The High Cost of Underrating Africa
International credit-rating agencies perennially assign overinflated risks to Africa, irrespective of its improving macroeconomic fundamentals or the global economic environment. These “perception premiums” are one of the region's biggest development challenges.
CAIRO – In 2020, the COVID-19 pandemic caused Africa’s first recession in 25 years. The sharp tightening of global financial conditions triggered sudden stops in foreign direct investment and massive capital outflows, alongside one of the most dramatic global demand and supply shocks on record. The crisis intensified the continent’s liquidity constraints and compounded its existing macroeconomic management challenges.
The pandemic-induced downturn has also amplified one of Africa’s biggest development challenges: the high cost of “perception premiums.” These premiums reflect the overinflated risks perennially assigned to Africa, irrespective of its improving macroeconomic fundamentals or the global economic environment.
Fortunately, international leaders are finally discussing the problem. At last October’s annual meetings of the International Monetary Fund, Managing Director Kristalina Georgieva remarked that the world needs “to concentrate on reducing the perceived and real risk for investing in Africa so we can see this huge availability of financing for the rest of the world trickle down into Africa.”