Rethinking infrastructure investment: why project finance matters

By Dr. Joseph QUARSHIE & Ama BOADI, University of Professional Studies Accra

One of Ghana’s developmental challenges is how to finance large-scale public infrastructure without adding to the country’s debt. The pillar of every economy is its infrastructure, such as good roads, well-equipped hospitals, schools, etc., but funding restrictions have prevented governments from borrowing to fund these initiatives.

Project financing is a feasible way of solving this issue. This financing option mobilises private capital for large-scale infrastructure based on the project’s future revenue, rather than the government’s own balance sheet. The government plays the role of sponsor while the private sector (local and international) mainly acts as lenders.

Project finance is a technique of financing large-scale industrial or public infrastructure projects by mezzanine debt and equity finance, for which the lender considers future project revenues as the sole source of repayment.

Under project finance, a distinct legal entity (known as a project company) is created to develop, own and operate the project until all funding invested in the project is fully paid for. Project finance, unlike typical public funding, ensures that risks are contractually shared among sponsors, contractors, offtakers, lenders, government and some multilateral agencies.

Why Project Finance is Important for Ghana

According to the 2025 mid-year budget review, Ghana’s debt as of June 2025 was GH?613 billion, which is 43.8 percent of Ghana’s GDP, constraining the amount of money that can be further borrowed to invest in new government ventures.

According to estimates by the World Bank, Ghana will have to spend US$2.3 billion annually between now and 2030 to correct its infrastructure gap. It is safe to ask: how can the government raise US$2.3 billion in 2025?

Funding projects by securing funds from private investors can help bridge this gap. Such funding will lighten the state’s fiscal burden by mobilising private investment from local and international sources into capital-starved projects as well as into vital sectors like housing, energy, and health.

Some characteristics of project finance favour developing economies like Ghana. These include off-balance sheet financing, risk-sharing, long-term focus, productivity of the private sector and repayment from the cash flow. The off-balance sheet financing ensures that the central government does not fund projects from its annual budget.

These projects are funded outside of the balance sheet, thereby maintaining public debt at safe levels that reposes confidence in the economy. Under project financing, there is the sharing of risks.

This is because with the traditional method of funding a project (Central government), all the risk is borne by the government if the project fails, but with project finance, the risk is shared among those who provided funding(sponsors), contractors and off-takers (those who will buy the final output). This type of financing has a long-term focus and repayment periods of the funds are typically long-term (10–25 years), which is consistent with the life of large-scale infrastructure.

Typically, investors in project finance have a portfolio of funding from development banks, pension schemes and insurance, which have relatively longer-term maturity periods.

Another characteristic of this financing option is the involvement of the private sector, which promotes productivity. The participation of the private sector provides timely project execution. Lastly, project finance promotes self-sufficiency because repayment depends on the project’s future cash flows rather than on the sponsors’ balance sheets.

Attaching Big Push and 24-Hour Economy Agenda to Project Finance

The “Big Push” is a US$10 billion infrastructural initiative by President John Dramani Mahama. It is set to catalyze industrialisation and generate jobs. These projects need to be financed.

The government can utilise Public Private Partnerships (PPPs) set under project finance structures in order to fund this program rather than borrowing funds.

Similarly, the “24–hour economy policy” of higher growth in productivity and industry will demand energy, transport and other infrastructures of logistics. Through project finance, the government can build energy plants, industry parks and transport terminals needed for this dream to come true without overstraining the national purse.

Many countries have tried this financial model. African nations (like Kenya and South Africa) have leveraged this financial option to fund important infrastructure. The funding of the Lake Turkana Wind Power Project in Kenya was funded by Private investors and development agencies at US$680 million.

The SPV used for this project was Turkana Wind Power Limited. The South African Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) was also funded with more than US$20 billion in public-private capital.

This initiative by their government was to boost investment in renewable energy. All these models can be emulated by Ghana for the purpose of powering Mahama’s development agenda.

International Assistance to Ghana’s Project Financing

There are global institutions that have pushed Ghana to increase the amount of project finance it uses. Public-Private Partnerships (PPP) and project finance have been put forward by the likes of the International Finance Corporation and the World Bank’s Public-Private Infrastructure Advisory Facility (PPIAF).

It is noted by the 2022 IMF working paper that African economies that utilise project finance are better performing and have more fiscal restraint.

Recommendations to Ghana

1. Capacity Building: There must be schemes to raise the level of skills among public sector employees in financial modeling, risk management, and project appraisal.
2. Encourage Transparency and Public Awareness: People should be made aware of the benefits of project finance. It needs to be clearly articulated that project finance is not about privatization, but rather a strategy of cooperation for development.
3. Leverage Development Partners: To co-finance major projects under the Big Push and the 24-hour economy, the government can cooperate with some development organizations like the African Development Bank (AfDB), China Development Bank, and International Finance Corporation (IFC), which sometimes give long-term funding for developmental projects.
4. Utilising Pension assets to fund Project Finance: In a bid to support long-term infrastructure and realise steady returns, Ghana can cautiously direct some pension assets to well-structured project finance activities.

To safeguard pensioners’ savings, there is a need to ensure good governance, transparent risk assessment, and ring-fencing procedures. Pension-backed project finance can be secured and transformative with effective legislation and coordination with development banks. 

Conclusion

Although not a new concept, project finance is Ghana’s best answer to funding mega infrastructure projects without adding to the country’s debt. For the acceleration of development and sustaining growth, the government has to embrace this funding alternative in full.

Through making project financing the basis for the next generation of public infrastructure, Ghana can turn President Mahama’s Big Push and 24-hour economy into a reality.

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