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Africa's Ratings Misjudged: Costs Soaring
22 Jan
Summary
- African sovereign ratings are inaccurately low, increasing borrowing costs.
- Investor confidence in Nigeria surged, raising $2bn in gas initiative.
- South Africa's S&P upgrade signals a potential positive shift.
African sovereign debt ratings are reportedly misaligned with actual default data, leading to artificially high borrowing costs. Experts suggest this mispricing costs South Africa between 50 to 70 billion rand annually.
Despite rating agency concerns, Nigerian markets demonstrate resilience. The nation successfully raised $2 billion for its compressed natural gas initiative, with the offering being substantially oversubscribed, indicating strong investor belief.
South Africa, the continent's largest economy, has seen a recent S&P upgrade and positive outlook, signaling a potential shift. This has already resulted in significant net bond inflows and a strong performance in its stock market.
Improvements in fiscal discipline, logistics reform, and electricity supply in South Africa are noted as reasons for the upgrade. However, experts caution that this is just a first step towards regaining full investment grade status.
