INTRODUCTION
The State of Africa’s Infrastructure Report, an annual publication by the Africa Finance Corporation (AFC), has become a key reference resource for policymakers, investors and development institutions seeking to understand the infrastructure landscape across the continent. Each edition provides an evidence-based assessment of how infrastructure is either enabling or constraining economic transformation in Africa, along with proposals for reform and opportunities for investment.
The 2025 edition of the report was recently released by the AFC, at a time when access to external finance from outside the continent is shrinking. In response to this trend, the report underscores the importance of financing Africa’s infrastructure transformation using ‘African capital.’ It estimates that the continent holds more than US$4 trillion in domestic capital, including pension and insurance funds, sovereign wealth reserves, public development finance institutions, and commercial bank holdings.
Despite this sizeable resource base, the report says that domestic capital in Africa remains largely underutilised. Structural weaknesses, shallow capital markets, and limited financial intermediation continue to inhibit a meaningful shift towards long-term productive investment. Pension funds and insurers manage over US$777 billion, yet much of this remains tied to short-term, low-risk financial instruments.
The report draws useful comparisons with Asia’s experience in infrastructure development, showing how countries such as Korea and Malaysia reduced their reliance on foreign capital by strengthening domestic savings, building supportive banking systems, and developing deeper local capital markets. Showing that Africa could adopt a similar approach by reinforcing its financial institutions, improving savings mobilisation, and enhancing the capacity of capital markets to channel funds into it’s infrastructure projects.
Beyond institutional capital, the report identifies the African diaspora and the informal economy as major sources of underutilised finance. It revealed that remittances exceeded US$95 billion in 2024, creating opportunities for diaspora bonds and project-linked savings products. Similarly, the informal sector accounts for over 80% of employment and approximately 40% of GDP in many countries, yet remains largely excluded from formal savings and credit systems. Expanding digital public infrastructure and implementing inclusive finance strategies are also seen as critical strategy to unlocking the capital embedded in the informal sector.
In addition to domestic capital mobilisation, the report offers extensive analysis across key sectors, including transport and logistics, energy and power, industry and manufacturing, and digital infrastructure. For each of these sectors, it outlines current trends and proposes policy adjustments to enhance their performance.
In this piece, I summarise the key insights from the 2025 report on the energy and power sector, focusing on the current state of the sector, key challenges, emerging opportunities, and proposed reforms. I also draw on these insights to highlight lessons that Nigeria can apply in its efforts to strengthen its electricity system and advance sustainable economic growth.
INSIGHTS FROM THE REPORT ON THE ENERGY AND POWER SECTOR
The report places the energy and power sector at the heart of Africa’s development agenda. It presents energy not only as a basic service but also as a strategic foundation for industrial growth, digital connectivity, regional trade, and economic resilience. However, it identifies the continent’s persistent energy deficit as a structural constraint that limits broader development ambitions, and how the failure to expand and modernise energy systems is highlighted as a critical barrier that continues to hinder economic transformation.
- Current state of the sector
The report provides a sobering account of the current state of electricity generation in Africa. It showed that over the past decade, electricity generation has grown by less than 2% per year, falling behind average real GDP growth of 3% and population growth of more than 2.4%. In contrast, other developing regions, such as the Middle East and Asia-Pacific, have recorded higher annual growth rates of 3.8% and 4.5%, respectively.
The pace of new capacity installation has also remained modest. In 2024, Africa added just 6.5 gigawatts of utility-scale generation to its grid, well below the estimated 16 gigawatts required annually to meet projected demand. By comparison, India added over 18 gigawatts of renewable energy in the same year, while the United States added more than 48 gigawatts, therefore, underscoring the scale of Africa’s shortfall.
As a consequence, per capita electricity consumption has continued to decline. Between 2015 and 2022, average consumption dropped from approximately 660 kilowatt-hours to 514.7 kilowatt-hours per person, marking the lowest level recorded since at least 1998. This is however despite Africa’s rapid population growth, its share of global electricity generation remains just 3%, a figure that does not reflect its rising demographic significance.
Access to electricity also remains a significant challenge. The report estimates that between 560 and 570 million people across Africa still lack access. Sub-Saharan Africa alone accounts for more than 83% of the global population without electricity, therefore signalling that without a substantial shift in investment and implementation, this access gap is likely to persist well beyond 2030.
Africa’s energy mix continues to rely heavily on fossil fuels, with natural gas and coal make up a significant portion of generation, particularly in countries such as South Africa and across North Africa. Hydropower plays a major role in many sub-Saharan countries, and newer projects are beginning to incorporate more gas and renewable sources. However, overall progress has been slow.
In response to weak grid infrastructure and inadequate central supply, many households and businesses have turned to off-grid and self-generation systems. This shift is especially pronounced in Nigeria and South Africa. In Lagos State, off-grid generation capacity is estimated to exceed 19 gigawatts, surpassing the country’s entire grid-connected capacity. This highlights the growing disconnect between electricity demand and the capacity of centralised systems to respond.
The report also underscores Africa’s vast untapped energy potential. Hydropower resources are estimated at 487 gigawatts, with over 90% still undeveloped. The Democratic Republic of Congo alone holds 100 gigawatts of this potential, while Ethiopia has about 45 gigawatts. The continent also contains the world’s largest reserves of conventional geothermal energy, concentrated in the East African Rift Valley.
Solar energy represents another significant opportunity, with around 60% of the world’s most favourable solar resources being located in regions such as the Sahara, Namib, Karoo, and Kalahari basins. Africa also holds considerable reserves of wind and natural gas. However, most of these resources remain underutilised due to persistent infrastructure constraints and limited investment.
- Challenges
The report outlines several structural constraints that continue to impede energy development across Africa. One of the most persistent challenges is that energy systems remain undersized, fragmented, and slow to adapt. This has led to a consistent decline in per capita electricity availability and has weakened the foundation for productive energy use across households, businesses, and industry.
Although Africa holds abundant energy resources, many remain stranded due to poor infrastructure and limited capital investment. Rather than acting as a catalyst for economic growth, underutilised energy assets have become a constraint. As more users resort to self-generation to meet their energy needs, costs have increased. In some cases, the cost of self-generated electricity is two to four times higher than grid-based supply, undermining industrial competitiveness and placing a heavy burden on consumers.
Access to finance is another major barrier. Between 2021 and 2022, clean energy finance in Sub-Saharan Africa grew by just 2.5%. This falls significantly behind growth in other regions, such as Latin America and North Africa, where clean energy finance increased by over 100% and 380%, respectively. Most countries in Sub-Saharan Africa received less than US$100 per capita in clean energy financing, with several receiving less than US$1.
The weak financial position of utilities continues to limit sector performance. Many utilities are unable to meet basic operating expenses or debt service obligations. Low tariffs, high operational costs, and ineffective revenue collection systems mean that only one in three utilities in Sub-Saharan Africa can cover both operating and financing costs. Without subsidies, this figure drops to one in four. Technical and non-technical losses remain high, averaging between 15% and 17%, compared to a global average of 8%.
Grid structure poses further challenges. National grids are often poorly connected internally and across borders. While regional power pools exist in several parts of the continent, they remain insufficiently integrated. Africa currently operates with less than 20 gigawatts of cross-border transmission capacity, most of which is limited to a small number of countries.
The report also highlights systemic inefficiencies in unbundled systems. Even where individual entities, such as generation or distribution companies, perform adequately, wider problems with cost recovery persist. Rising operational costs linked to rural electrification are not matched by corresponding increases in revenue. Weak metering systems and ongoing liquidity constraints within regional power pools further complicate efforts to resolve these issues.
- Opportunities
Despite the scale of these challenges, the report makes a strong case for renewed investment and structural reform. It argues that energy infrastructure should be assessed not only in terms of access, but also in terms of adequacy, reliability, and its ability to support economic production. Well-functioning energy systems are essential for expanding job opportunities, increasing industrial output, enabling digital transformation, and strengthening national resilience.
The report underscores that Africa holds vast untapped energy resources. The continent has the highest hydropower potential globally, along with significant solar, geothermal, gas, and wind reserves. Unlocking these resources can help deliver clean, affordable, and sustainable energy. In addition, growing global demand for clean power offers an opportunity to attract long-term capital, particularly for renewable energy projects with export potential.
The African Single Electricity Market is highlighted as a key pathway to address grid fragmentation. Launched by the African Union in 2021, the initiative aims to connect national grids across regions and build a continent-wide energy platform. Infrastructure such as the Tanzania–Zambia Interconnector, scheduled for completion in 2027, is part of this effort. Over time, such connections could help establish a pan-African corridor from Cairo to Cape Town. Countries such as the Democratic Republic of Congo are well-positioned to serve as regional transmission hubs, given their resource endowments and strategic location.
The report also draws attention to lessons from other regions. India’s success in doubling its generation capacity and building a unified national grid within two decades illustrates the value of coordinated investment and policy reform. African countries can adapt such lessons to design reforms that expand energy supply and enhance connectivity.
New financing models are emerging to support this transition. These include efforts to de-risk infrastructure projects, mobilise domestic institutional capital, and make better use of regional financial markets. Instruments such as diaspora bonds, public development banks, and pension funds are identified as long-term sources of finance. Countries including Kenya, Uganda, and Mozambique are already piloting independent power transmission projects, reflecting an increasing role for the private sector in network infrastructure.
Wind energy also presents opportunities to develop green industrial zones. Countries such as Mauritania, Egypt, Namibia, and South Africa have strong wind corridors that could power large-scale renewable manufacturing. These zones could support the production of green hydrogen and steel, creating new pathways for export-led industrialisation.
Finally, the report highlights the growing energy needs of Africa’s digital infrastructure. Data centres, telecom towers, and cloud computing are placing increasing demands on electricity systems. Globally, the information and communications sector has become the largest consumer of renewable energy. Djibouti and Kenya are identified as early leaders in aligning clean power with digital infrastructure, using geothermal and wind energy to support low-carbon digital growth.
- Recommendations and call to action
The report outlines several recommendations to address the challenges facing Africa’s energy and power sector. It begins by calling for a significant scale-up in electricity generation.
To close the supply–demand gap and support long-term development, Africa must add at least 16 gigawatts of new grid-connected capacity annually through to 2050. Achieving this target will require faster project preparation, increased financing, and accelerated implementation.
Strengthening transmission infrastructure is equally important. The report estimates that between US$3.2 and US$4.3 billion will be required each year to develop the high-voltage transmission lines needed to enhance regional connectivity and enable cross-border electricity flows. Key priorities include integrating all countries into their respective regional power pools, linking the five regional pools through inter-regional corridors, and upgrading networks to support a continent-wide electricity exchange.
To meet these infrastructure demands, new financing models must be developed to attract private and institutional capital. The report highlights the importance of credit enhancements, including guarantees and insurance instruments, as well as pooled investment structures. It also stresses the need to mobilise domestic financial resources, particularly from pension funds, insurance funds, sovereign wealth funds, and public development banks.
Regulatory reform is identified as a necessary condition for attracting investment and improving sector performance. Governments are encouraged to adopt transparent and efficient procurement systems for renewable energy projects, including mechanisms such as reverse auctions and standardised feed-in tariffs. Transmission investments should be treated as strategic assets that contribute to system-wide improvements. Equally, tariff structures should be gradually adjusted to reflect the true cost of supply, with safeguards in place for lower-income consumers.
The report advocates for increased project aggregation and standardisation. Mechanisms such as coordinated procurement platforms, energy zones, and multi-country investment frameworks have the potential to reduce costs, improve efficiency, and attract larger investors. In addition, national utilities should be restructured to strengthen governance, reduce losses, and improve financial performance.
Enhancing financial sustainability also requires operational reforms within utilities. The report recommends unbundling vertically integrated utilities and expanding the use of prepaid metering systems. These measures can help stabilise cash flow, reduce arrears, and improve creditworthiness throughout the electricity value chain.
Embedding digital infrastructure within energy and transport corridors is also prioritised. Laying fibre optic cables alongside transmission lines can lower connectivity costs and create new revenue streams for utilities. Kenya’s transmission utility is cited as an example, having successfully generated income through fibre leasing arrangements.
Finally, the report underscores the importance of treating energy as a cross-cutting enabler across sectors. Infrastructure projects should therefore be designed as integrated platforms that deliver multiple services, thereby increasing the economic and social returns on both public and private investment.
LESSONS FOR NIGERIA
The insights from the State of Africa’s Infrastructure Report 2025 carry significant implications for Nigeria’s electricity sector. Like many other African countries, Nigeria still faces challenges in providing stable, affordable, and scalable electricity to meet the demands of a growing population and economy. The report’s emphasis on investment scale, institutional reform, and regional coordination offers a useful framework for identifying priority areas for reform and strategic intervention in Nigeria.
- Improving power generation, transmission and distribution
A key priority is the need to improve power generation, transmission and distribution. While there have been notable project initiatives to expand capacity, Nigeria continues to operate well below its potential across all three segments. Systemic challenges such as ageing infrastructure, irregular gas supply, and operational inefficiencies continue to constrain actual output. The growing shift towards off-grid solutions, particularly in urban centres like Lagos, reflects both creative adaptation and the limitations of centralised planning. Transmission infrastructure remains weak and recurrent failures in the national grid discourage investment and undermine system reliability. Distribution companies, many of which have remained financially fragile since privatisation, also struggle to deliver electricity effectively to end users.
Addressing these challenges will require an integrated strategy that links generation expansion with targeted upgrades to transmission and distribution systems. It is hoped that the decentralisation of the sector through the emergence of state electricity markets will contribute significantly to improving service delivery and enhancing local accountability. However, it is also important to ensure that this decentralisation is matched with strong regulatory coordination, capacity-building for subnational institutions, and investment incentives that can attract private capital across the electricity value chain.
- Fixing utility finances and tariff structures
Financial sustainability across the power sector must also be addressed. The financial condition of most power utilities in Nigeria remains precarious. Distribution companies operate under severe liquidity constraints and face persistent difficulties in recovering costs. While the introduction of the service-based tariff arrangement has made some progress in linking tariff levels to service quality, challenges remain, particularly with unpaid debts by Ministries, Departments, and Agencies (MDAs), as well as broader issues of revenue shortfall. The report’s call for cost-reflective pricing is timely. Establishing transparent and economically viable tariffs, supported by targeted subsidies for low-income households, will be essential to restoring financial viability in the sector. Nigeria has also made progress through initiatives such as the Meter Asset Provider Scheme and the National Mass Metering Programme, which have helped expand access to metering and improve billing transparency. However, a significant metering gap still exists. Closing this gap is critical to strengthening revenue collection, reducing commercial losses and improving overall sector performance.
- Leveraging domestic capital for energy investment
There is also a pressing need to mobilise domestic capital to finance the energy sector. Nigeria has one of the largest pools of local institutional capital on the continent, including pension assets, insurance funds, and sovereign reserves. However, much of this capital remains untapped due to concerns about project risks and limited investment-ready infrastructure pipelines. While some progress has been made through regulatory reforms, further action is needed to establish risk mitigation instruments, strengthen project preparation facilities, and enable institutions like the Infrastructure Corporation of Nigeria and the Bank of Industry to crowd in long-term investment. Mobilising Nigerian capital to fund Nigerian infrastructure should be seen not only as a development goal but as a strategic imperative.
- Strengthening off-grid policy and market integration
The country’s growing off-grid energy sector presents both opportunities and risks. The proliferation of mini-grids, solar home systems, and private captive power has helped expand access in many underserved communities. However, without clear policies to integrate these solutions into the national energy framework, they risk remaining fragmented and inefficient. Many institutions and households continue to rely on diesel generators that impose high economic and environmental costs. To unlock the full value of off-grid energy, Nigeria must embed decentralised solutions into national planning through flexible market rules, appropriate licensing frameworks and the gradual removal of price distortions that discourage clean energy alternatives.
- Regional integration and market design
Nigeria’s role in regional electricity markets remains underdeveloped despite its foundational position in the West African Power Pool. Cross-border electricity trade is limited, and the infrastructure for interconnection remains underbuilt. The report’s support for regional integration and the African Single Electricity Market presents an opportunity for Nigeria to play a more active role. Stronger engagement from national regulatory agencies, transmission companies, and private sector actors will be needed to shape harmonised market rules and coordinated investment in shared infrastructure.
- Bridging infrastructure and the digital economy
Finally, there is a growing need to align infrastructure development with Nigeria’s digital economy objectives. The expansion of broadband, data centres, and cloud services relies on stable and accessible electricity. Energy planning must take this rising demand into account by integrating digital infrastructure into energy corridors, particularly in view of emerging rules that require cloud providers to host key data within Nigeria. This includes laying fibre optic cables along power lines and developing zones that combine electricity and connectivity infrastructure. Such integrated planning will enhance Nigeria’s ability to meet its energy needs while advancing its broader digital transformation goals.
CONCLUDING REMARKS
The State of Africa’s Infrastructure Report 2025 sets out a clear and strategic vision of how infrastructure, particularly energy, can underpin long-term development across the continent. For Nigeria, the report serves both as a diagnostic tool and a practical guide. Many of the structural challenges it identifies are evident in Nigeria’s electricity sector. Nigeria possesses the institutional capacity, financial depth and regulatory frameworks needed to support meaningful reform, if these assets are effectively harnessed. Lasting progress will depend on a coordinated approach that brings together improved governance, innovative financing strategies, and a strong recognition of energy’s central role in driving economic growth and digital transformation. The report offers actionable insights for policymakers, investors, and regulators seeking to build a power system that is more reliable, inclusive, and aligned with Nigeria’s development objectives.