AFRICA’S largest economies are challenging global credit-rating practices that lead to inflated borrowing costs, costing the continent billions each year. Standard Bank Group CEO Sim Tshabalala, speaking at the recent Future Investment Initiative conference in Riyadh, Saudi Arabia, condemned what he called ‘preposterous’ additional costs imposed on African nations due to inflated risk assessments by international credit-rating agencies.
Last year, a UN Development Programme report estimated that subjective risk ratings for African countries resulted in $75bn in additional costs and lost revenue. ‘This perception issue makes a massive difference and needs to be addressed,’ Tshabalala emphasised.
A call for a pan-African rating agency
Tshabalala’s comments echo growing calls from African leaders for fairer credit assessments. Former Senegalese President Macky Sall and Zimbabwe’s Finance Minister Mthuli Ncube have advocated for a pan-African credit-rating agency to better reflect the continent’s risk profile and reduce borrowing costs. Plans are underway, with the African Peer Review Mechanism, African Development Bank, African Export-Import Bank, and African Union Commission committing to establish such an agency by next year.
This movement seeks to counter current practices that impose steep credit spreads on African nations even when their ratings align with global counterparts. Former Senegalese Economy Minister Amadou Hott explained that African countries often pay an additional 500 basis points compared to equally rated nations elsewhere. ‘When another country pays 5 percent on a bond, African governments pay 10 percent,’ he noted. Over a 20-year period, this discrepancy adds up, turning a $1bn loan into an additional $1bn burden, he added, warning of heightened debt vulnerability if left unaddressed.
Comparative cases: South Africa vs. Denmark
Tshabalala pointed to South Africa as a prime example of inflated risk perception. Despite having similar institutional structures, policies, and processes as Denmark, South Africa is rated ‘junk’ by major agencies, while Denmark holds a prestigious AAA rating. ‘These differences in ratings have a substantial impact on borrowing costs,’ Tshabalala argued, illustrating the perceived bias against African economies.
This growing momentum for an African credit-rating agency reflects a broader push for fair treatment in global finance, with leaders and institutions across the continent striving to reduce barriers that inflate costs and hamper sustainable growth. If successful, these reforms could pave the way for a more equitable financial landscape, giving African nations greater access to affordable funding and supporting their development goals.
