As South Africa assumes the G20 presidency with its theme “Solidarity, Equality, Sustainability,” the country stands uniquely positioned to champion innovative approaches to accelerating sustainable development goals. With only five years remaining until the 2030 deadline, the urgency for transformative action has never been greater.  Developing countries face a US $4.3 trillion annual financing gap for sustainable development, including US  $1.8 trillion for climate needs.  Africa needs over US  $1.3 trillion a year to meet the SDGs, yet only half of that is currently mobilised. This critical situation demands a shift in how resources are mobilised for sustainable development, particularly through the utilisation of regional financial mechanisms.

The promise of regional financial architecture

Regional development banks (RDBs) and sub-regional financial institutions represent an underutilised catalyst for SDG acceleration across the African continent. These institutions possess inherent advantages that traditional multilateral development banks often lack: deeper understanding of local contexts, greater responsiveness to regional priorities, and stronger alignment with domestic development strategies. The African Development Bank (AfDB) Group has long championed climate action and green growth across Africa. It has expanded climate finance from US $500 million in 2008 to US  $39.2 billion between 2011 and 2023, supporting low-carbon and climate-resilient development. For 2020–2025, the Bank has committed US $25 billion from its own resources and aims to help Africa increase its share of global climate finance from 3% to 10% by 2030.

Similarly, Sub-regional development banks (SRDBs) in Africa, including the Eastern and Southern African Trade Development Bank, East African Development Bank, West African Development Bank, and ECOWAS Bank for Investment and Development, collectively serve 40 African countries. Despite their strategic positioning, these institutions face significant constraints including: 

• Weak institutional governance and limited mandate clarity: Sub-regional development banks face fundamental governance challenges that severely limit their operational effectiveness. These include:
  • Insufficient board oversight
  • Unclear decision-making processes
  • Conflicting priorities among member states that often reflect broader political tensions rather than development objectives
• Capital constraints and limited access to international markets: The most critical constraint facing these institutions is their severely limited capital base relative to development needs. These institutions face immense pressure to provide financing on a scale required for a country’s overall growth trajectory and transformation, yet their capitalisation remains woefully inadequate. The African continent faces an annual infrastructure funding gap of between US$68 billion and US  $108 billion. By 2040, the cumulative gap is expected to be around US  $1.59 trillion
• Credit rating challenges: One of the central challenges for RDBs lies in balancing market-based discipline, by leveraging private credit ratings with their developmental mandate to serve countries lacking market access. Overreliance on ratings risks excluding prudent but poor countries from essential long-term financing, potentially perpetuating underdevelopment
• Administrative and operational inefficiencies: SRDBs struggle with their ability to mobilise resources from global funds being impaired by administrative hurdles and excessive managerial costs. Even when banks achieve accreditation with international green funds, access to such funds remains cumbersome, requiring complex processes of funding criteria and approval which end-borrowers find hard to meet. This bureaucratic complexity particularly impacts smaller member countries that often lack the technical capacity to navigate complex application processes
• Limited cross-regional communication: These further hampers operational effectiveness. The lack of coordination between SRDBs means missed opportunities for knowledge sharing, joint project development, and economies of scale that could reduce per-unit costs of development financing 

These challenges, amongst many, have major implications for climate finance and SDG achievement. These constraints also undermine regional integration, as underfunded banks cannot provide the scale of infrastructure financing needed for cross-border trade and industrialisation. The challenge in regional financing perpetuates developing countries’ dependence on external finance, often misaligned development priorities, and hindering progress toward both climate and SDG targets.

 Solutions to unlock regional financial potential 

Unlocking the financial potential of sub-regional development banks requires a multi-pronged approach:

• Systematic capital expansion: Essential for increasing MDBs’ lending capacity. Strategies include attracting new non‑regional states, especially high‑income economies to boost capital and improve credit ratings, as demonstrated by the European Investment Bank’s (EIB) expansion model. The EIB broadened its capital base by admitting non‑EU member states (e.g., candidate and partner countries) and offering hybrid capital instruments to attract institutional investors. This diversified ownership structure strengthened its credit profile and expanded access to capital
• Channelling Special Drawing Rights (SDRs): Offers a transformative opportunity for multilateral development banks. The IMF now allows the use of SDRs as hybrid capital contributions, a mechanism recognised by the G20. This approach enhances MDBs’ financial capacity and stability, enabling faster and more consistent SDG financing. It improves their ability to plan and fund projects predictably, attract private co‑investment, and mitigate delays linked to limited or irregular donor funding
• Mobilising institutional investors: Pension funds, insurance companies, and other institutional investors can unlock substantial capital. If just 5% of Africa’s US $2.1 trillion in institutional assets were directed toward infrastructure, it would release over US $100 billion in long‑term financing
• Promoting fiscal responsibility: RDBs need to avoid the perverse incentive of disproportionately supporting borrowers with poor track records, ensuring that lending standards promote fiscal responsibility. Additionally, RDBs need to support financial integration across developing economies by harmonising regulation and creating instruments for cross-border investment
• Innovative risk mitigation: Incorporating patient capital from official sources and credit‑enhancement mechanisms such as InfraCredit Nigeriacan improve project bankability and reduce perceived investment risk.
• Strengthening institutional inefficiencies: To complement these measures, regional and sub‑regional development banks should streamline access to global climate and SDG funds, simplify accreditation processes, and strengthen cross‑regional coordination mechanisms. These actions would reduce administrative bottlenecks, improve fund utilisation, and accelerate equitable deployment of resources across member countries.

The suggested solutions collectively could strengthen the ability of regional banks to mobilise resources for sustainable development and climate action.

The G20 MDB Reform Roadmap offers a valuable template to enhance regional development banks by promoting greater geographical diversity, cooperation, and resource adequacy. Under South Africa’s presidency, the G20 should prioritise integrating regional and sub-regional banks into this broader reform agenda, encouraging them to operate as part of an expanded, coordinated system. Regional financial institutions are uniquely positioned to accelerate SDG achievement by leveraging their deep understanding of local contexts and long-term commitment to development. Their comparative advantage is especially critical for scaling up infrastructure investment, as they may pool resources across member countries, coordinate cross-border projects, and ensure that investments support regional integration rather than fragmented national priorities. The AfDB’s Facility for Energy Inclusion demonstrates the transformative potential of innovative regional financing. This US  $500 million debt financing platform aggregates capital, structures bankable projects, and accelerates delivery of clean energy access across Africa.

Regional institutions are increasingly adopting sophisticated financial instruments tailored to local needs.  Global Affairs Canada has provided US $7.3 million to the Africa Fertilizer Financing Mechanism (AFFM), administered by the African Development Bank Group, to boost sustainable agriculture and improve smallholder farmer livelihoods, especially for women and youth, across Africa.  Such mechanisms enable credit guarantee programmes that allow fertiliser importers and aggregators to access products on credit, whilst simultaneously improving soil health through technical assistance.  Therefore, the G20 presidency needs to champion reforms that empower regional institutions, scale up innovative financing, and foster collaboration to close the SDG financing gap and deliver inclusive, sustainable development. 

Conclusion

Regional development banks hold untapped potential to address the stagnant SDG financing gap. These institutions possess inherent advantages that multilateral banks lack. Yet systemic constraints such as weak governance, limited capital, and operational inefficiencies, remain unresolved. Closing this gap requires systematic capital expansion, innovative risk mitigation, and stronger integration within global reform frameworks such as the G20 MDB Reform Roadmap.  By mobilising institutional investors, channelling Special Drawing Rights to enhance capital adequacy, and promoting cross-regional collaboration, these banks can deliver financing that aligns with African priorities. Without empowering regional institutions as central agents of sustainable development, Africa will remain dependent on misaligned external financing, perpetuating development stagnation, and inequality.

References

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