A recent forum heard that the high cost of capital continues to undermine the continent’s growth and infrastructure development
Africa needs an action-oriented agenda to lower borrowing costs over the next 12 to 36 months with a focus on improved data systems, strengthened internal capacity and global finance reform, a recent G20 business summit heard.
High debt service overtook financial flows to developing countries in 2022, meaning that debt service costs exceeded official development assistance, negatively affecting governments’ budgets to build infrastructure.
Business leaders are recommending that the G20 prioritise imbalance in risk assessment ahead of an annual heads of state summit to be hosted by South Africa in November.
Corresponding working groups have made similar recommendations during South Africa’s G20 presidency, with Think Tank 20 focusing on reform of the International Monetary Fund and World Bank, while Labour 20 advocated the need for digital sovereignty; Youth 20 called for enhanced multilateralism and G20 finance ministers called for revised IMF voting rights.
Standard Bank chief executive Sim Tshabalala, who chairs the G20 finance and infrastructure track, said a focus on the cost of capital has the potential to make a lasting and transformative impact on the economies and people of Africa.
“This is not just about building roads and bridges, it is about building opportunity, resilience and prosperity,” said Tshabalala.
Africa pays some of the highest borrowing costs in the world, the G20 business leaders said, adding that a coalition of willing institutions should address the cost of capital and ensure solutions are context-specific, self-determined, and aligned with the continent’s priorities.
African governments pay up to 500% more for capital market loans, with external debt service reaching $89 billion in 2024.
“Affordable capital is a lifeline for Africa, not a luxury. It’s time the cost of capital reflects our potential, not outdated risk narratives,” said Didi Nwuneli, chief executive of the ONE Campaign. The campaign advocates for the inclusion of the Cost of Capital Commission in South Africa’s G20 presidency to reevaluate Africa’s debt crisis.
“The human costs and the magnitude of the challenges are overwhelming, but also the opportunities to play a critical role in solving the problems, leveraging data, innovation, catalytic capital, but also the political will,” said Nwuneli.
Compared with advanced economies, Africa’s borrowing is considered low. Governments’ net debt as a proportion of GDP stands at 69% for South Africa, 45% in Nigeria and 35% in Ethiopia, whereas that for the US is at 96%, Japan at 155%, Italy at 126%, France at 102% and the UK at 92%.
When it comes to economic growth, some nations get harnesses for the ascent, while African countries must climb with weighted vests, said Marcus Courage, chief executive of advisory firm Africa Practice.
“We simply can’t realise Africa’s full potential — a potential that benefits the entire world — until we tackle the structural and dynamic factors that drive up its capital costs,” he said.
Discussions also touched on improved government capacity with emphasis on African governments’ need to invest strategically to shape markets that reward innovation, reduce reliance on debt, and increase development spending.
The lack of quality data was viewed as an impediment to growth and a prerequisite for changing the narrative of a high-risk continent.
Nwuneli stressed the human impact behind high debt service, with governments forced to cut domestic spending and unable to fund public administration.
“We also should not forget the magnitude of the impact because it’s for the most vulnerable, the children whose school fees are being withheld because governments cannot pay their teachers, the nurses and doctors not going to their clinics because they are not getting paid,” Mwuneli said.
