A section of the African political and financial leadership is becoming increasingly frustrated over what they describe as the artificially high cost of borrowing imposed on the continent by international credit rating agencies such as S&P Global and Fitch. Many argue that these agencies routinely exaggerate the risk of investing in African economies, resulting in the so-called “Africa risk premium.”
According to Nigerian author, journalist, and businesswoman Moky Makura, “The so-called Africa risk premium is built on perception, not data, and it’s crushing the continent’s commercial potential.”
An Uneven Playing Field
A report (by Africa No Filter and Africa Practice) titled “The Cost of Media Stereotypes” quantifies how media stereotypes are inflating the cost of borrowing for African governments. The continent pays a staggering amount, up to USD 4.2 billion each year in avoidable interest payments, because of how it is perceived in global media.
The report showed that during election periods, 88% of international media articles about Kenya and 69% about Nigeria carried a negative tone, compared to just 48% for Malaysia, a country with similar political risk. This kind of distortion doesn’t just affect reputation. It affects the price of capital.
“But what the report didn’t cover, and what urgently needs attention, is the cost of those perceptions to Africa’s entrepreneurs, the very people tasked with driving growth, creating jobs, and fuelling our continent’s development. The so-called ‘Africa risk premium,’ which our report tried to unpack, isn’t just impacting sovereign debt and contributing to the debt crisis many countries find themselves in, it is also impacting business. Start-ups, SMMEs, and micro-enterprises are being crushed under the weight of an unfair financial system. And that system is built on the story of risk,” Makura said.
“The story of Africa’s perceived risk is driven largely by outdated, negative, and often biased global narratives of conflict, corruption, and instability. These stories make it more expensive for our countries, as well as our local banks, to raise capital from international markets. That higher cost trickles down, as local banks pass this same costly money directly on to borrowers,” she added.
All these have resulted in a dire situation: interest rates for small businesses in Africa now routinely range from 15% to 30%. In comparison, their counterparts in Europe or the United States (where the Federal Reserve recently announced interest rates around 4%) can access credit at much lower rates, typically between 4% and 8%. This stark difference in pricing shows how global perceptions directly translate into an unfair cost of capital for African entrepreneurs.
If anyone tries to manufacture solar panels in South Africa, build a media business in Kenya, or grow a hotel chain across Francophone Africa and, at the same point of time, try to compete with Chinese, European, and American brands, who have access to cheaper capital and probably trade incentives from their government, the entrepreneur will be losing big. It reflected in the 2025 Brand Africa 100 rankings, where only 11 of the top 100 most admired brands in Africa originated from the continent.
Take the green hydrogen sector, for example, which, despite many considering it to be Africa’s next big play, may not take off. All thanks to the phenomenon of projects in places like Namibia and South Africa being re-evaluated because the financing costs are simply too high.
“It’s a perfect example of how Africa is rich in opportunity but poor in affordability. So how can we build globally competitive industries and businesses when we start from such a deep financing disadvantage? One step in the right direction is to call for greater transparency in how risk is assessed and priced. Global credit agencies and institutional investors, despite their best efforts at objectivity, still rely on subjective indicators, and those perceptions are often shaped by headlines, not data,” Makura commented.
What the continent needs now is homegrown credit rating institutions and a commitment to developing domestic risk assessment solutions in the long term.
“But of all the solutions being explored, the one least likely to attract investment, but with the potential for the most transformative impact, is changing the narrative about the continent. I know this because I see very little investment in media and storytelling, the platforms on which narrative is built. Changing the narrative means investing in local and global storytelling, in both the creators and the platforms, because we need strong, credible media brands that can showcase African progress, success, and innovation globally. Changing the narrative is an economic imperative, because for African businesses like my friends’ company to grow, generate employment, and transition from survival mode to a large enterprise, affordable capital is essential,” she noted.
Positive Pushback: Need Of The Hour
Prominent Nigerian entrepreneur Ndidi Okonkwo Nwuneli, president of the ONE Campaign, recently called for a radical shift in how Africa is portrayed. She highlighted how risk assessments often lump 54 diverse nations into one generalised rating, using weaker states as benchmarks for the entire continent.
She attributed the inflated cost of borrowing to biased ratings, poor data, and negative media narratives, an equation that costs African countries billions and worsens existing debt burdens. She proposed a “Cost of Capital Commission” to spotlight the issue during Africa’s term as G20 chair.
Supporting this idea, African Development Bank president Akinwumi Adesina advocated for a standalone African credit rating agency. Unlike its Western counterparts, such a body would offer regionally informed, independent evaluations rooted in better local data.
On the other hand, critics argue that the Africa risk premium is not just a statistical distortion, but a structural legacy of financial systems built without African participation. This bias becomes stark when comparing ratings across geographies. For instance, countries in Latin America or Southeast Asia with similar debt-to-GDP ratios, inflation levels, or political stability often receive better credit ratings than their African counterparts.
Ghana, for example, was downgraded well before it defaulted, whereas European countries with similar vulnerabilities were spared such rapid judgment. The impact isn’t theoretical: higher credit spreads mean billions in additional interest payments for African borrowers. According to a 2023 IMF report, African countries pay an average of 1.5–2% more in interest than comparable peers, costing the continent an estimated USD 15 billion annually in excess debt servicing.
This discrepancy is compounded by a vicious feedback loop. Lower ratings discourage foreign direct investment, leading to lower growth and reduced fiscal space, outcomes that, ironically, justify the initial low rating. While rating agencies claim transparency, their models often fail to accommodate informal economies, natural resource potential, diaspora remittances, and region-specific growth dynamics.
The call for an African-led credit rating agency is not about political posturing. It’s about the right to a second opinion in a marketplace that still largely trusts three US-based firms to define global creditworthiness. Akinwumi Adesina’s proposal for a “top-tier, independent, and data-rich” agency rooted in the continent aims to do just that, reintroduce context into credit evaluation. Precedents already exist: Latin America’s “Pacific Credit Rating” and India’s CARE Ratings have both played complementary roles in their regions. An African equivalent could challenge dominant narratives while adhering to international standards.
Adding to the challenge is the role of perception, particularly how global media shapes investor sentiment. Moky Makura’s estimate that negative media stereotypes cost Africa USD 4.2 billion annually is staggering and plausible. It reflects a continent too often defined by crisis imagery, while stories of innovation, reform, and resilience struggle for airtime. Investors, policymakers, and even AI models trained on biased datasets internalise these narratives, reinforcing the belief that Africa equals risk.
Some asset managers are beginning to push back. In recent years, African sovereign bonds have seen growing demand in frontier market portfolios, and institutions like the African Export-Import Bank are increasingly tapping diaspora and intra-African capital. Still, the risk premium lingers, less as a data reality and more as a cultural and systemic hangover.
The solution lies in multi-layered reform: greater data transparency from African governments, more proactive storytelling by African institutions, and a global willingness to rethink what constitutes credible credit analysis in a multipolar world. For Africa, recalibrating risk is not just financial hygiene, it’s economic liberation.
S&P Global Ratings President Yann Le Pallec, defended the agency, claiming that they are transparent and have data-driven methodologies designed to assess the likelihood of a country repaying its debt. He emphasised that their models are publicly accessible and open to scrutiny, and actively encourages independent parties to challenge the conclusions.
However, critics argue that a shallow understanding of African economies leads to one-size-fits-all assessments that unfairly penalise the continent.
Le Pallec acknowledged this concern, admitting that Africa consists of a “multiplicity of economies” with vast differences in growth, business climate, and fiscal structure. Still, he noted that poor data availability itself could signal weak creditworthiness.