Flow of External Finance to Africa over the last 25 years.

Lagos, Nigeria (Capital Markets in Africa):- As they prepare for the fast-approaching Third International Conference on Financing for Development in Addis Ababa (July 13-16, 2015), policymakers, private sector actors, and other global leaders should examine the types of external financial flows (defined as the sum of gross private capital flows, official development assistance (ODA), and remittances) that different groupings of countries receive in order to best support the implementation of the post-2015 development agenda. Understanding how different sources of development finance flow to different parts of Africa can help identify priority areas of intervention.

In a recent study, Brookings Africa Growth Initiative scholars explore the different types of external financial flows and their prevalence in sub-Saharan Africa, and discuss what those trends suggest about and for the region. (This report is third in a number of studies the Brookings Africa Growth Initiative is conducting on financing for development in the run-up to the conference in Addis. Previous reports looked at the financing of African infrastructure and the trends and developments in African frontier bond markets.)

The good news is that external financial flows to sub-Saharan Africa have increased significantly over the past 20 years or so. In fact, the volume of external flows reached about $120 billion in 2012—from $20 billion in 1990. As seen in Figure 1, the composition of external flows has also changed a lot: Most of the increase in external flows to sub-Saharan Africa can be attributed to the increase in private capital flows, which are now higher than ODA. The share of ODA fell from 62 percent of total external flows in 1990 to 22 percent in 2012, and 17 countries received more foreign direct investment (FDI) than ODA in 2012.

Source: How finance flows to Africa