African financial markets must rise to fill the void created as official aid flows dry up soon. This will be complemented by economic reforms through which governments can make the continent a more investment-friendly destination. The imminent death of foreign aid will lead to a reconfiguration of funding models in the developing world, including Africa. While funds will still flow into the continent, these will be mainly private, interest-seeking funds whose owners seek maximum returns.

Since the recent pronouncement by the new United States administration on the fate of USAID, many economies in the global south, the main beneficiary of aid and official assistance, have been rattled. They foresee a decline in the flow of funds from aid agencies, not only from USAID, but very likely from other agencies through a possible contagion effect. Even before this latest development, there had been signs of what is known in the aid community as “donor fatigue”. So, the evidence was building up that the aid and official assistance largess would not last for much longer. Therefore, if any countries or regions have been caught napping on this, it’s a strategic policy failure and shortsightedness that demands immediate remedial plans.

For a long time, public sector financing in our region became virtually dependent on foreign aid. From agriculture to education, health, and other public goods, foreign funds became the bedrock of economic progress in the developing world. Africa, including Nigeria, depended on not just foreign funds but also foreign technical assistance to execute some projects with significant economic impacts. Now, as a new phase with little or no aid looms, the management of local resources will receive greater attention.

Aid feasted on poverty, hunger, disease, wars, disasters, and other misfortunes that befell the developing world. It was framed as a helping hand to regions captured by underdevelopment and its attendant challenges. Unfortunately, foreign aid in some cases turned out to be help that didn’t help. It became help that instead deepened a country’s dependence on the helper.

A whole industry developed around aid and official assistance business. Consultancies sprang up, with experts who advised governments and their agencies on how best to apply for and win such aid funds. Aid-funded projects could easily be noticed, with one of the signs being big project vans that roamed the streets ferrying officials of all calibres.

In the coming years, the affected countries have to wean themselves from this culture of dependence. Scholars have used the dependency theory to examine the operations and impacts of foreign aid or assistance on developing countries. And the conclusion in most cases is that aid rather than reduce dependence increased it.

In many countries, governments depended almost entirely on foreign assistance to fund public goods such as roads, power, water, and health facilities, among others. While these official development funds continued to flow, little attention was paid to the local financial markets. Consequently, the local markets were not primed to become sources of long-term funds that would support large-scale projects. That was a major drawback to the growth and development of Africa’s financial markets.

African countries are preparing for the coming phase of low aid through the increasing rise in the role of the continent’s private sector. Through privatisation programmes, previously government-run assets are being transferred to the private sector for improved performance. These are aspects of economic reform programmes being implemented to deepen markets and regulatory activities.

A critical response to the decline of the aid industry has to come from Africa’s private sector. This sector has to provide the required bulwark to support the economy in the new environment devoid of aid and official assistance. The surest way to do this is the development or deepening of markets. Africa and the developing world have to fast-track the development of markets to change the financing models.

Africa previously depended on the flow of aid because markets here were either lacking or poorly developed. Antoine van Agtmael, in his book ‘The Emerging Markets Century: How a New Breed of World-Class Companies is Overtaking the World’, has revealed the origin of the term, “Emerging Market”. The term, his documentation shows, arose from one man’s vision of the possible dynamism in the low-level market institutions in economies outside of the Western economies in the early 1970s.

As one of the regions that were previously dabbed “Third World” countries Africa has since become part of the emerging markets, with much progress made in the development of the features of a market economy. Part of that is the emergence of properly functioning financial markets that are now attracting foreign capital, both direct and portfolio.

Today, Africa is recording a rise in FDI. In 2024, FDI flowing into the continent rose by 84 per cent, to a record $94b. This was revealed in a report by the United Nations Trade and Development Agency. While the amount taken on its own might appear quite small, the rate of change is significant.

Should this be sustained, then the continent is certain the experience more investment inflows. Its continued flow will depend on reforms that enhance the business environment and raise our market performance.