Why do we need action now?

The high cost of capital in Africa is blocking the continent’s path to economic transformation and its bold development aspirations. Africa is brimming with human talent and natural riches, yet constantly held back by borrowing costs that are several times higher than those in wealthier nations. The high cost of capital for African borrowers is not just about numbers on a ledger. It is about vital resources drawn away from schools, hospitals, job-creating ventures and citizens themselves, stifling Africa’s ability to build a more prosperous future.

Lenders, agencies, and  borrowers must all do better. It starts with reducing the cost of capital for African sovereigns. By lowering sovereign borrowing costs, we can transform a cycle of debt into a virtuous cycle of development.

Reduced capital costs will enable greater investment in crucial infrastructure, lower operational expenses for businesses, boost productivity, and create much-needed jobs. This, in turn, will lead to increased domestic savings, higher tax revenues, deeper financial markets, and further reductions in capital costs, ultimately ensuring Africa’s growth is driven by its own mobilised savings and competitive FDI, not aid or expensive foreign debt. 

How big is the issue?

African countries could save up billions of dollars in financing costs, according to UNDP, if their sovereign credit ratings were based on more objective, data-driven assessments. This sum is a composite of direct and indirect costs—over $24 billion in excess interest on existing bonds and more than $46 billion in capital that was never loaned due to unjustifiably low ratings.

This financial burden is primarily the result of inflated interest rates. Between 2004 and 2021, countries in sub-Saharan Africa paid, on average, a 2.1 percentage-point premium on their coupon payments compared to other regions with similar economic profiles. This divergence is stark. In 2021, when the average interest cost on sovereign debt in developed economies dipped to 1%, 40% of African bonds carried yields exceeding 8%.

The ONE Campaign puts this into even sharper relief, calculating that African governments are paying  500% more to borrow from international capital markets than they would for concessional financing from multilateral development banks (MDBs) like the World Bank. The burden of this premium is an ongoing drain on resources. For bonds issued in the single year of 2021, for example, African countries will pay an estimated $11 billion in additional interest payments over the lifetime of those loans compared to what they would have paid at the World Bank’s concessional rates.

This financial penalty translates directly into a development penalty. The inflated cost of capital forces governments to divert scarce resources away from critical public services. This creates a vicious cycle: the inability to invest in human capital, infrastructure, and climate resilience due to punitive debt costs weakens the very economic fundamentals that the global financial architecture scrutinises. The premium perpetuates the conditions that are used to justify its existence, locking countries in a state of arrested development.