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Debt challenges for African governments are weighing on investor and funder appetite for the continent’s entrepreneurs, trapping them in a vicious cycle of capital scarcity, says LEAF Africa, an economic think tank in Nigeria.Its report on debt in African economies illustrates how Africa’s debt trap and the premium its markets pay for debt put pressure on investment appetite from private funders.Citing Ghana as an example, the report said the country’s debt crisis triggered a squeeze on the economy’s start-up ecosystem after Ghana defaulted on some of its debt commitments in 2022 and entered into negotiations with the International Monetary Fund (IMF).“Venture capital (VC) slowed. International VCs delayed investments due to macro uncertainty. Bank loans priced out start-ups. SME lending rates rose above 35%, making bank financing almost impossible.”Citing the example of a tech start-up called Complete Farmer, the report said both local angel investors and diaspora funders were reducing exposure due to fears of capital erosion.“Complete Farmer, a Ghanaian agri-tech platform, struggled to raise follow-on funding in 2023. Despite a strong business model, investors demanded higher equity stakes or reduced investment sizes due to Ghana’s default risks. CEO Desmond Koney noted that macro risk, not company fundamentals, became the main barrier to growth.”LEAF (Leading Entrepreneurs Across Africa) said that when a country is designated as high-risk for default, the consequences directly affect entrepreneurs.“[When a] government borrows heavily from local markets, domestic borrowing crowds out private lending [and] banks become less willing to lend to start-ups and small businesses. [During] currency volatility and inflation ... start-ups suffer from import cost hikes and unstable input prices.”Between 2008 and 2024, Africa’s public debt expanded by more than 250%, from $510bn to $1.83-trillion— LEAFThe report said that while external borrowing still dominates the borrowing mix of economies on the continent, a notable shift has occurred where domestic debt’s share has risen from 30% in 2017 to more than 40% in 2022.“Between 2008 and 2024, Africa’s public debt expanded by more than 250%, from $510bn to $1.83-trillion. Ten countries — Egypt, South Africa, Algeria, Morocco, Nigeria, Kenya, Sudan, Angola, Ghana and Côte d’Ivoire — accounted for roughly 72% of this debt, with Northern Africa holding over one-third.”Africa’s share of total global debt stands at $1.8-trillion, or 1.8%. However, its borrowing costs are among the highest globally, averaging 8%–15% compared with 2%–3% in advanced economies.The challenge is worsened by recent protectionist policies introduced in the Global North and geopolitical tensions, which are causing liquidity markets to tighten.The report recommended adjustments for policymakers, investors and entrepreneurs to soften the blow of debt severity and volatility.“Focus not just on debt levels, but debt mix, currency structure, and repayment terms. Build domestic capital markets to reduce external exposure. Differentiate between creditworthy borrowers and structurally exposed ones. Avoid blanket ‘Africa risk’ views — country risk is highly nuanced,“ it said.“Foreign exchange volatility and rising debt service will crowd out public investment. Seek resilience in supply chains, pricing, and funding. Deeper local integration is a strategic hedge.”Venture capital is gaining prominence in discussions concerning Africa’s growth and economic development.Sandeep Main, partner for tax and regulatory services and Africa head of private enterprise at KPMG One Africa, said the firm was committed to supporting the growth of start-ups in the region, as evidenced at its private enterprise venture summit in Nairobi last month.“The 2026 summit was designed to create a platform where Africa’s builders, investors and policymakers could move beyond conversation into action. We intentionally redesigned the experience to make it more participatory, more collaborative, and more reflective of the entrepreneurial energy shaping the continent today.”He said Africa’s growth story will be written by the businesses, innovators and ecosystems that are solving real challenges on a scale.A report by the London think tank ODI Global on reforming multilateral development banks (MDBs) said debt was compounded by reduced aid budgets, escalating financing needs, geopolitical tensions and a fragmented development finance landscape.“Lower-income countries face heightened debt vulnerabilities due to currency exposure, while local currency lending options remain small in scale and technically complex, and often rely on rigid offshore hedging instruments.”ODI said these constraints were compounded by limited capacity in debt management offices and risk-averse, unaligned incentives within MDBs.
