As Western and Chinese development finance models shift, the African Development Bank faces a critical choice to reform its lending strategy to better support private-sector growth.
Key facts
- •Chinese sovereign lending to Africa peaked at over $28 billion in 2016 before falling to $2.1 billion in 2024.
- •Only 10 percent of SMEs surveyed in sub-Saharan Africa receive financing through formal bank lending.
- •The AfDB's proposed A/B loan structure allows commercial banks to benefit from the institution's preferred creditor status.
- •In the first half of 2026, Chinese Belt and Road investments in Africa reached $33.5 billion, a 254 percent increase from the previous year.
- •The AfDB is urged to condition its financial support on reforms that reduce regulatory incentives favoring government bonds over private loans.
The traditional model of development finance in Africa is changing as Western aid budgets shrink and Chinese lending pivots from state debt to corporate ownership. This shift leaves the African Development Bank (AfDB) at a crossroads, as its current sovereign-lending model struggles to mobilize private finance at scale. To address this, the bank is considering a new approach that prioritizes syndicated deals and institutional reforms to help the continent fund its own economic transformation.
By the numbers
The Shift in Global Development Finance
For decades, Africa relied on a model where external finance from wealthy nations and multilateral institutions led development. However, Western aid has declined and European banks have retreated. Meanwhile, Chinese lending, which totaled an estimated $180.9 billion between 2000 and 2024, has moved away from sovereign loans due to debt distress in countries like Ethiopia, Ghana, Zambia, and Angola. While Chinese Belt and Road investments surged to $33.5 billion in the first half of 2026, these funds are increasingly focused on private equity in sectors prioritized by Beijing rather than local development needs.
Reforming the African Banking Landscape
African financial systems are currently dominated by banks that prefer financing public fiscal deficits through government bonds over lending to private businesses. This trend limits access to capital for small- and medium-sized enterprises (SMEs), which often face high interest rates and rely on informal networks. To counter this, the AfDB is encouraged to use its preferred creditor status to lead syndicated A/B loans, which would allow commercial lenders to participate in projects with reduced risk. Additionally, the bank could provide credit lines and guarantee schemes to local financial institutions, provided these partners commit to reforms that dismantle regulatory barriers and increase competition.
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This article was independently rewritten by ManyPress editorial AI from reporting originally published by Foreign Policy.
