Africa’s Battle for Fair Credit

The steep cost of borrowing for African nations is no longer just a technical discussion; it carries billion-dollar implications.

Consider a late 2024 comparison: Germany could borrow US$1 billion (about N$18.1 billion) at 2.29% interest, paying roughly US$229 million (about N$4.1 billion) over ten years. Zambia, borrowing the same amount at a much higher 22.5% interest, would pay US$2.25 billion (about N$40.1 billion).

This US$2 billion disparity for a single loan isn’t driven by fiscal policy or repayment history but by perception, often shaped by agencies far removed from the continent.

“African countries don’t control the rating agencies,” says Claver Gatete, executive secretary of the United Nations Economic Commission for Africa (ECA).

He explains that without representation, African nations are subject to external views that frequently misjudge their economies, overlooking their true creditworthiness and long-term growth prospects.

Africa’s total external debt is around US$1.1 trillion (about N$20 trillion), with annual servicing costs of roughly US$163 billion (about N$3 trillion). Yet, most countries are stuck with sub-investment grade ratings, or “junk” status.

These ratings signal high risk, leading to inflated borrowing costs. African nations spend significantly more than wealthier counterparts on vital infrastructure, education and healthcare.

Sonia Essobmadje, chief of innovative finance and capital markets at the ECA, has clarified that credit ratings are informed opinions, not definitive truths.

“Credit ratings are opinions,” she says.

“They combine quantitative models with qualitative interviews.

It’s not just numbers.”

She notes that these ratings are based on data and interpretation, often influenced by meetings and assessments of a country’s economic and political outlook, leaving room for bias.

“You’ll notice that every time there’s a crisis, our countries are downgraded,” she adds. “The process doesn’t fully assess the dynamics of African economies.”

To counter these issues, the Africa Credit Rating Agency (AfCRA) has been established, awaiting formal launch. Its goal is to provide more context-specific evaluations of African economies, rooted in local realities.

“It’s about reducing the information gap between the borrower and the lender,” says McBride Nkhalamba, acting director at the African Peer Review Mechanism (APRM).

The AfCRA aims to complement, not replace, established agencies like Moody’s and S&P Global. “We’re not trying to change the narrative if the facts don’t support it,” states Essobmadje. “But we want to bring in the African perspective.”

Moody’s maintains its methodology is fair and transparent.

“We ensure that our rating criteria for governments, including African countries, are transparent and fair by adhering to rigorous methodologies and processes,” says Aurélien Mali, senior analytical adviser for Africa at Moody’s.

Despite this, many African economists argue that real-world outcomes reveal a clear disadvantage, with dominant agencies applying a uniform model to diverse economies.

To promote transparency, the ECA and APRM recently held a workshop in Accra, Ghana, uniting government officials and rating agencies.

Shilambwe Mwaanga from Zambia’s ministry of finance highlighted the disconnect: “I’ve been involved for 15 years, but we’ve never really interacted with the rating agencies.

That dialogue was useful. There are areas where improvements are needed, like giving us more than 24 hours to respond to an initial rating decision.”
Misheck Mutize of APRM stresses that market sentiment is often perception-driven, not fact-based.

Salamatu J Dotsey of the Bank of Ghana has critiqued the uneven standards in the rating process, noting the wide variations in data quality and resources.

She suggests that improved data collection and engagement with analysts could boost ratings.

Zuzana Schwidrowski of the ECA emphasises the timeliness of AfCRA, especially given global economic uncertainties.

However, she cautions against overreliance on external validation, urging African countries to actively shape their own investment narratives.

Currently, most African nations continue to pay more for less, penalised by perception rather than default.

– The United Nations Economic Commission of Africa’s mandate is to promote the economic and social development of its member states, foster intra-regional integration and promote international cooperation for Africa’s development.

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