Global financial bias is costing African countries billions of dollars annually in inflated borrowing costs and lost revenues.
- African countries face inflated borrowing costs and lost revenue due to misjudged risk assessments.
- Research shows Africa’s sovereign default rates align with similarly-rated regions, yet debt trades at higher spreads.
- Africa records lower default rates on infrastructure loans compared to global averages.
Misjudged risk assessments and inaccurate perceptions of default are costing African countries billions of dollars annually in inflated borrowing costs and lost revenues, according to the president of the Africa Finance Corporation.
“These default rates are really exaggerated. The prejudice premium Africa has paid is $75 billion annually. That’s a lot of money,” Samaila Zubairu said.
Research by Moody’s Ratings last year revealed that Africa’s sovereign default rates are largely consistent with those of similarly-rated countries.
Yet, its debt trades at wider spreads, indicating that investors are pricing in additional, non-fundamental risks, according to Bloomberg.
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World Bank data further shows that between 2010 and 2020, Africa recorded the second-lowest default rate on infrastructure loans globally. Despite this, African debt continues to attract higher yields.
At the same event, Ndidi Okonkwo, president of the One Campaign, noted that bondholders earn an average of 9.8% on African debt, compared to 6.5% for Latin American bonds.
“For the last three decades, return on infrastructure investments in Africa was six times” that of the S&P 500,” Okonkwo said. “Yes, there is risk but there is return.”
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Calls grow for transparent economic data
He emphasised the need for a program that would consistently publish more data on the real state of the economy and the performance of its various sectors.
African governments and corporations have long accused credit rating agencies, Fitch Ratings, Moody’s Ratings, and S&P Global Ratings, of bias and a lack of transparency in their assessment methodologies.
In response to growing dissatisfaction with foreign ratings, the African Union (AU) plans to establish its own credit ratings agency, with the first sovereign rating report expected by late 2025 or early 2026.
