Bloomberg Professional Services
- African sovereign and corporate issuers often face higher borrowing costs than peers with similar fundamentals, driven by risk perceptions rather than default data or recovery rates.
- Ratings methodologies, investor narratives, and policy predictability play a central role in reinforcing or correcting Africa’s cost of capital disadvantage.
- Recent upgrades, capital inflows, and domestic funding initiatives suggest conditions are emerging for a reassessment of African risk by global markets.
Does Africa face a prejudice premium? At Africa Business Summit event hosted by Bloomberg in Johannesburg, market participants discussed the problem of bias causing higher perceptions of risk and therefore worse investment terms than in other, comparable, parts of the world, whether there a straightforward way out – and what role can African nations play in attracting more capital on favorable terms?
Experts point to the fact that African borrowers face worse borrowing terms, and therefore higher interest rates, than countries with similar fundamentals in other continents. Africa therefore may be paying a “prejudice premium”, an enduring penalty based on factors that transcend pure financial statistics.
For example, as Sim Tshabalala, Standard Bank Group CEO , points out , Côte d’Ivoire, has a similar rating to Serbia, yet its debt trades about 50 basis points higher. Additionally, South Africa, is currently rated BB- despite fundamentals that would support an investment-grade BBB rating.
“Overall, African sovereigns are rated around four notches lower than they should be, purely on the data,” he adds. “If you compare historical default data to ratings, there is a mismatch. The data does not support the ratings and therefore the cost. In South Africa’s case, the extra cost amounts to about 50 to 70 billion rand a year. It ought to change.”
Are rating agencies applying a consistent standard to Africa?
Some economists argue that emerging markets, in practice, default less often, and deliver higher recoveries when they do. In global project finance, Africa and the Middle East have recovery rates around 85%, the highest in the world, suggesting African risk is frequently overstated.
Meanwhile, Absa Group’s Africa Financial Markets Index shows that the general direction of travel is mixed for the continent’s markets, with overall scores improving for some countries on its list and worsening for others.
At the center of the debate are the ratings agencies, which influence everything from sovereign bond yields to how much banks must hold against loans. When ratings lag the reality on the ground, capital becomes disproportionately expensive. Kenny Fihla,
“The negative impact of this premium runs through the whole system,” he says. “It affects banks because our ratings are pegged to sovereign ratings, and that, in turn, affects our customers. Entire economies effectively suffer from this negative drag.”
None of this is to suggest that African investments come without risk. Political instability, currency swings, and infrastructure gaps remain material concerns, but these risks are often seen as permanent conditions rather thantemporary variables that can improve. The distinction matters when investors decide where to deploy long-term capital, says Roosevelt Ogbonna, Managing Director and CEO of Nigeria headquartered Access Bank.
“In Africa we spend a lot of time managing fear rather than managing risk. Risk is easier to put our hands around and mitigate. Fear is something you just can’t control,” says Ogbonna, referencing US president Donald Trump’s threat in December to strike ISIS cells in Northwest Nigeria, words he subsequently acted upon.
“Nigeria really didn’t need his intervention at the time it came through. We were just about to go to market his comments risked stoking fear: people wondering whether Nigeria might become unstable, and “burn”, and so on. But the markets proved smarter than the narrative.”
Ogbonna points to Nigeria’s December raising of $2bn in private sector investment into its compressed natural gas initiative, which was many times oversubscribed. “The facts speak for themselves. Nigeria went to market intending to raise $2 billion and ended up raising over $12 billion. That is an affirmation of how markets perceive Nigeria’s economy and prospects.”
South Africa’s upgrade lifts creditworthiness
There are signs that perceptions may be starting to shift, particularly in South Africa, the continent’s largest economy, where a recent S&P upgrade and positive outlook mark a potential inflection point.
Johannesburg Stock Exchange CEO Leila Fourie notes that markets have already responded. South Africa has seen R127 billion in net bond inflows, while the Top 40 index is up more than 50% in dollar terms, outperforming broader emerging markets. “I think the timing is right,” she says. “The Treasury has delivered two consecutive budget surpluses and managed the fiscus well. We’ve also just come off the FATF grey list. All of this matters for assessing creditworthiness. But this is only a first step on the journey back to investment grade.”
Nedbank Chair Daniel Mminele says in this case ratings agencies are responding to evidence rather than promises. Fiscal discipline, progress on logistics reform and improvements in electricity supply are beginning to show up in the data. “They could see that the evidence was mounting.” he says. “It’s very unusual to get upgraded and a positive outlook immediately confirmed. That shows they are buying in to the story. I would imagine other ratings agencies will think they missed something here.”
Currency dynamics have also played a role. Investors can manage volatility, but sustained depreciation erodes returns and deters long-term commitments. A firmer rand has helped ease inflation pressures and lower funding costs, creating room for investment decisions that were previously delayed. As Fourie puts it: “The cost of funds for banks is going to decrease and we will see that translating into improved lending conditions, so we’re seeing growth and development in the financial sector”.
Predictability as a key factor for investors in Africa
According to mining executive Richard Stewart of Sibanye Stillwater, investors prioritize stability;““[As an investor] you need clear policy from government that they want to promote this industry, that they understand that this is a journey and that they are consistent,” says Stewart. Mining assets last decades, as do power plants, ports, and data centers. In that context, regulatory surprises could raise costs overnight.
If policy consistency is one side of the equation, speed of decision-making is the other. Jonathan Oppenheimer, Executive Chairman of Oppenheimer Generations, says time is often the most expensive input in any project and this is felt most sharply by smaller businesses. Even well-capitalized investors struggle when approvals drag on for months or years.
“Systems consume people’s time,” he says. “Entrepreneurs are CEOs, COOs, HR, legal, everything, and then they must spend a year trying to get financing because processes are so slow. A big multinational can tolerate that; a small business cannot. They need decisions in a week, and almost nowhere is it that easy.”
The depth of local capital markets, anchored by robust governance, helps to keep projects funded. Strong domestic savings, pension funds and insurance pools can anchor investment and reduce reliance on foreign capital that has the option to exit at the first sign of trouble. This is particularly important for Africa, which has seen VC flows head to the Middle East and South Asia in recent years.
Signals for Africa’s future cost of capital
There are two sources for optimism around Africa’s standing on the world stage, according to expert. One is that standard setters appear to be reassessing their view tof the continent, with South Africa at the forefront. “A couple of things are happening,” says Standard Bank Group’s Tshabalala. “There is a debate happening with various rating agencies. We argue they should understand the continent better. They are taking steps: Moody’s bought GCR and increased African representation. S&P has strengthened its presence in South Africa. That’s positive.”
The other is that Africa is developing stronger mechanisms to fund its own growth. The continent has a chance to recycle its savings, directing them into investment. Pension funds can play a larger role in funding infrastructure, housing and energy, potentially reducing exposure to more volatile foreign flows and building confidence by showing locals are willing to back their own economies.
“There’s work to be done by African sovereigns to improve investor relations, improve budget transparency, improve monetary policy management, keep central banks independent and allow currencies to float,” adds Tshabalala.
Access Bank’s Ogbonna agrees: “This premium we have to pay only makes sense because we all have to go externally to borrow. If we can mobilize capital that’s currently stranded on the continent, we reduce reliance on ratings and on international markets to raise debt and equity.”
Insights in this article are based on panels and fireside discussions at the Africa Business Summit event organized by Bloomberg in Johannesburg in November 2025.