Trade finance as an institutional mechanism for African direct investment: A scoping review of drivers, barriers, and the emerging continental architecture

Abstract

African Direct Investment (ADI), defined as intra-continental direct investment by African firms and entrepreneurs, has grown over the past two decades but remains conceptually underdeveloped and constrained by institutional and financing challenges. This study examines trade finance as an institutional mechanism shaping ADI by identifying its key drivers, barriers, and the continent's emerging investment architecture. Using the PRISMA-ScR protocol, we synthesise evidence from 65 academic and grey literature sources published between 2010 and 2026, guided by Scott's three-pillar institutional framework and North's New Institutional Economics. The review finds that while informal institutions, including pan-African business networks and institutional familiarity, facilitate investment decisions, weaknesses in formal trade finance systems increase transaction costs and uncertainty, limiting their effectiveness. Major barriers include correspondent banking de-risking, fragmented payment systems, governance challenges, and an African trade finance gap estimated at US$81–100 billion annually. Recent institutional innovations, including the African Continental Free Trade Area (AfCFTA) Investment Protocol, the Pan-African Payment and Settlement System (PAPSS), and the Fund for Export Development in Africa (FEDA), provide important opportunities to strengthen Africa's investment architecture, although implementation challenges and limited SME access remain significant constraints. The study positions trade finance as the institutional mechanism linking formal and informal institutions in shaping ADI, extends institutional theory to the African investment context, and identifies research and policy priorities for strengthening intra-African investment and economic integration.