Financing the Future: Leveraging Capital Markets for Africa’s Energy Transition

Jan. 2, 2026 /Mpelembe Media/ —The Africa Capital Markets Report 2025 by the OECD evaluates the current state and future potential of financial systems across the continent. While some nations have made progress, the region generally struggles with low liquidity, fragmented regulations, and a lack of institutional investors. These limitations create significant hurdles for funding climate transition goals and supporting sovereign debt stability. To foster growth, the report suggests enhancing corporate governance, modernizing digital infrastructure, and encouraging regional integration. Ultimately, the document serves as a strategic guide for policymakers to build more resilient debt and equity markets.

Leveraging capital markets for Africa’s energy transition is a critical priority because the continent faces a massive climate financing gap that cannot be met by public funds alone. Despite a 15% annual growth in climate investments recently, current funding levels are insufficient; to meet 2026 targets, clean energy investment must rise to 2.4 times current levels in North Africa and 1.8 times in Sub-Saharan Africa.

To bridge this gap and effectively leverage capital markets, the sources suggest several strategic focus areas:

The Proliferation of Sustainable Bonds

Sustainable bonds are identified as a particularly useful instrument for energy companies to finance the transition. These instruments allow companies to tap into a growing pool of global and domestic capital specifically earmarked for green projects.

2. Mobilizing Institutional Investors

Currently, the small size of institutional investors—such as pension funds and insurance companies—limits the capital available for long-term projects. To leverage these funds for energy infrastructure, governments can:

Encourage portfolio diversification: Moving funds away from a heavy concentration in government debt toward private-sector energy projects.

Strengthen regulatory frameworks: Implementing strong and transparent protections for policyholders and pension participants can build the confidence necessary for long-term investments in energy.

Regional Market Integration

Integrating African capital markets would help mobilize funds more efficiently by expanding the available investor base beyond national borders. By improving interoperability between market infrastructures, countries can leverage underutilized liquidity and provide energy companies with a broader range of investment options.

Mitigating Currency and Refinancing Risks

A major hurdle for energy projects is foreign currency risk, as much of the existing debt is denominated in foreign currencies. Capital markets can mitigate this by:

Developing local bond markets to allow for borrowing in domestic currencies.

Shifting toward local currency-denominated bonds, which reduces exposure to volatile exchange rates and provides more stable financing for long-term energy infrastructure.

Digital and Technological Infrastructure

Investing in digitalizing trading infrastructure can lower operational costs and facilitate cross-border capital flows. Furthermore, the sources suggest that artificial intelligence (AI) could capture market efficiency gains, though this requires further investment in AI-enabling infrastructure and locally representative data to reflect the continent’s specific socio-economic context.

To understand this transition, you might think of the energy transition as a massive solar farm that has been designed but lacks the high-voltage transmission lines to connect it to the customers. The capital markets act as those transmission lines, providing the necessary “conduit” to move the “power” (capital) from where it is stored (investors) to where it is needed (clean energy projects).

The development of African capital markets is hindered by several significant structural hurdles. While some progress has been made, it remains uneven across the region.

The major structural challenges identified include:

Limited Market Infrastructure and Liquidity: Many markets suffer from underdeveloped infrastructure and low trading activity. This lack of liquidity makes it difficult for investors to enter or exit positions easily, which suppresses overall market vibrancy.

High Market Concentration: Activity is heavily concentrated in a few locations; South Africa, Morocco, and Egypt account for 80% of the total market capitalization in the region. Furthermore, African companies represent only 1% of the total value of equity raised globally since the year 2000.

Shallow Investor Bases: The role of institutional investors, such as pension funds and insurance companies, is significantly limited. Insurance penetration in Africa is only 3.5% of GDP—half the global average—and pension fund assets are constrained by low average incomes and high levels of informal employment. These factors prevent institutional investors from acting as stable providers of capital to the economy.

Underdeveloped Debt Markets: Both sovereign and corporate debt markets are small, with Africa accounting for only 1% of global sovereign bonds. Additionally, 80% of rated African countries are classified as high or very high risk, and both governments and corporations face significant foreign currency risk because much of their debt is denominated in foreign currencies.

Regulatory Fragmentation and Governance Weaknesses: The region faces regulatory fragmentation, which can complicate cross-border activity. Additionally, weaknesses in corporate governance for both listed companies and state-owned enterprises (SOEs) limit their ability to contribute effectively to capital market growth.

Financing Gaps for Climate and Business: There is a major gap in financing for the climate transition, with clean energy investment needing to rise significantly to meet 2026 targets. Unmet business needs and volatile international capital flows further constrain the growth and job creation that capital markets are intended to support.

To visualize these challenges, you might think of the capital market as a irrigation system for an economy. Currently, the “pipes” (infrastructure) are too small or disconnected (fragmented), there isn’t enough “water” (liquidity/investor base) flowing through the system, and most of the water is being diverted to only three large fields (concentration), leaving the rest of the landscape parched.

The three countries that represent 80% of Africa’s total market capitalisation are South Africa, Morocco, and Egypt.

This high level of concentration is a defining characteristic of the region’s financial landscape and highlights several key insights from the sources:

Uneven Regional Development: While some nations have made strides in improving their capital market ecosystems, progress remains highly uneven, leaving most of the continent’s market value concentrated in these three specific markets.

Global Context: Despite the dominance of these three countries within Africa, the continent’s overall footprint remains small on the global stage; African companies account for only 1% of the total equity capital raised globally since 2000.

Listing Volume: There are currently 1,141 companies listed on African stock exchanges, which is a small fraction of the approximately 44,000 companies listed globally.

Market Vulnerabilities: Because activity is so concentrated, many other African markets struggle with low trading activity and limited infrastructure, which hinders their ability to fund critical needs like the climate transition or general economic growth.

To help visualize this, you can think of Africa’s capital market like a large banquet hall where only three tables are fully set and served, while the rest of the room remains mostly empty. Even though these three tables are quite grand compared to the others in the room, they still only represent a tiny portion of the food being served in the entire city.

African companies have raised only 1% of the total value of equity capital globally since the year 2000.

This figure highlights the relatively small footprint of African capital markets on the global stage, which is further illustrated by the following data from the sources:

Company Listings: There are currently 1,141 companies listed on African stock exchanges, compared to approximately 44,000 companies listed worldwide.

Bond Market Disparity: Africa’s share of global sovereign bonds is also just 1%, which is notably lower than its 3% share of global GDP.

Market Concentration: Within the continent, equity activity is not evenly distributed; South Africa, Morocco, and Egypt together account for 80% of the total market capitalization.

This low level of global participation is tied to structural constraints, such as limited market infrastructure, low liquidity, and shallow investor bases, which prevent these markets from reaching their full potential to fund innovation and sustainable growth.

To visualize this, imagine the global equity market as a massive library with 44,000 books on its shelves. In this scenario, the total contribution of African companies would amount to just one small shelf of books, with most of those volumes coming from only three specific authors.

The average insurance penetration rate in African countries is 3.5% of GDP.

This figure is particularly significant when placed in a broader economic context:

Global Disparity: This rate is only half the global average, highlighting a substantial gap in the continent’s insurance sector.

Impact on Capital Markets: The low penetration rate contributes to shallow investor bases. Because the pool of insurance assets is relatively small, these companies play a limited role as institutional investors and are unable to act as stable providers of capital to the real economy.

Asset Allocation Constraints: Beyond the small size of the sector, the assets that do exist are often heavily allocated to government assets rather than private sector investments, further restricting the growth of domestic capital markets.

Potential for Improvement: The sources suggest that governments could strengthen the role of institutional investors by enhancing the protection of policyholders’ interests and developing stronger, more transparent regulatory frameworks.

To understand this challenge, you might think of the insurance sector as a community reservoir. Currently, the reservoir is only half as full as those in other parts of the world, and most of the water that is there is being piped directly to government projects, leaving very little left over to water the “crops” of the private economy.

Pension fund participation in African capital markets is constrained by a combination of socio-economic factors, investment strategies, and regulatory gaps. While pension funds are vital institutional investors, their current impact is limited compared to global standards.

The specific factors constraining their participation include:

Socio-Economic Barriers: The growth of pension fund assets is hindered by low average incomes and high levels of informal employment across the continent. Because a large portion of the workforce operates outside formal systems, the pool of contributors remains smaller than in more developed economies.

Small Asset Base: Pension fund assets in Africa are equivalent to only 23% of GDP, which is significantly lower than the global average of 34% of GDP. This smaller scale reduces their overall influence and capacity to drive market activity.

Concentration in Government Debt: A major hurdle is the considerable allocation to government assets. Instead of providing capital to the private sector (the “real economy”), many funds are heavily invested in sovereign debt, which limits the diversity and vibrancy of the broader capital market.

Regulatory and Framework Gaps: The sources suggest that participation is limited by a lack of automatic enrollment programs and a need for stronger, more transparent frameworks to protect interests. Furthermore, there is insufficient support for portfolio diversification and the facilitation of long-term investments, which are necessary for pension funds to venture beyond safe government bonds.

Market Fragmentation: A lack of regional integration and poor interoperability between different market infrastructures prevents pension funds from easily diversifying their investments across borders to find better opportunities.

To understand this, imagine a community grain silo (the pension fund). Currently, the silo is only partially full because many farmers work in small, unrecorded plots (informal employment) or have very little extra grain to contribute (low income). To make matters worse, the village leaders require most of the grain that is stored to be reserved for their own projects (government assets), leaving very little left over to trade with other villages or to invest in new local businesses.