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Mispriced risk and flawed perceptions of default are costing African nations billions of dollars a year in additional borrowing costs and lost revenue, according to Africa Finance Corp.’s president.
“These default rates are really, really exaggerated,” Samaila Zubairu said at an event in Johannesburg on Wednesday. “The prejudice premium Africa has paid is $75 billion annually. That’s a lot of money.”
Last year, research by Moody’s Ratings found that while the continent’s default rates are broadly in line with those for similarly-rated sovereigns, market spreads are higher, suggesting investors are incorporating other considerations.
World Bank data also shows that in the 10 years to 2020, the continent had the second lowest rate of default on infrastructure loans when compared to other regions, but its debt attracts higher spreads. The average bondholder gets 9.8% for African debt, compared to 6.5% for loans from Latin America, Ndidi Okonkwo, president of the One Campaign, said at the same event.
For the last three decades, return on infrastructure investments in Africa was six times” that of the S&P 500,” Okonkwo said. “Yes, there is risk but there is return.”
African governments and companies have repeatedly accused credit rating agencies including Fitch Ratings, Moody’s Ratings and S&P Global Ratings of bias and a lack of transparency.
“We need to have a program whereby we’re putting out more data on our actual economy and the performance of the various components of the economy,” Zubairu said. “Also, we should think about how to formalize our vastly informal sector because all of this will help in providing information that things are not as they say.”
