MMUSI MAIMANE: Getting Africa’s cost of capital right requires credible local institutions

Finance minister Enoch Godongwana will table the national budget before parliament later this month. Often when national budgets are tabled one number dominates focus and debate — GDP growth.

We argue over tenths of a percentage point change to GDP growth as if that figure alone determines a country’s future. A number that receives far less attention is gross capital formation (GCF), the level of investment flowing into an economy.

Real investment ultimately determines whether growth is possible. Africa’s growth trajectory depends on attracting capital at a cost that allows development to occur, and on the financial instruments and institutions that make that possible.

That is why the recent official launch of the African Credit Rating Association (Acra) in Johannesburg deserves attention. It was a hybrid event and I joined online, but its focus was practical. We asked how Africa is assessed and trusted in a global financial system that often makes decisions at a distance.

Credit ratings may look like technical shorthand, but they influence what countries pay to borrow and whether long-term projects can be financed. When borrowing costs rise, infrastructure is delayed, services are constrained and opportunity becomes more expensive.

The timing of the rating association coming into being is important as the global financial market continues to evolve. Supply chains have shifted, energy systems are in transition and interest rates have reminded us that the cost of capital shapes all major economic choices. Capital is more selective and reliant on credible risk signals. Independent and transparent credit agencies and ratings are among the clearest of those signals.

The question for Africa is thus not whether capital will move, but whether the continent will be assessed fairly and accurately enough for investment to flow at a cost and on a scale that makes development possible.

We often hear the aphorism “African solutions to African problems”. It is a powerful sentiment, but it can obscure that Africa is profoundly interdependent with global financial systems, trade networks and capital markets. Those interconnections can either enhance or constrain countries like South Africa. The task remains to not retreat from global systems, but to participate in them on terms shaped by credible African institutions.

We often hear the aphorism ‘African solutions to African problems’. It is a powerful sentiment, but it can obscure that Africa is profoundly interdependent with global financial systems, trade networks and capital markets.

Africa’s population exceeds 1.5-billion people and is projected to reach about 2.5-billion by 2050. Africa is the youngest continent and its working-age population is expanding rapidly. That can be a dividend, but only if it is matched with skills, connectivity and institutions able to price risk accurately and attract long-term capital. A young population only becomes an advantage when there is affordable investment to create new jobs, new businesses and more opportunity.

Economists tell us what is often felt on the continent: that Africa’s growth trajectory is uneven. Some economies face acute pressure while others are among the fastest growing globally. Even in a challenging environment, the IMF projects continued growth across Sub-Saharan Africa. Africa is not one economy, and the world should rid itself of the temptation to judge it as such.

Continental integration in Africa

Better integration adds to the case for better measurement. The African Continental Free Trade Area represents a market of about 1.3-billion people across 55 countries, with a combined GDP of $3.4-trillion. For long-term finance, that scale is meaningful only if risk can be measured and communicated credibly.

Infrastructure and digitisation show how quickly these issues move from theory to reality. Africa has demonstrated an ability to leapfrog through mobile money and digital finance, but digitisation also brings new demands, from fibre and data centres to cyber resilience and digital public infrastructure.

Meanwhile, traditional infrastructure gaps remain and annual needs far exceed financing levels. These gaps cannot be closed without finance, and finance at scale depends on credible risk assessment.

Consider climate change, as it reinforces the point. Climate risk is a credit issue. Africa contributes least to global emissions among the continents yet somehow bears disproportionate climate impacts that affect fiscal space, insurance markets, infrastructure durability and borrowing costs.

As the climate conversation deepens, financing for renewable energy, environmental, social and governance-compliant projects and resilient infrastructure will matter even more. What Africa can ill afford is another cycle in which raw materials, capital and skills leave the continent, only to return in beneficiated form at a higher cost. Mobilising climate finance at scale will require credible frameworks for assessing transition, physical and governance risks.

Global financial engagement

As we celebrate the creation of this new ratings agency on the continent, we must be frank that an African ratings ecosystem is not about lowering standards or avoiding scrutiny. It is about accuracy, consistency and credibility. Ratings must be independent, clear about how judgments are made and analytically rigorous.

A credible African ratings institution can strengthen the information environment through better data, stronger local analytical capacity, methodologies that reflect risk and resilience, and the development of deeper local capital markets and stronger African currencies.

Success for Acra will be measured by independence, protected through governance, transparency that invites scrutiny, analytical depth rooted on the continent, collaboration that does not compromise credibility and trust earned over time.

The next steps are practical. Acra must aspire to be an institution whose credibility is measured not by who welcomes it, but by whose scrutiny it can withstand. Regulators and policymakers should protect the space for independent, evidence-based assessment as a cornerstone of resilient financial systems and sustainable development.

Market practitioners should engage seriously and challenge ratings where necessary. And the next generation of African analysts and researchers should treat judgment, ethics and truth as non-negotiable.

It is time to invest in Africa, and to ensure the capital of each country is assessed fairly, accurately and with institutions the world can trust.

• Dr Maimane, an MP, is Bosa leader and chairs parliament’s standing committee on appropriations.