Africa is paying a price for a risk reputation that may be increasingly disconnected from reality.
This is according to GCB Bank Managing Director Farihan Alhassan, who argues that the continent’s transactions are often priced far above those of comparable markets despite evidence that African businesses can be reliable borrowers.
Speaking at the African Leadership Council, Farihan Alhassan said the widespread perception of Africa as an inherently risky investment destination is misplaced, with investors and financiers often pricing African transactions at multiples of what comparable transactions attract elsewhere.
He argues that the problem is not necessarily the actual risk, but the way that risk is perceived and priced.
Paying 10 times for the same risk
Farihan Alhassan said African transactions are sometimes priced as much as 10 times higher than their peers, reflecting a risk premium that can become self-defeating.
The irony, he noted, is that the evidence available to him shows African businesses can perform strongly on their debt obligations and, in some cases, repay loans better than their counterparts in other markets.
This creates a paradox where a business may have demonstrated the capacity to repay, yet still face expensive financing simply because it is operating in Africa.
The result is that viable businesses face higher borrowing costs, investors demand greater returns and projects that might otherwise be commercially feasible become more difficult to finance.
When Perception Becomes the Risk
As the experts note, the more expensive capital becomes, the harder it is for African businesses to grow. A manufacturer paying significantly more to finance machinery, for instance, has less room to hire workers, expand production, or compete on price.
A property developer faces higher project costs. An agribusiness has less money available for inputs and expansion. A technology company has to devote more of its future cash flow to debt repayment.
In this sense, the MD of GCB Bank notes that the impact goes beyond just the financial sector. Mispriced risk can itself create the economic weakness investors fear.
He also pointed out that the same mindset can influence African banks, which may become more cautious about lending to local businesses because of concerns about risk.
Africa Needs a Better Reading of Risk
Farihan Alhassan’s argument does not categorically indicate that there are no risks in Africa. Political uncertainty, currency volatility, infrastructure gaps, and regulatory weaknesses are real considerations. But those risks need to be assessed based on evidence rather than broad assumptions about the continent.
A borrower that has a strong cash flow, sound management and a consistent repayment history should not automatically receive punitive pricing simply because its address is in Africa.
This ultimately is the MD’s challenge to investors and lenders to stop treating Africa as one giant risk category and start pricing individual businesses on their actual performance.
For a continent seeking to unlock private investment and accelerate growth, changing that perception could be just as important as raising more money.
