Africa’s $74.5bn Risk Premium: The Case for Home-Grown Credit Ratings

Africa’s $74.5bn Risk Premium Explained

Africa is paying more for its debt because the world perceives the continent as riskier than its repayment record shows, UN adviser Ahunna Eziakonwa argues. She puts the additional debt-service burden at an estimated $74.5bn, driven by what she calls the Africa risk premium — a spread that reflects exaggerated perceptions of fragility rather than actual credit history.

Eziakonwa says the cost is not abstract. A reduction of just two percentage points over a three-year period on an $18.6bn portfolio would free roughly $1.12bn — enough, she calculates, to provide electricity to 50 million people or hire 900,000 teachers. Instead, the money flows to creditors while governments divert funds away from health, education and infrastructure.

Her evidence includes a Moody’s Analytics study showing default rates on African infrastructure loans averaged 1.9%, compared with 4.6% in Asia, 10.1% in Latin America and 12.4% in Eastern Europe. Yet African borrowers continue to face higher interest rates than peers with similar or worse repayment records.

The interview also highlights two institutional responses: the proposed African Credit Rating Agency, designed to widen data and methodology, and the New African Financial Architecture for Development (NAFAD), adopted on April 9 2026 through the Abidjan Consensus to mobilize domestic capital, lower the cost of borrowing and strengthen financial sovereignty.

Where the New African Rating and Finance Architecture Could Bite

The African Credit Rating Agency’s Real Role

Eziakonwa frames the proposed African Credit Rating Agency as a corrective to thin data and brief fly-in assessments. Global raters often rely on narrow datasets and short visits, she argues, while a home-grown institution could add alternative data and qualitative depth. The agency is also intended to strengthen domestic rating networks and provide pre-rating advisory support so governments can prepare better.

The realistic near-term impact is not that Moody’s, S&P or Fitch disappear. The agency’s influence will depend on credibility with global investors, and its value is likely to come first from widening the information base and supporting local capital markets rather than immediately replacing global ratings.

NAFAD and the $4.5 Trillion Capital Question

The Africa Finance Corporation’s State of African Infrastructure Report 2025 estimates the continent holds $4.5 trillion in domestic capital — pension funds, reserves and sovereign wealth — much of it parked abroad. NAFAD’s premise is to unlock that capital for African investment rather than depend on external aid or expensive foreign borrowing.

The structural logic is straightforward: lower the risk premium, improve domestic financial plumbing, and create institutions that recycle African savings locally. But Eziakonwa concedes that years of advocacy have produced little shift because, as she puts it, the shareholders of those systems are not responding.

Why Collective Action Matters More Than Individual Reform

A new Borrowers’ Platform, launched by developing countries, is intended to let nations negotiate together, share restructuring experience and develop ideas such as debt swaps. Eziakonwa argues the alternative — individual countries going to creditors alone — has been painful. Her view is that Africa’s negotiating leverage grows only when countries coordinate, but she also acknowledges the bloc is not yet aligned on every issue.

What Finance Ministries and Investors Should Do Now

• For finance ministries: Prepare broader fiscal, infrastructure and repayment data now for the proposed African Credit Rating Agency, because Eziakonwa’s central criticism is that global raters work from narrow datasets and brief visits.
• For governments preparing for a sovereign rating: Use the pre-rating advisory council described in the interview to get records and institutional information in order before the assessment, rather than leaving rating agencies to make assumptions from incomplete data.
• For sovereign borrowers facing upcoming maturities or restructuring: Test the Borrowers’ Platform on a specific debt negotiation; the forum is designed for coordinated creditor discussions and the development of debt swaps.
• For pension funds, sovereign wealth funds and central banks: Review the share of the estimated $4.5 trillion in African institutional capital currently domiciled abroad and identify instruments that could be shifted into domestic development finance as NAFAD is implemented after the April 9 2026 Abidjan Consensus.
• For tax policy officials: Use the UNDP Tax Inspectors Without Borders programme to reassess narrow tax bases and undeserved tax holidays, the named lever for creating domestic fiscal space instead of relying on high-cost borrowing.