Africa is paying a staggering $75 billion annually in extra borrowing costs due to mispriced risk and exaggerated default perceptions, according to the African Finance Corporation. Research by Moody’s Ratings backs this claim, finding that while Africa’s default rates match similarly rated regions, its debt spreads remain disproportionately high. World Bank data also reveals that Africa had the second-lowest infrastructure loan default rate from 2010-2020, yet bondholders demand 9.8% returns, far above Latin America’s 6.5%. Critics accuse credit rating agencies of perpetuating the bias that leads to mispriced risk, calling for better economic data and the formalization of informal sectors to correct misconceptions. Advocates also note that Africa’s infrastructure investments have yielded six times the S&P 500’s returns over the last three decades, highlighting the continent’s financial potential.
Bloomberg
