In 2015, countries across the globe signed on to the Sustainable Development Goals of ending poverty, protecting the planet, and ensuring shared prosperity through a new sustainable development agenda. To meet these goals in Africa, investment is sorely needed in basic infrastructure, agriculture and rural development, climate change mitigation and adaptation, health, and education.

Private investments can in many instances take place alongside public and donor investments. Further funding from international financial institutions, especially those that focus exclusively on the private sector, can be used to unlock additional capital through blended or pooled financing and risk mitigation, especially for infrastructure and other investments that support private sector development. Donors and private investors increasingly recognize the benefits of working together.

The timing is right: Africa holds enormous potential for private investors. A continent in transition, it is among the world’s fastest growing regions, with a young and growing population in rapidly expanding cities, an improving business environment, expanding Internet connectivity, rising incomes, and shifting consumption patterns. Despite recent economic and political challenges, these enduring trends have created an abundance of commercial opportunities across the continent, transforming it into a market and opportunity that investors cannot afford to ignore.

Even before the recent global economic turmoil began, investor activity on the continent was constrained by structural obstacles, a lack of risk mitigation mechanisms, and few financing options, all of which inhibit the effective distribution and mitigation of risk associated with large-scale or long-term projects.

Opportunities in rapidly changing markets

The African continent is susceptible to the short-term economic headwinds that most economies now face, and changing conditions are causing some opportunities to fade. Trade and growth in the region are impacted by the effects of a slowdown in China, while a significant drop in commodity prices and a depreciation of local currencies are creating challenges for companies and governments alike. As a net commodity exporter, many African countries are deeply affected by falling commodity prices, putting pressure on current account and fiscal balances.

While most African economies continue to grow, the impact of such global economic trends is raising the cost of doing business in Africa, hampering productivity and growth.

And though near-term regional growth prospects have been revised downward, there are still convincing reasons to invest in Africa, including the existence of a wide range of partners to help overcome the financing challenges that come with working in the region. Notable trends include:

• In Sub-Saharan Africa, growth slowed to 3.0 percent in 2015, from 4.5 percent in 2014. Although growth is expected to slow further to 2.5 percent in 2016 due to depressed commodity prices, it is forecasted to rise to an average of 4.1 percent in 2017-2018. This indicates an improvement in some of the region’s largest economies, including Angola, South Africa, and Nigeria.

• In North Africa, average growth rates in Egypt, Morocco, and Tunisia are also expected to slow in 2016 to 2.4 percent, from 2.9 percent in 2015. However growth in both Tunisia and Egypt, the region’s largest economies, is expected to pick up in 2017.

• Compared to other developing countries, projected per-capita growth rates are higher for African countries, including Ethiopia (6.0 percent), Rwanda (4.6 percent), Cote d’Ivoire (4.6 percent), and Tanzania (3.6 percent), among others (2010-2020 average growth rate).

• Driven by a young population and rapid urbanization, household consumption is expected to continue to grow in important sectors including clothing, communications, energy, financial services, food, health, housing, and transport. In North Africa, spending on education will be particularly critical and is projected to grow.

• Sub-Saharan Africa alone could productively make use of more than $90 billion annually in infrastructure investment but currently receives less than half that amount. The capital shortage going forward is projected to be particularly acute in Nigeria, Angola, and Kenya, while investments in energy, transportation, and logistics offer the most potential for both impact and reward.

• Regional spending to adapt to climate change is expected to be between $5-10 billion per year from public and private sources. Rising temperatures and water supply issues, among other environmental issues, are creating investment opportunities for scaling up low-carbon energy sources and managing water more efficiently.

So while positive structural trends endure across Africa, they are offset to varying degrees, and differing by country and region, by recent cyclical and global economic developments. In suddenly more challenging, less liquid markets, the question, then, for donors, development finance institutions, and private sector participants looking to contribute to sustainable growth and development is: what methods can be employed to raise capital and mitigate risks to enable development through the private sector?

Mobilizing private and public financing solutions

Companies looking to seize still significant opportunities in Africa can benefit from additional sources of financing, as well as tools that crowd in more private sector participants and mitigate risk, spreading it among different investor classes and over longer time frames. Tools such as blended finance, co-financing, climate finance, local debt and equity instruments, private equity, and public-private partnerships are being deployed in Africa in new ways that address risks associated with low-income and fragile states. Public funding or support for advisory services aimed at improving the conditions for private enterprise or the development impact of investments can be deployed alongside commercial financing to hasten growth and encourage shared prosperity. These tools provide innovative paths to securing financing on a scale that can match the scope of business opportunities and help manage risks – both new and old – in high-growth African markets.

Methods exist to underwrite successful investments in Africa. In a riskier environment going forward, they are sure to become more important.

• Public-Private Partnerships are a strategy for projects with the right regulatory framework, sector planning and a high quality off-taker of services and goods to provide the comfort level private investors require to participate. Development institutions often play a critical role in bringing the private and public sectors together to provide those elements.

• Co-financing between private investors and development finance institutions draws on the strength of both to build confidence and spread risk beyond private sponsors and private commercial banks.

• Blended Finance mixes concessional funds – typically from donor partners – with those of commercial development institutions and private investors in a risk-sharing arrangement, with aligned incentives that ensure that official assistance is leveraged as much as possible with private capital.

• Climate Finance brings together public and private sources of financing to support climate-smart investments in emerging markets, using a number of channels, including blended finance, support to local financial institutions, specialist bond issues, and asset management.

• Local Capital Markets and Tailored Solutions offer effective ways to access long-term, local-currency finance and protect economies from capital-flow volatility, and reduce their dependency on foreign debt. Local debt and equity markets can be better leveraged by local corporations when large banks or development finance institutions provide risk guarantees or act as anchor investors, expanding access to additional funding instruments as well as new classes of investors. Other currency risks and market volatility can be addressed through tailored solutions and instruments.

• Private equity, through the assistance of anchor investors, can support the development of large and specialized funds that are able to invest in a wide variety of enterprises, including small and medium size businesses. Meanwhile, development finance institutions can help global institutional investors take equity in African companies, including through asset management.