University of Saskatchewan expert researcher aims help developing countries conquer financial roadblocks to infrastructure
As part of her Master of Science in Finance research, University of Saskatchewan (USask) Edwards School of Business graduate student Qiongfang (Joan) Lu decided to investigate the realities of obtaining financing for developing countries to support their growth – particularly in the vast landscape of Africa.
“Poor infrastructure conditions have impeded Africa’s development for decades, as many practical difficulties exist in implementing infrastructure projects,” said Lu. “Driven by my two-year living experience in Africa during the COVID-19 pandemic, I felt the urge to research something about African infrastructure, because I strongly believe this is truly the bottleneck to unlocking Africa’s enormous potential.”
Africa is rich with potential. Its population of youth and young adults will grow to the largest workforce in the world over the next decade. Along with this increase in labour availability, up to 60 per cent of Africa’s farmable land is currently uncultivated, and natural resources, such as an abundance of minerals, have been largely untapped.
Regardless of this potential, Lu said that, according to the World Bank, “the infrastructure funding for Africa is only about ten per cent compared to other emerging markets.”
Countries obtain funding in two major ways – through debt or equity. A debt issuer may offer money or support to a foreign company in exchange for a promise of repayment. An equity investor may purchase a portion of a company that is starting operations in a foreign country.
“By using panel data from 35 African countries over 17 years, we find that an African country with better infrastructure development is more likely to attract investors, both debt issuers and equity investors,” said Lu, who conducted the study under the supervision of professor and international business expert Dr. Craig Wilson (PhD).
Findings show that developing countries tended to attract more equity investment than debt investment.
“The fact that equity investors show higher participation in less developed African countries might be a bit surprising for some,” said Lu.
According to Lu, despite investment in African countries often being perceived as risky, its infrastructure projects typically bring much higher returns and lower default risks than those of other regions in the world.
“My biggest motivation in research is to look for ways to utilize finance as a tool for making the world more sustainable and more equal to all humankind.”
Joan Lu
“It is important to advocate our findings to professionals in the financial industry to increase their awareness of infrastructure investment opportunities in Africa,” said Lu. “It is worth highlighting that policymakers should find ways to encourage more equity investors to consider investing in less developed African countries because our findings show they are more willing to explore such opportunities; therefore, allocating more resources to equity investors is likely to yield better policy outcomes.”
The academic paper written with these findings has been presented twice at The Cross Country Perspectives in Finance Symposium and has been submitted to the Journal of International Financial Markets, Institutions, and Money for potential publication.
Lu said one of the biggest lessons she has learned throughout the project is how concepts like corporate finance can be viewed through a humanistic lens.
“My biggest motivation in research is to look for ways to utilize finance as a tool for making the world more sustainable and more equal to all humankind,” she said. “I believe finance is not an isolated field. It is connected to the values and perceptions of people.”
Lu plans to continue the work as she pursues her PhD in finance and expects to graduate in 2026. Funding for the study was provided by the Edwards School of Business Research Fund.