Canada’s G7 Presidency Is...

An Opportunity to Spark Growth and Economic Transformation in Africa

As geopolitics shifts and global trade tensions rise, Canada’s G7 Presidency is a unique opportunity for Canada to make its mark on the global stage, deliver a boost to the global economy and revive international cooperation. The current international financial architecture holds back Global South countries, especially those on the African continent, who are walking a financial tightrope, with cuts to foreign aid, more expensive debt, lack of access to capital, and new tariffs threatening trade revenues and economic growth.

By addressing access to capital and financing during the G7, Canada can deliver progress on one of the most fundamental barriers to private sector investment and investments in critical energy infrastructure in African countries. We can lead while others won’t, and seize an opportunity for growth, cooperation, and global stability.

Lack of access to financing and capital hold back economic transformation in Africa

In recent months, global trade and investment dynamics have shifted dramatically, pushing Canada to adapt to the disruptions brought about by tariffs and geopolitical realignments. Canadian businesses are looking for new markets and partners on the global stage, and trade diversification has become a hot topic across the country. Beyond Europe and Asia, Canada should also set its sight on the only region in the world where significant population growth is expected over the next few decades: Africa. The African Continental Free Trade Area’s (AfCFTA) will unlock the world’s largest free trade area and generate some $450 billion in income by 2035,[1] setting up the region to become not only world’s factory, but one of its biggest markets.

But this potential is limited by the global disruptions that are affecting both Canada and African countries. After 15 years of increasing financing flows and investments in infrastructure and development that saw economies grow, health and education improve and poverty drop, African countries are now facing much harder headwinds. Interest rates and energy costs have soared, local currencies have lost value against the dollar, and investors are withdrawing their money from African countries.[2] Debt payments have been eating up an increasing share of government revenue, and 34 African countries now spend more on external debt payments than on health or education.[3]

The global trade war started by the US will make matters worse, because paying external debts requires earning money from the rest of the world, usually through exports.[4] This, coupled with countries like the US, France, Germany, and the UK announcing drastic cuts to development assistance, means that many African countries face a severe lack of access to financing at the same time as a debt challenge. [5]

But Africa’s debt problem is not one of too much debt—in fact most African countries have lower debt-to-GDP ratios than G7 countries.[6] Rather it is a crisis of debt that is too expensive. African countries face the highest borrowing costs in the world, with interest on their debt averaging 9.8%, compared to 6.8% for Latin America, 5.3% for Asia and below 3% for the US and Germany.[7]

Higher interest rates for African governments translate to higher interest rates for the private sector as well, which poses a massive barrier to growth and investment.[8] In surveys of businesses operating in Africa, difficult access to capital is routinely named as one of the two main obstacles to private sector growth .[9] The second one is access to electricity, and both are related, as the high cost of capital is a direct roadblock to investment in energy projects.

Access to reliable and affordable electricity remains a significant challenge across sub-Saharan Africa, where approximately 600 million people—nearly half the continent’s population—lack power. This energy deficit hampers economic growth and stifles private sector investment, and the IEA has identified the cost of capital as one of the main roadblocks to realizing needed investments in energy access.

As an example, the cost of capital for solar power projects in Kenya, Senegal and South Africa is between 8.5% and 11%, compared to 4.7%-6.4%[10] in North America or Europe. Businesses in the energy sector raising capital domestically often report rates of over 15%, and many larger energy projects only go ahead if concessional capital is available. [11]

African countries are therefore caught in a vicious cycle: the debt crisis is in large parts caused by the high cost of capital, which in turn leads to underinvestment in the energy and electricity sectors, and low access to reliable energy tends to increase the risk perceptions of investors, which in turn increases the costs of capital for badly needed energy projects.

However, global reforms need to be accompanied by efforts within African countries, especially in the fields of governance, policy, and data quality, as all of these play a critical role in reducing the cost of capital. African-led improvements are an integral part of the solution and are already underway in many countries to earn investors’ trust.

To support African efforts in breaking this cycle, actions are needed across three fronts, which all need to advance during Canada’s G7 presidency:

1) Solve the current debt problem by reviewing the processes to restructure African countries’ existing debt. Although the G20 has implemented a Common Framework process to deal with developing country debt, it has been too slow and insufficient. More needs to be done to provide meaningful debt relief to countries in distress and ease liquidity for countries before they become insolvent.

2) Tackle the root causes of the high cost of capital. The higher interest rates paid by African governments on private debt come from higher risk premiums imposed by credit rating agencies, often due to lack of sufficient hard data and the resulting use of more subjective criteria to assess the risk of lending to African countries. A study by the UNDP estimated that Africa was losing over $24 billion in excess interest and more than $46 billion in forgone lending due to these unfair risk assessments,[12] more than all the ODA received by the continent in 2021.[13]

3) Increase concessional financing and exploit innovative financial instruments to allow African countries to invest in infrastructure and energy access to facilitate private investments and economic growth. These could include new ways to use Special Drawing Rights and foreign exchanges reserves, support to access risk mitigation tools such as guarantees and insurance for private investment, increasing the World Bank’s lending capacity, and supporting effective affordable financing vehicles like the Bank’s International Development Association (IDA) and the African Development Fund, which will be seeking a crucial but replenishment this year.[14]

Canada`s G7 Presidency can deliver concrete progress on access to financing and capital

Below are two concrete actions that Canada can take to make progress on these fronts.

Support the South African G20 and issue a G7 statement on affordable financing, debt and the cost of capital

The problem of debt and the cost of capital has been highlighted as one of South Africa’s priorities for its G20 Presidency. Canada should champion these issues at the G20, and support South Africa by reflecting them in G7 outcomes through the Leaders’ Communiqué and/or through a joint statement that would include:

Calling on the G20 to create a Roadmap on the Cost of Capital that would include actions around reviewing credit rating agencies methodologies, structural and regulatory barriers, and scaling up risk mitigation tools and innovations such as partial guarantees and credit enhancements. The Roadmap would build on the G20 International Financial Architecture Working Group and the newly established Africa Expert Panel.
Calling on the IMF and the World Bank to reform the IMF and World Bank’s Debt Sustainability Framework to better reflect changes in the global environment, debt composition, and financing needs.
Encouraging New York and the UK to amend their legislation to ensure that private creditors participate fairly in negotiations and restructurings.
Committing to implementing debt payment suspension clauses for natural disasters and pandemics in existing loans and new debt contracts to poorer countries.

President Ramaphosa should also be formally invited to attend the G7 Leaders’ Summit in Kananaskis to ensure cohesion with the G20 and African representation.

Launch Spark Africa: the Canada-Africa Electricity Partnership

Supporting Africa’s economic transformation agenda while presenting opportunities for Canadian businesses to engage in its growing energy sector would establish Canada as a true energy superpower on the global stage. Thus, Canada should use its G7 Presidency to launch Spark Africa: the Canada-Africa Electricity Partnership. This would be Canada’s contribution to the Energy for Growth in Africa G7 Initiative, Mission 300 and the Partnership for Global Infrastructure and Investment (PGII), a G7 initiative to increase public and private investment in infrastructure in developing countries. Mission 300 is an African Development Bank and World Bank initiative that aims to deliver electricity access to 300 million Africans by 2030, and is now backed by thirty African heads of state[15] who committed to concrete reforms and actions to expand access to electricity to power economic growth on the continent. Through Spark Africa, Canada would become a formal partner to Mission 300, committing to provide electricity access in specific countries to a portion of the 300 million households targeted. A unique addition could be specific efforts to also boost accessible and reliable electricity for industry and commerce, which are critical for job creation and economic transformation on the continent, and providing off-grid solutions backed by patient capital — especially for remote communities.

The initiative could support those solutions by including the provision of low-cost and blended finance as well as technical assistance and partnerships with Canadian energy companies to support electricity infrastructure projects in African countries that have signed up to Mission 300, and support to national utilities and government reforms. It could include specific contributions from FinDev, Canada’s Development Finance Institution, which could also galvanize other G7 DFIs to co-invest and set up mechanisms to de-risk investments in Africa’s infrastructure and energy sectors. This would build on the successes of the 2018 G7 Summit in Charlevoix, when FinDev led the way to launch the 2X Challenge,[16] a G7-wide DFI initiative to increase gender lens investments that has mobilized US$33.6 Billion so far.

Spark Africa would help fill gaps left by the US administration’s shutting down of Power Africa and the Millenium Challenge Corporation (MCC), two landmark initiatives that had facilitated billions in investments in energy projects and electricity availability in underserved regions across Africa. Beyond these specific initiatives, Canada should play a leading role globally in looking for creative and innovative ways to leverage financing instruments to scale up resources available to African countries to invest in their infrastructure and their development. Special Drawing Rights have been used as an emergency vehicle in previous crises and could be considered again, as could new ideas on how to use foreign exchange reserves and hybrid capital. Committing to safeguarding international assistance for lower-income countries and effective, life-saving programs, and making a strong pledge to the African Development Fund will also be crucial to show up as a friend and ally to the continent while the US is retreating.

[1]World Bank 2020| Trade Pact could boost Africa’s income by $450 billion

[2] Net financing flows to developing countries remain precariously low 2025| ONE [2]

[3] Africa experiencing worst debt crisis in a generation 2024 | Debt Justice

[4] US tariffs will intensify debt crisis in lower-income countries 2025 | Debt Justice

[5] Net financing flows to developing countries remain precariously low 2025| ONE

[6] A new debt deal for Africa: Breaking the Vicious Cycle 2024 | Tony Blair Institute for Global Change

[7] A world of debt 2024 | UN Trade and Development (UNCTAD)

[8] A new debt deal for Africa: Breaking the Vicious Cycle 2024 | Tony Blair Institute for Global Change

[9] Africa has too many businesses, too little business 2025 | The Economist

[10] Cost of Capital survey shows investment in solar PV can be less risky than gas power in emerging and developing economies, though values remain high 2023 | International Energy Agency

[11] How a high cost of capital is holding back energy development in Kenya and Senegal 2025 | International Energy Agency

[12] Reducing the Cost of Finance for Africa 2023 | UNDP