Ahunna Eziakonwa: Time to dismantle Africa's risk premium
Africa's financial future hinges on fundamentally altering the perception of African risk, UN adviser Ahunna Eziakonwa tells Toni Kan.
Ahunna Eziakonwa, a high-ranking UN official, argues that Africa faces a "risk premium" problem, where the continent pays more for borrowing due to exaggerated risk perceptions. This phenomenon, known as the Africa risk premium, costs Africa an estimated $74.5 billion annually in additional debt service costs. Eziakonwa emphasizes that this figure represents more than just a budget line item; it is the difference between progress and paralysis.
By lowering borrowing costs by just 2% over a three-year period on an $18.6 billion portfolio, Africa could save about $1.12 billion, enough to provide electricity to 50 million people or hire 900,000 teachers.
Eziakonwa's argument is both moral and economic. She highlights that African countries are not serial defaulters, with a relatively low default rate of 1.9% for infrastructure loans compared to 4.6%, 10.1%, and 12.4% for Asia, Latin America, and Eastern Europe, respectively. Despite facing inflated borrowing costs, African governments often divert funds from social investment to debt repayment, creating a vicious cycle that hampers social development.
Eziakonwa calls for a shift in the global financial architecture to unlock Africa's $4.5 trillion in domestic capital, currently held abroad, by reversing the risk premium narrative and lowering the cost of capital. She proposes the establishment of an African Credit Rating Agency to provide a more complete and professional assessment, strengthening domestic rating networks and enabling Africa to access capital more effectively for its development needs.
Written by urgent.news from Africa Business's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
