IFC chief takes aim at Africa’s costly risk label

Makhtar Diop, the head of the World Bank’s private-sector arm, argued that investors are unfairly penalizing Africa for its higher borrowing costs by treating the entire continent as a single high-risk investment market. Speaking at Semafor’s The Next 3 Billion event, Diop highlighted how a "contagion effect" leads to shocks in one African country being used to justify higher risk assessments across the continent, regardless of the actual economic situation.

He pointed out that investors seem to view events in countries like Ethiopia as affecting distant locations like Dakar. To combat this, the IFC is making its Global Emerging Market Risk Database accessible to investors and rating agencies, believing that transparent data on credit performance will help reduce the "Africa risk premium" and lower the cost of capital for African projects.

The IFC is also adopting a new strategy of absorbing initial losses on its own balance sheet through "originate-to-distribute" arrangements, which has increased its mobilization ratio from $1.90 to $3 for each dollar of its own capital invested. Diop questioned whether the traditional private equity model is appropriate for many African businesses, suggesting that the industry's typical five-year investment horizon often forces premature exits before companies can fully mature.

Instead, the IFC is using grant funding and risk-sharing instruments to support longer-term growth. Diop also dismissed concerns about sustained capital flight from Africa, pointing to strong domestic demand for local assets as a reliable source of financing, citing the overwhelming investor interest in a recent Nigerian market issuance that crashed the phone lines in Lagos due to the unexpected volume of calls.