The Pitfalls of Private Sector Investment in Infrastructure Financing

The briefing argues that while private sector financing is often promoted to bridge Africa's infrastructure deficit, it carries significant risks including higher costs, a lack of development mandates, and extreme risk aversion. It suggests that public funds should be strategically targeted toward social infrastructure and project preparation where private interest is low, while emphasizing the need for capacity building to prevent exploitation and improve project quality.

• Private sector financing is significantly more expensive and offers less favorable terms than other sources. Interest rates for private loans typically range from 15–25% with maturities of seven to nine years, whereas bilateral loans range from 2–5% and multilateral development bank (MDB) loans range from 1–2.5% with maturities of 25–40 years.
• Private financiers prioritize profit over development impact and often ignore sustainable development goals such as job creation, gender mainstreaming, and local procurement. Evidence from South Africa's Renewable Energy Independent Power Producer Procurement Programme (REI4P) showed that developers found economic development criteria too onerous, although projects remained profitable as wind and solar tariffs dropped.
• Private investors are highly selective and risk-averse, focusing on 'economic infrastructure' (ICT, renewable energy, and transport) and 'brownfield investments' that provide immediate cash flows. They generally avoid 'social infrastructure' (healthcare and education), regional projects, and the early stages of project preparation, which can take up to 10 years and cost 5% to 15% of total project costs.
• A lack of domestic technical, governance, and legal capacity in African countries increases the risk of exploitation by private investors. Specific examples include poor quality infrastructure due to weak standards enforcement, debt distress in Mozambique caused by poor transparency and debt management, and an unfavorable long-term public-private partnership contract in Lesotho due to insufficient legal capacity.
• To enhance African agency, the document recommends that capacity development be treated as a core component of loans rather than an add-on. Additionally, it suggests a 'piecemeal' approach to private finance, where public funds are specifically leveraged for social infrastructure and project preparation stages where private interest is scant.

APA

South African Institute of International Affairs (2019). The Pitfalls of Private Sector Investment in Infrastructure Financing. https://saiia.org.za/research/the-pitfalls-of-private-sector-investment-in-infrastructure-financing/

Chicago

South African Institute of International Affairs. The Pitfalls of Private Sector Investment in Infrastructure Financing. 2019. https://saiia.org.za/research/the-pitfalls-of-private-sector-investment-in-infrastructure-financing/.

Wikipedia

{{cite report |author=South African Institute of International Affairs |title=The Pitfalls of Private Sector Investment in Infrastructure Financing |date=25 June 2019 |url=https://saiia.org.za/research/the-pitfalls-of-private-sector-investment-in-infrastructure-financing/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{southafricaninstituteofinternationalaffairs2019pitfalls, author = {{South African Institute of International Affairs}}, title = {{The Pitfalls of Private Sector Investment in Infrastructure Financing}}, institution = {South African Institute of International Affairs}, year = {2019}, month = jun, url = {https://saiia.org.za/research/the-pitfalls-of-private-sector-investment-in-infrastructure-financing/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }