Africa has made a rapid return to global debt markets this year, raising roughly $18 billion through international bond issuances, with most of the deals arranged by Citigroup banker Daniel Lebetkin.
Despite the renewed appetite from investors, one pattern remains firmly in place where African governments continue to borrow at higher costs than countries with similar credit profiles.
According to Lebetkin, this gap has become structural, with investors routinely demanding a premium for African risk. Policymakers across the continent argue that this premium is partly justified by past sovereign defaults in countries such as Ghana and Zambia, as well as heightened political risks in some markets.
However, others believe the higher borrowing costs are not entirely risk-based. South Africa’s finance minister, Enoch Godongwana, has argued that both rating agencies and investors display persistent bias against African issuers.
The Africa Finance Corporation has gone further, describing the gap as a “prejudice premium” and estimating that African countries pay up to $75 billion more each year in additional financing costs.
International Monetary Fund research shows that sub-Saharan African nations typically pay around half a percentage point more than similarly rated peers, a gap that widens during periods of global market stress.
Borrowing conditions have nonetheless improved. Recent eurobond issues by Nigeria and Kenya attracted strong investor demand, allowing both countries to lower their funding costs.
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Africa’s average yield spread over U.S. Treasuries has narrowed to about 3.7 percentage points, the lowest level since 2018, although it remains higher than that of other emerging regions.
The ongoing debate over Africa’s borrowing premium reflects a mix of real and perceived risks. Analysts point to default history, governance concerns and relatively small, less liquid markets as key factors influencing yields.
At the same time, several studies suggest the premium is inflated by limited data availability, inconsistent credit ratings and low familiarity among global investors.
African sovereign bonds make up less than 10% of the emerging market hard-currency universe, resulting in weaker analyst coverage and slower institutional buy-in.
During global crises, African countries are also more likely to face rapid credit downgrades. Data from Gemcorp shows that more than 60% of African sovereigns were downgraded during the COVID-19 pandemic, compared with roughly one-third of countries worldwide.
These faster downgrades tend to push borrowing costs even higher and reinforce investor caution. However, recent market activity suggests investors are willing to re-engage when credible reform efforts are visible. Nigeria’s exchange-rate unification and Kenya’s fiscal consolidation measures have helped reduce their recent issuance costs.
Ultimately, narrowing Africa’s long-standing borrowing premium will depend on improving transparency, strengthening data quality and maintaining consistent engagement with international investors, steps that could gradually shift perceptions and lower the cost of capital over time.
