one of opportunity.
Mercy Randa is the Founder and CEO of P&L Consulting Group, a Pan-African advisory firm working at the intersection of policy, capital, and communications to shape Africa’s growth story.
*The views expressed here are the author’s own and do not necessarily reflect the editorial stance of The Kenyan Wall Street
