Leaders of the world’s most powerful and industrialised nations gathered at the Nasrec Expo Centre in Johannesburg on Saturday for the first G20 Summit on African soil, with the continent’s debt trap high on the agenda.
President Cyril Ramaphosa, his deputy Paul Mashatile and international relations minister Ronald Lamola received a host of leaders, including French President Emmanuel Macron, Brazilian President Lula Da Silva, Recep Tayyip Erdogan of Turkey and UK Prime Minister Keir Starmer.
Opening the G20 Summit, Ramaphosa called for the continued reform of the international financial architecture to ensure the institutions are strengthened to meet challenges of the future. He said the leaders had also agreed to review efforts to advance debt sustainability, with a particular emphasis on African countries.
On Friday evening, Starmer threw his weight behind calls for the reform of global capital markets and how the cost of debt is formulated for African and other emerging economies.
“We’ve got to work together to pioneer a new approach to development. It means countries like mine are resetting our relationship with the Global South, a relationship based on partnership but not paternalism, a shift from donor to investor. It means supporting countries in the Global South to raise more finance domestically. It means tackling unsustainable debt.
“And most importantly of all, it means working with our international partners to usher in a new era of private finance, including by reforming the international financial system, where we can support the ambition to triple the financing from the multilateral development bank.”
Starmer was speaking at the eighth Global Fund replenishment session in Johannesburg ahead of the summit this weekend.
The UK is uniquely well placed to help, not least with the strength of our financial services. And I’m determined that we will build on the work that president Ramaphosa has started with South Africa’s G20 presidency.
— Keir Starmer, UK prime minister
On Tuesday, former finance minister and chair of the G20 Africa expert panel, Trevor Manuel, handed over to Ramaphosa his panel’s report titled “Growth, debt and development: Opportunities for a new African partnership.”
The report tackled the risk premium African economies face when seeking capital for the development of their economies, including unfavourable ratings from established credit rating agencies, which make the cost of capital high for poorer and developing nations.
According to the African Export-Import Bank (Afreximbank), the external debt of African countries has escalated significantly since 2008, reaching approximately $1.16-trillion (R20.15-trillion) and representing 60% of the region’s total public debt stock as of 2023.
Projections indicate a slight increase to $1.17-trillion in 2024, with sustained growth anticipated, potentially reaching US$1.29-trillion by 2028, the report said.
Starmer said African nations had the UK’s support in efforts to redefine the dynamic between their economies and those of established countries, adding that the UK “will work to convene an international coalition to mobilise private investment for development”.
“The UK is uniquely well placed to help, not least with the strength of our financial services. And I’m determined that we will build on the work that president Ramaphosa has started with South Africa’s G20 presidency. And can I just say what a fantastic thing it is that the G20 has been hosted in Africa for the first time here in South Africa.”
The Africa expert panel report recommended convening African finance ministers and hosting a global forum to launch a “borrowers’ club”, a united front of countries facing the same high debt trap, allowing them to engage global capital markets with one organised voice.
“Establish a borrowers’ club to strengthen the collective voice of borrowers and coordinate peer learning, technical assistance and research. Convene African finance ministers to take this agenda forward and host the launch of the borrowers’ platform.”
The report said the borrowers’ club had the potential to fill a critical gap in global debt architecture, providing a platform that amplified the collective voice of debtor nations, protected their interests and promoted peer learning.
“A borrowers’ club can also contribute to more prudent debt management practices by working with existing technical assistance and capacity-building programmes. A borrowers’ club must be a coalition of the willing. It cannot succeed unless it is owned and initiated by borrower countries themselves, and finance ministers should be at the forefront of convening it.”
The report also recommends an improvement in the regulation of agencies by ensuring full disclosure of rating assessment data and reforming their methodologies to recognise economic diversity and avoid pro-cyclical rating actions.
“The current poor information set means that private analysts and credit rating agencies don’t account for country- and firm-specific elements of project risk, and thus lump all sovereigns, corporations and projects into one African basket.
“Therefore, more and better information about the risks and benefits of large infrastructure projects should become a key part of investment frameworks and country platforms.”
Ramaphosa said if Africa did not address the debt burden, the continent risked “a lost decade for development”.
“That is why South Africa has made debt sustainability a high-level priority of our G20 presidency. The ministerial declaration on debt, agreed by G20 member countries last month, acknowledges the importance of the debt and development challenge and provides a basis for further concrete action to be taken.”
He said Africa needed to address “biased risk perceptions of Africa by mandating greater transparency and accountability from credit rating agencies”.
Richard Hunter, chief risk and credit officer at Fitch Ratings, told Business Times in October that the agency used its own forecasts to set ratings.
“Our forecasts have generally been regarded as very powerful, but clearly forecasts and outturns will differ. That is the case for corporates, banks and sovereigns from all regions. Importantly, no single figure or metric is responsible for setting a rating.”
He said Fitch Ratings’ analysts meet with the issuers and discuss the rating with them, which in the case of sovereigns typically takes place over multiple days.
“We hold transparency meetings to walk through our rating decision and how the criteria led to it. Almost all of the information on that process is available in the public domain, via our website.”
During a G20 event in Washington in October, Reserve Bank governor Lesetja Kganyago said there should be a mechanism that allowed emerging economies to hold sovereign credit ratings agencies to account when ratings supported by inaccurate information raised the cost of capital.
“If you were to look at South Africa now, and you look at the reports of the rating agencies when they downgraded South Africa in 2017 and 2020, their trajectory was that debt-to-GDP in South Africa would reach 94%.
“In the case of one rating agency, it said that we might actually reach 100. Eight years later, we are at 76%. So, they were wrong. So, you need to be able to engage with them on that basis.”
He said emerging economies could bolster accountability for ratings agencies more effectively as a group than as individual economies.
“Not all countries, especially developing countries, have the ability to take the methodology of the rating agencies, test its robustness, confront the rating agencies with the data and say … ‘based on your methodology and the data we have, your rating is wrong; this is what we think our rating should be’. That is the power the borrowers need.”
Rosa Whitaker, a US businesswoman and the first assistant US trade representative for Africa for former US presidents Bill Clinton and George W Bush, told Business Times that the conditions of established ratings agencies were not designed with Africa’s economic realities in mind.
The idea of a sovereign credit ratings agency aimed at rating African economies was raised in recent years but did not gain much traction due to the risk of a “crisis of credibility” if its ratings of African nations differed too widely from those of traditional credit ratings agencies.
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