Financing Africa’s water future: What I learned from Duflo and Tshabalala

Published on: 17/11/2025

Two thinkers have helped me sharpen my understanding: Esther Duflo, Nobel Prize–winning economist, whose clarity on public finance is unmatched. Sim Tshabalala, CEO of Standard Bank Group and chair of the G20 B20 Finance & Infrastructure Task Force. They published their ideas at different moments and in different contexts. But taken together, their insights form a powerful lens through which to rethink the financing future of the water sector — especially as we prepare for the Systems Leadership Symposium – Kigali 2026.

water_treatment_plant_between_urban_growth_infrastructure_gaps_ai_generated_image.png

A water treatment plant standing between urban growth and infrastructure gaps. Source: AI-generated photograph created with OpenAI

Cost of capital is lethal

Esther Duflo’s analyses cut through the political noise: “In several African countries, debt service exceeds the budget for education or health.”

She reminds us that African governments finance the vast majority of their budgets from domestic revenues, not aid. Yet in many countries, debt service now exceeds spending on health or education, leaving little room for essential services like water and sanitation.

And crucially, she stresses that this debt crisis was imported — the result of interest rate hikes in Europe and the United States, driven by anti-inflationary policies that do not consider their impact on African economies.

This reframes the debate: Africa’s fiscal constraints are structurally linked to the high cost of capital — that is deeply shaped by global financial dynamics.

Yet even this does not tell the whole story. 

The second barrier: how Africa’s risk is perceived

While global interest-rate policies have worsened the burden of debt, other analysts note that Africa’s high cost of capital is also driven by how risk is perceived and priced.

Sim Tshabalala highlights this clearly: “The average African sovereign is rated four rungs below what their fundamentals would imply.”

In other words, even when African governments manage their economies prudently, they often face a perception penalty. Part of this distortion comes from information asymmetry: investors may lack the data, context or familiarity needed to assess African markets accurately.

The result?

Africa is charged more because it is seen as riskier than it truly is.

Risk is not only calculated — it is interpreted. And interpretation depends on data quality, governance signals, policy predictability, and institutional performance.

This brings us directly to Tshabalala’s core message. 

Improving credibility within the global system is essential

Sim Tshabalala argues that reducing Africa’s cost of capital depends on strengthening credibility inside the global financial architecture: “Lowering the high cost of capital requires improving the existing strategies of these nations in the global ratings game.”

For him, the path forward requires:

• robust, investable project pipelines,
• better public data and transparency,
  (“Enhancing publicly available data on infrastructure investments is crucial.”)
• national road maps to improve sovereign ratings, and
• stronger, more consistent investor engagement.
  (“Strengthening relations with investors will also enhance substantive policy formulation and implementation.”)

His message is unmistakable: Africa must actively shape how it is perceived — because credibility lowers the price of capital. 

The shared lesson: Africa’s real barrier is the cost of capital

Taken together, Duflo and Tshabalala describe a consistent truth: Africa is trapped in a cost-of-capital problem.

Both highlight a structural unfairness in how Africa is assessed:

• Duflo shows the external penalty: global monetary policies that raise African debt costs.
• Tshabalala shows the internal penalty: credibility gaps that allow misperceptions to persist.

This dual pressure reveals why financing remains so difficult for essential sectors such as water and sanitation. High borrowing costs stem from:

• global monetary policies that disproportionately raise African borrowing costs,
• credibility gaps,
• weak performance data,
• governance inconsistencies,
• institutional fragility,
• transparency deficits,
• regulatory unpredictability,
• currency risk,
• and perceived risk.

This dual penalty is why the water and sanitation sector struggles so profoundly with financing. The issue is not only how much money is available — but how the sector is perceived and priced.

What this means for the future of water and sanitation in Africa

If we follow the logic of Duflo and Tshabalala, the implications for the water sector are unavoidable.

1. The sector must become credible before it can become bankable.

Professionalisation is not a luxury.
Regulation is not an administrative detail.
Performance data is not optional.
Credibility is the foundation.

2. Bankable projects require bankable institutions.

Investors don’t invest in infrastructure first — they invest in the institutions and systems that sustain the infrastructure.

3. Domestic finance must lead — global finance will follow.

Reliable service revenue, national development banks and predictable budgets create gravitational pull for international capital.

4. Africa must own its risk narrative.

Global markets respond to signals. Africa needs to send better ones — grounded in data, transparency, and institutional strength.

This is the essence of financial credibility for the water sector. 

This is exactly what the Kigali 2026 Symposium is designed to address

Kigali 2026 is not another technical gathering. It is a politically anchored transformation platform. A place where ministers, regulators, utility CEOs, operators, development banks and investors will come together to reshape the financial credibility of Africa’s water and sanitation sector.

Our focus is simple: A water-secure, climate-resilient Africa with safe sanitation for all — enabled by institutions that investors can trust.

This is the transformation the sector needs. And it will not happen on its own.

Join us in Kigali — 13–17 July 2026

If Africa wants to rewrite the financial narrative of its water sector, the moment is now.
Let’s turn the insights of Duflo and Tshabalala into a continental agenda for transformation.
See you in Kigali.

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