When governments borrow too much and invest too little, the real cost is not just debt servicing and missed future government revenues, but also the crowding out of private investment, which affects entrepreneurs’ ability to secure private funding.
The Debt Load No One Can Ignore
Africa’s sovereign debt has crossed the $1.15 trillion mark. That’s more than half the continent’s GDP. According to the African Development Bank (AfDB), public debt across Africa surged to 60–70% of GDP by late 2023. Experts predict the figure could reach $1.2 trillion by the end of 2025. As of early 2025, over 25 African countries are officially categorised by UNECA as being “in debt distress” or at “high risk of default.”
Governments across Africa now spend nearly 28% of their revenues servicing debt — a steep rise from 19% in 2019. Almost one-third of all public income diverted away from schools, hospitals, infrastructure, and innovation.
It’s a lose-lose for everyone: governments can’t invest in growth, and entrepreneurs are left without the enabling environment to scale.
Slower Growth, Growing Poverty
In May 2025, AfDB revised Africa’s growth forecast downward, from 4.1% to 3.9%. That may sound marginal, but for a continent with rapid population growth, anything under 5% means rising poverty, fewer jobs, and tighter markets.
However, there are success stories that demonstrate the effectiveness of improved financing strategies over time. Nations such as Rwanda and Ethiopia exceed projections with estimated growth rates exceeding 7%. What sets them apart? Strong fiscal discipline, long-term investments, and a well-defined industrial policy. These factors indicate that a country’s approach to managing its debt, rather than the amount borrowed, is what truly matters.
What This Means for Entrepreneurs and Investors
- Credit is Tighter
Heavy government borrowing is crowding out private access to finance. Commercial banks prefer lending to governments, as they are perceived as lower-risk and higher-yield, rather than to SMEs. Result? Entrepreneurs face higher interest rates and fewer funding options.
- Macroeconomic Volatility
Currency depreciation, rising inflation, and local bond instability create uncertainty, particularly for investors in industries that rely on imports, subsidies, or government contracts.
But there’s a silver lining. Debt distress is creating demand for local solutions. As imports become more expensive, local businesses that produce food, consumer goods, or intermediate products gain traction. The opportunity? Build resilient local supply chains and serve growing domestic markets.
Three Smart Moves for Africa’s Entrepreneurs
In the face of economic pressure, here’s how entrepreneurs and investors can adapt and thrive:
- Localise the Value Chain
Use local inputs, talent, and tools. Agro-processing, textiles, FMCG, and light manufacturing are ripe for scale.
- Export to Stronger Currencies
Target export markets within Africa or beyond. With the AfCFTA in effect, regional demand is increasing, particularly for finished and semi-finished goods.
- Invest in Underserved Needs
From off-grid solar to low-cost logistics, Africa’s debt crisis exposes infrastructure gaps and creates space for innovative private-sector solutions.
How African Governments Can Transform Borrowing into a Growth Blueprint
Borrowing isn’t inherently bad, but borrowing without productivity is a trap. Africa needs to rethink its approach to financing development. That includes:
- Prioritising debt tied to export-generating sectors
- Ensuring local retention of value in foreign-funded projects
- Encouraging private capital to complement shrinking public budgets
Africa’s rising debt is real, but so is its people’s resilience and entrepreneurs’ ingenuity. For those who adapt quickly, localise smartly, and build intentionally, this moment isn’t just a crisis. It’s a rare opportunity to lay the foundation for sustainable, self-sufficient growth.
