The Pitfalls of Private Sector Investment in Infrastructure Financing

This briefing by the South African Institute of International Affairs (SAIIA) examines the challenges and pitfalls associated with relying on private sector investment to bridge Africa's infrastructure financing deficit. It argues that while private capital is often promoted for its speed and lack of conditionalities, it is significantly more expensive, risk-averse, and less focused on development outcomes than public or multilateral funding. The document recommends that African policymakers strengthen domestic capacity and strategically use public funds for social infrastructure and project preparation to enhance regional agency.

• Private sector financing for infrastructure is substantially more expensive and has shorter repayment 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. In Rwanda, private equity investors treated gender considerations as a "tick-box exercise" due to pressure from MDBs rather than meaningful engagement.
• Private investment is highly selective, favoring low-risk 'economic infrastructure' (ICT, renewable energy, and transport) and 'brownfield' investments over 'greenfield' projects or social infrastructure like healthcare and education. There is also a significant lack of private appetite for complex regional projects or early-stage project preparation, which can take up to 10 years and cost 5% to 15% of total project costs.
• Weak domestic technical, legal, and governance capacity in African countries increases the risk of exploitation by private investors. Examples include debt distress in Mozambique due to poor transparency and debt management, and an unfavorable long-term public-private partnership contract in Lesotho resulting from insufficient legal capacity.
• African agency in infrastructure development is hindered by declining public expenditure and a lack of capacity. In the SADC region, capital expenditure dropped from 23.31% in 2008 to 22.19% in 2016, with double-digit declines in Botswana and Madagascar.
• To optimize infrastructure financing, public funds should be strategically targeted toward sectors and stages where private interest is low, such as social infrastructure, project preparation, and capacity development. Capacity building should be treated as a core component of loans rather than an optional add-on.

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} }