African Banker at Davos - Is the ‘Africa risk premium' fact or myth?

Zawya

26-06-2025

One of the most contentious and emotionally-charged topics among African leaders and financial experts is what they consider the unfairly low ratings they receive from interna- tional credit rating agencies such as S&P, Fitch, etc. They argue that the perception of African risk is often much greater than the reality and this seeps into the ratings – making loans to Africa much more expensive – the so-called 'Africa premium'.
Mamadou Toure, co-founder of Africa House, who moderated the session, ar- gued that countries in other continents with similar or lower levels of stability are rated higher than African countries. Responding, Yann Le Pallec, president of ratings agency S&P Global, said their evaluations are grounded in rigorous, data-driven methodologies.
He said that ratings agencies exist to provide investors with the right informa- tion to help their decision-making.
'We do fundamental credit analy- sis, which means that we try to assess whether a country is likely to pay back its debt according to terms and con- ditions of the bonds, which are likely bought on the international market,' he explained.
He pointed out that the methodolo- gies employed by ratings agencies are transparent and publicly available, which he said meant that third par- ties can verify and even replicate the model to check the conclusions ar- rived at.
'We are a pure knowledge analysis company. But it's when we compare and contrast our views with those of investors that we can understand whether we're seeing a good picture and whether we've done a good job. And that creates, day to day, an ef- fective challenge for our analysts to improve the quality of the product,' he continued.
S&P Global, Le Pallec said, en- courages third parties to challenge its findings in order to ensure greater transparency and improvement.
Are countries 'painted with the same brush'?
Critics of the ratings agencies contend, however, that their decision-making is compromised by lack of knowledge and understanding of the unique fea- tures of African economies.
They argue that ratings agencies paint all African countries with a sim- ilar brush, ignoring the differences between them. Le Pallec acknowledged these challenges, noting that the con- tinent has a 'multiplicity of economies that are very different from each other in terms of GDP growth, ease of doing business and other factors'.
Lack of easily accessible data in any economy, he argued however, can itself be indicative of the country's creditwor- thiness.
Attempts by African countries to take control of how they are portrayed, Le Pallec said, are welcome and will help debunk unhelpful myths.
'It is in everyone's interest to make sure that investors have got the right information, the right intelligence, so that they can make their decisions,' he suggested.
Multilateral development banks must also play a greater role in channelling funds to the continent, which he says has a lot of potential.
'By 2035, 65% of the global GDP growth will be generated by emerging markets and frontier markets. The bulk of those are based in Africa. That's the opportunity we're talking about,' he stressed.
Africa risk premium is real, say critics
Speaking on the same panel, Ndidi Okonkwo Nwuneli, president of the ONE Campaign, stressed the critical need for Africans to take control of the narrative surrounding the continent, to counter the damaging effects of misconceptions and generalised risk assessments.
She argued that Africa is often un- fairly treated as a monolithic entity, with assessments based on the continent's weakest links rather than recognising the diversity of its 54 countries.
'Every time I have the opportunity, I say I want to talk about countries. So we're not talking about Africa, but rather we are talking about Nigeria, Kenya or South Africa,' she said.
Negative reporting, insufficient data and biased credit ratings, Nwuneli ar- gued, are responsible for the 'Africa risk premium', which means that Af- rican countries face higher borrowing costs than other regions.
This mispricing costs African na- tions billions annually, exacerbating debt distress in countries that are already struggling, she argued. To address this, Nwuneli called for the creation of a Cost of Capital Commis- sion, using Africa's current position as G20 host to prioritise the issue on the global agenda.
Akinwumi Adesina, president of the African Development Bank, is among those who have backed the creation of an African credit rating agency as an alternative to the US-based giants. Such an agency would have superior data on and insight into the continent to enable it to make better assessments of countries' fiscal positions, he told African Banker. (See page 52.)
'Some people think that it's just the African Union going to set up some agency for itself. Actually, it would be an independently-run, top-notch professional agency that provides the counterfactuals,' he explained. 'When you go to the doctor and run tests, you have the right to ask for a second opinion, don't you? Yes, so it's time to do that.'
Moky Makura, of campaign group Africa No Filter, put the cost of nega- tive media stereotypes on the conti- nent at $4.2bn, but argued that the real figure could be much higher. 'It's much bigger than that but this
figure is meant to get people talking. And this is an amount that can educate 12m children in Africa,' she explained. More Africans, she said, must be engaged in telling compelling stories about the continent, helping to reshape percep- tions and showcase Africa's progress and potential. The ultimate goal, she said, is to foster a more balanced and accurate global understanding of Africa. ■
Moky Makura, of campaign group Africa No Filter, put the cost of negative media stereotypes on the continent at $4.2bn.
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