The 2025 African Economic Outlook (AEO) reveals this inefficiency surpasses global averages and stems from deep-rooted issues like corruption, weak governance, and poor project oversight. According to the Bank, urgent reforms are needed to ensure government expenditure delivers tangible results for citizens.

The report details how public investments frequently suffer delays, ballooning costs, and limited developmental impact due to inadequate monitoring and evaluation systems. “Too many projects produce the least development benefit,” the AEO states, directly linking poor outcomes to flawed implementation and supervision. This inefficiency undermines efforts to mobilize domestic revenue and attract crucial external financing, the Bank emphasizes.

Alarmingly, the continent faces massive financial leakage. The AEO estimates Africa loses nearly as much capital as it collects in public revenue annually – potentially $587 billion leaked versus $578 billion collected in 2023. This hemorrhage stifles growth and investment potential. The Bank argues that demonstrating effective domestic resource management is key to attracting long-term external capital, stating “global capital will follow African capital.”

Significant opportunities exist to boost revenue and close the financing gap. Improved tax enforcement and administration could generate an additional $469.4 billion yearly, equivalent to 14.4% of Africa’s GDP. Digitizing tax systems and reducing the informal economy are critical strategies highlighted. Furthermore, properly valuing environmental assets like carbon sequestration could add $66.1 billion to GDP, alongside potential from the blue economy and formalizing informal businesses.

A transformative proposal involves unlocking Africa’s pension funds for local development. The AfDB calculates that directing just 1% of pension assets from the continent’s six largest economies towards domestic projects could yield $1.7 trillion by 2050. To stem capital flight and mobilize resources effectively, the report urges strengthening national development banks and expanding the role of sovereign wealth funds in local investment.