African nations are being punished by a global financial system that systematically overprices the risk of investing in their economies. The result: governments are paying up to five times more to borrow from capital markets than they would through concessional financing. For many, the choice is stark — repay creditors or invest in schools, hospitals, and clean water.

This isn’t just an African problem — it’s a global liability. The world cannot afford to choke off growth in the very region that holds the key to future labour supply, new markets, and climate resilience.

As South Africa assumes the Group of 20 major economies presidency, there is a singular opportunity to rewrite the rules of engagement — to make the cost of capital a true test of global fairness. 

The high price of misperception

Twenty low-income African countries are already in or near debt distress. Between 2016 and 2021,African nations raised significant capital from markets — but are now paying $56 billion more in interest than they would under concessional terms. That figure exceeds the $53 billion in total foreign direct investment into Africa in 2023.

The problem isn’t reckless borrowing. It’s a system that inflates risk, suppresses accurate credit ratings, and exposes countries to volatile foreign exchange markets. These distortions primarily stem from outdated assumptions, regulatory spillovers, and fragmented data — not from underlying economic realities or core indicators of a country’s financial health alone. Private capital isn’t inherently bad. But when the cost of borrowing becomes a penalty for geography, the system is broken. 

G20: From coordination to correction

The G20 has a track record of unlocking systemic reforms. The Independent Review of MDBs’Capital Adequacy Frameworks and the Independent Expert Group on multilateral development banks, initiated under Italy and championed by Indonesia, and India and Brazil, has already helped unlock billions in additional financing. Reforms to co-financing platforms and local currency tools are promising signs of coordination.

But the real prize is yet to come: a comprehensive, G20-endorsed road map to lower for low- and middle-income countries. This is not charity. It is smart, coordinated financial engineering.

We propose four pillars of reform:

1. Fix risk perception: Credit rating agencies must be held to higher standards. Biases, data gaps, and a lack of granularity inflate sovereign risk for African economies. The G20 should demand transparency and competition in the ratings market.

2. Scale credit enhancements: Partial guarantees and insurance mechanisms can de-riskinvestment and attract private capital at scale. MDBs must move faster in deploying these tools —not just as lenders, but as co-investors.

3. Modernize regulation: Elements of Basel III and other global rules, while designed to ensure stability, unintentionally penalize investment in Africa. These frameworks must be reviewed to balance prudence with development needs.

4. Empower domestic systems: African countries must invest in data, governance, and local currency bond markets. The G20 should support this with technical assistance, not just rhetoric.

A political mandate for change

South Africa is stepping up. Its G20 presidency has already placed the cost of capital high on the agenda. The question now is whether the G20 will respond — not with platitudes, but with policy.

There is no global development without African growth. And there will be no African growth without a fundamental reset of how capital is priced for the continent. The G20 was built to solve problems no single country can solve alone. This is one of them.

The stakes are clear. The tools exist. What’s needed is political will.