Keypoints
- Mispriced risk and flawed default views cost Africa $75 billion annually in excess borrowing
- Africa’s sovereign default rates and infrastructure loan performance rival global peers
- An AU-backed credit-rating agency is planned for late 2025–2026 to challenge global bias
MISCONCEPTIONS about African credit risk are exacting a hefty toll—estimated at $75bn annually—in extra borrowing costs, the African Finance Corporation (AFC) warns. This so-called ‘prejudice premium’ stems from mispriced risk and flawed perceptions of sovereign default, despite evidence showing African nations perform on par with similarly rated peers, including in infrastructure loan repayments, research by Moody’s Ratings reveals.
Misplaced risk assumptions drive up costs
‘Africa has paid a $75bn prejudice premium annually. That’s a lot of money,’ said AFC President Samaila Zubairu, underlining the chasm between perceived and actual risk.
Despite comparable sovereign default rates, African debt consistently trades at wider spreads—signalling inflated risk premiums. Moody’s analysis shows Africa’s sovereigns face unjustifiably higher borrowing costs, even though default trends align with other regions.
Performance contradicts pessimistic pricing
World Bank data from 2010–2020 indicates African infrastructure loans had one of the lowest default rates globally—second only among all regions. This shows Africa’s actual risk is significantly lower than investor pricing suggests.
Calls for transparency and regional credit rating
Ndidi Okonkwo, President of the One Campaign, also notes that bond-holders earn about 9.8 per cent on African debt, compared with 6.5 per cent for Latin American bonds—a clear sign of inflated costs. She adds that infrastructure returns in Africa over the past three decades have been six times those of the S&P 500, reinforcing that risk is matched—and overshadowed—by reward.
These disparities have prompted growing calls for better financial transparency and fairer assessments. In response, the African Union (AU) plans to launch a regional credit-rating agency, aiming to issue its first sovereign rating by late 2025 or early 2026. The goal: counterbalance the bias of global agencies with African-centred evaluations.
The path forward
Reforming how African sovereign risk is perceived—and priced—is critical. Without realistic risk assessments, the $75bn prejudice premium will continue to divert vital resources away from infrastructure, education and healthcare. A regional rating institution could be pivotal in closing this gap and unlocking fairer access to capital.
