(Ecofin Agency) - About 60% of investment funds dedicated to Africa are registered outside the continent. This figure comes from a study commissioned by the MasterCard Foundation in partnership with Mennonite Economic Development Associates (MEDA) and conducted by a team of international experts, including Momentus Global (formerly International Financial Consulting), Samawati Capital Partners, and Stafford Law.

Places like Luxembourg, Delaware, and Dublin are more associated with tax havens and global financial hubs than with Africa. Yet, these places are where funds intended to finance African SMEs and the continent's vital infrastructure are based. This situation reflects Africa’s structural challenges rather than an isolated anomaly.

The main reason behind this issue is that Africa has not yet become indispensable to global investors. International investors prefer jurisdictions that offer stability, reliable laws, and predictable courts. Luxembourg, the world’s second-largest fund hub with $5 trillion in assets under management, is an example of how clear regulations, expert legal frameworks, and favorable tax policies attract fund managers. Singapore, with nearly $5 trillion in assets, offers similar benefits.

In contrast, many African countries struggle with slow bureaucracies, vague laws, and economic instability. This deters investment, especially in promising sectors like SMEs, which account for 80% of formal employment on the continent.

A 2024 report on fund domiciliation in Africa highlights a $940 billion funding gap for SMEs. This gap perpetuates a vicious cycle: limited funding leads to slow growth and reduced attractiveness for investors.

Not all of Africa is absent from the global investment map. Mauritius has secured a strong position as a financial hub, attracting nearly $20 billion in investments. Its success stems from clear regulations, investor-friendly tax policies, and an open-door strategy for international capital.

South Africa also stands out, with pension funds playing an active role. The Asset Owners Forum of South Africa (AOFSA) has mobilized over $500 million for local projects. Despite political and economic challenges, the country benefits from a strong financial sector and skilled professionals.

Rwanda is pursuing a niche approach with its Kigali International Financial Centre (KIFC), focusing on sectors like technology and social impact. This bold strategy is beginning to show results, even for a small nation.

The Rest of the Continent Lags Behind

Many African countries, including Nigeria, the continent's largest economy, are still struggling to attract funds. Nigeria holds public assets worth $43.6 billion but has yet to create an attractive investment environment. Côte d’Ivoire and Togo in West Africa are making efforts to position themselves as regional hubs, but progress has been slow.

Despite these challenges, Africa has immense untapped potential. Pension funds across the continent manage hundreds of billions of dollars, often underutilized. Redirecting these resources toward SMEs, infrastructure, and innovation could drive economic growth.

What Needs to Change

To reverse this trend, concrete efforts are crucial. African nations must simplify their legal frameworks, enforce contracts, and mobilize local capital. Institutions like national social security funds, deposit and consignment funds, pension funds, and public development banks, which collectively manage hundreds of billions of dollars, must play a central role.

African pension funds currently manage over $600 billion, with $500 billion in South Africa and $33 billion in Nigeria. By 2050, these assets could grow to $7.3 trillion. This massive resource, if used strategically, could reduce perceived risks for private investors and attract additional capital. Public development banks, with over $100 billion in total assets, also hold long-term resources that could be better utilized.

Mauritius, South Africa, and Rwanda have shown that progress is possible. However, as long as most African jurisdictions remain overshadowed by major international financial centers, the continent will continue to finance its own marginalization.

Ultimately, this is about taking control of Africa’s economic future. The continent can no longer afford to wait.