African nations face significantly higher financing costs due to biased risk assessments by credit-rating companies, according to Sim Tshabalala, CEO of Standard Bank Group Ltd., Africa’s largest bank. Speaking at the Future Investment Initiative Institute conference in Riyadh, Tshabalala highlighted a United Nations Development Programme study from 2023, which revealed that subjective risk evaluations by ratings agencies have cost African countries $75 billion in extra costs and lost revenue. He described this financial burden as “preposterous” and “unconscionable,” emphasizing that it reflects inflated perceptions of risk in Africa that need urgent redress.
This sentiment aligns with increasing calls across the continent to reform how credit-rating companies assess risk in Africa. Notable figures, including Senegal’s former president and Zimbabwe’s finance minister, have advocated for the establishment of a pan-African credit-rating agency. Efforts toward this goal are gaining momentum, with the African Peer Review Mechanism, African Development Bank (AfDB), African Export-Import Bank, and African Union Commission planning to launch such an agency by 2025.
Tshabalala underscored the issue by comparing South Africa, which is rated as “junk” by major agencies, with Denmark, a country with similar institutions and policies but holding a AAA rating. This discrepancy exemplifies the unjustified differences in risk perception, leading to disproportionately high borrowing costs for African nations. For example, former Senegalese Economy Minister Amadou Hott pointed out that African countries often pay up to 500 basis points more on their debt compared to similarly rated countries elsewhere, adding billions in unnecessary costs over time.
The development of a pan-African ratings agency is seen as a critical step toward ensuring more equitable assessments of African economies, helping to reduce the unfair premium that African governments currently pay on debt.
