Standard Bank CEO of corporate and investment banking (CIB) Luvuyo Masinda has called out ratings agencies for overestimating Africa’s risk profile, which burdens the continent with high debt costs.
“Africa’s external debt now surpasses $1.5-trillion — a number that often makes the headlines — and rightly so. What is of concern to me and the team at Standard Bank is the additional cost of the debt burden, which we believe stems from inflated risk assessment resulting in higher grades from ratings agencies and increased market pricing,” Masinda said.
“A 2023 study by the Africa Practice reveals the continent could be losing up to $4.2bn in interest payments on its loans, primarily because of this inflated risk assessment.”
In recent years, numerous African countries have seen sovereign debt rating downgrades, including Egypt, Nigeria, Kenya, Namibia, Uganda, Morocco, Senegal, Ghana, Zambia and Botswana.
In Ghana and Zambia, sovereign debt was restructured after defaults.
Standard Bank, Africa’s largest lender by assets, is present in 20 countries on the continent with more than 40% of its earnings coming from outside SA — its biggest market.
Sim Tshabalala, CEO of the “Big Blue”, as Standard Bank is known in high finance circles due to the size of its balance sheet and its branding, has also called out rating bias towards Africa shown by ratings agencies.
African leaders met last month to establish the Africa Credit Rating Agency (AfCRA), with the aim to provide “fair, transparent and development-focused credit ratings that reflect the realities and potential of African economies”.
The communique of the meeting said the AfCRA was established to address concerns over perceived biases, inaccuracies and high costs associated with international credit ratings agencies when assessing African countries.
“It will provide an opportunity for the continent to have a credit rating system that reflects Africa’s unique socioeconomic realities and fosters a fairer representation of its creditworthiness,” the AU said.
“Unlike traditional credit ratings agencies, AfCRA focuses exclusively on African economies, incorporating region-specific data and socioeconomic indicators. It will operate with a mandate to strengthen African financial markets while promoting transparency, fairness and inclusivity."
"AfCRA will also emphasise development-driven credit assessment frameworks tailored to the continent’s diverse contexts.”
Masinda, who took over as CEO of CIB from celebrated banker Kenny Fihla last year, said it was time to change the narrative about Africa as a risky investment destination.
“We can all agree that it is time to reshape this global perception of Africa. A narrative that is dominated by perceived risk, instability and conflict,” Masinda said.
“Data suggests a different story for Africa. The continent today accounts for 40% of the global reserves of critical minerals that are key in the energy transition. Africa leads the world in mobile banking with Sub-Saharan Africa holding nearly 50% of the global money accounts and driving $2.5bn of transactions on a daily basis.”
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