Global financial bias is costing African countries $75 billion each year through inflated borrowing costs and lost revenue, according to the president of the Africa Finance Corporation, Samaila Zubairu.
He said Africa continues to suffer from misjudged risk assessments and exaggerated perceptions of default.
“These default rates are really exaggerated. The prejudice premium Africa has paid is $75 billion annually. That’s a lot of money,” Zubairu stated.
Moody’s Ratings research from last year found that sovereign default rates in Africa are generally in line with countries that have similar credit ratings.
However, African debt still trades at wider spreads, suggesting that investors are pricing in risks not supported by fundamentals, Bloomberg reported.
World Bank data also shows that from 2010 to 2020, Africa had the second-lowest default rate on infrastructure loans globally.
Yet despite this, African debt continues to be priced higher by investors.
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Ndidi Okonkwo, president of the One Campaign, highlighted at the same event that bondholders earn an average of 9.8% on African debt, compared to 6.5% on Latin American bonds.
“For the last three decades, return on infrastructure investments in Africa was six times that of the S&P 500,” she said. “Yes, there is risk but there is return.”
Okonkwo also stressed the need for more transparent and consistent publication of economic data to help correct misconceptions about Africa’s financial performance.
African governments and corporations have repeatedly criticized major credit rating agencies, Fitch Ratings, Moody’s Ratings, and S&P Global Ratings, for what they say is bias and a lack of clarity in their rating methods.
In response to these concerns, the Afcan Union is moving forward with plans to create its own credit ratings agency.
The first sovereign rating report from the AU’s agency is expected by late 2025 or early 2026.
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Image Credit: Business Insider Africa
