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Unlocking Africa's Potential: Navigating Credit Dynamics and Sustainable Growth · Look Forward

0:06
Welcome to the Look Forward Podcast from S&P Global.
0:10
My name is Molly Mintz.
0:12
I'm the lead strategist for research and development at S&P Global Ratings.
0:17
When this podcast originally launched six years ago, I was supporting the show as
0:22
its executive producer behind the scenes.
0:26
Now I'm thrilled to be back in the studio and in front of our audience
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as one of the shows new hosts.
0:33
In today's rapidly Shifting Markets success depends on anticipating
0:38
what's next on the horizon.
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The experts who excel are professionals who can spot emerging trends
0:45
before they fully materialize.
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With the Look Forward Podcast, you can access the forward-looking
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intelligence you need to navigate uncertainty with confidence.
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The Look Forward Podcast delivers fresh insights, deeper analyses, and innovative
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approaches that are essential in this rapidly changing world to help you prepare
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for future risks and opportunities.
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We bring you specialist perspectives on capital markets, trade and supply
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Look forward council bringing cutting edge research on long-term trends
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and transformative market shifts.
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With a sharp focus on what these developments mean for the decisions
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that will shape your tomorrow.
1:42
I'm looking forward to always learning with you.
1:46
As the world's second largest continent, Africa is endowed with abundant natural
1:51
resources critical to the energy transition, and a population of roughly
1:57
1.5 billion people supported by young demographics and a growing middle
2:02
class, which presents exponential investment opportunities across sectors.
2:09
The implementation of effective policies and innovative financing solutions can
2:14
unlock Africa's potential, allowing the growth frontier market to emerge
2:19
as a key player in the global economy.
2:22
We already project Africa's GDP growth rate in 2025 to nearly triple that of
2:28
advanced economies, but infrastructure deficits, climate change and debt
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sustainability challenges are hindering
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the pace of development.
2:39
On this episode, I'm joined by three of my S&P global ratings colleagues
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to go deeper into their essential intelligence on Africa's macro credit
2:50
dynamics, access to sustainable and blended finance, and the importance
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of robust domestic capital markets.
2:59
Yes.
2:59
Hi.
2:59
My name is Roberto Sifron.
3:01
I'm Chief Analytical Officer for Sovereigns and multilateral lending
3:04
institutions globally for S&P.
3:08
I work, with all the teams across the world, managing, the analytical aspect of
3:16
the practice and of course, thriving for consistency and, and, and, and a more
3:23
harmonious approach on our methodologies.
3:28
I am Samirah Mensah, managing director, head of, Africa Research and Analytics.
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I'm in charge of coordinating research, across practices, for
3:40
the African continent and also in charge of our stakeholder
3:45
engagement and outreach initiatives.
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I'm also the country head of South Africa.
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I am based in South Africa.
3:53
To, to be able to deploy our emerging market at African Strategy.
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And I am Elijah Oliveros-Rosen.
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I am the Chief Economist for Emerging Markets.
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My team forecasts some of the key macroeconomic variables for the
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largest emerging markets that we cover.
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Thanks so much for joining me today.
4:16
It's only fitting that we start the conversation from the credit perspective.
4:20
To set the stage,
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sovereign ratings in Africa are largely at the lower end of the spectrum with
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about half of the countries rated between B minus and B plus, and the
4:30
third rated double B minus and above.
4:32
Out of 54 countries S&P Global Rating's rates 26 African sovereigns.
4:38
At their request, the continent had more upgrades in 2024 than any other region
4:43
globally with five sovereigns on a positive outlook at the start of the year.
4:49
So far in 2025 S&P Global Rating's upgraded to African sovereigns
4:54
from their positive outlook moving one into investment grade.
4:58
Roberto looking at you.
5:00
Debt sustainability is central to assessing sovereign's credit worthiness.
5:05
So what are the primary factors that are driving refinancing
5:09
risks for African sovereigns?
5:12
The first point I would like to make is, when we look at sovereigns, we don't
5:16
look at sovereigns differently, whether they are in Africa or in Latin America
5:22
or in Asia or anywhere in the world.
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We look at all of them through the same prism of our, of of our methodology.
5:29
Um.
5:30
And so does the market, especially in the sovereign world and especially in
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emerging market and frontier market investors look at these sovereigns,
5:39
through the same type of, of analysis.
5:42
Of course, understanding the differences that being in Africa might have
5:47
vis-a-vis being in Latin America, and what, what, what aspects do you need
5:51
to know of each region, but in general.
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The credit considerations seems usually, seem to be, rather similar.
5:59
Some of the aspects are, you know, the, the, the basic aspect
6:04
is of course the size of the diversification of the economy.
6:08
As you mentioned earlier, I think, that for many in Africa places a strength
6:14
as you go through the recent processes where you have a fair amount of.
6:20
Growth on, on the minerals, hydrocarbons and other air, rare earth
6:27
materials that the continent has, you know, quite a lot and that has.
6:31
Play quite favorably on sustaining growth and providing a fair amount of, of growth
6:36
for a region that, that has been lagging on that, on that regard, vis-a-vis other
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emerging markets, in, in the world.
6:45
The next aspect is of course, the strength of the infrastructure that you have to
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support that growth, and that's an aspect.
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I think is very, very important and there's been a lot of work, to, to
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jumpstart that process in Africa.
6:59
There are economies that have a much stronger degree there there is
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a quite, divergence, I would say, on the degree of infrastructure.
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Development in the continent, and therefore there is a spot there
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for opportunities going forward.
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And then the last point that I would like to make is just the, the, you
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know, the, the health of public finance.
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That's, that's very important for, for, for credit worthiness
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and for refinancing access.
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Investors will look at that, will look at how, you know, what's your
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capacity to, to, to produce revenues.
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Which in, when I look at, Africa vis-a-vis other emerging market, that's an area
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of opportunity where you could see an increase there, vis-a-vis, let's say Latin
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America or Southeast Asia, where, where the, the revenue takes are much stronger.
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Bottom line.
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I think a lot has to do with the combination of all these factors.
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What, what different strategies governments have,
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with each of these factors.
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You could see a very, very diverse, as you were mentioning earlier, a
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quite diverse group of sovereigns in, in, in the continent, right?
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You have, as you said, sovereigns that not only have had investment
8:13
grade, but there are others that.
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Have recently obtained investment grade.
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And then there are others that have much more challenges because
8:20
they have to deal with other issues inherent to their own realities.
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We had, you know, civil wars, we have coup d'é·tat's and we also have
8:27
economies that are booming these days.
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So, you know, this is not just one fits all.
8:32
You, you really had to make a, a case by case analysis, which is
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what we do, and honestly, what is at the center of what, um.
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What, what, what factors are going to drive your capacity to access market?
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It's gonna be very different depending on, on the situation
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you have to, you're dealing with.
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But the framework is the one I mentioned earlier with these key
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pillars that that investors usually use.
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And how do these countries manage the trade-offs between meeting their
9:02
short-term financing needs and then ensuring long-term debt sustainability?
9:08
Great.
9:09
No, that's, that's a great point.
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And again, not just these countries, every country has to deal with that,
9:14
dealing with the reality of what I need today, versus what I wanna
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look like in the long-term future.
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And I think a law has to do number one.
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You know, they, they've done a lot of work and, and I think.
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Again, this was a continent that was lagging on, debt
9:30
management, for example, capacity.
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And there has been a tremendous amount of work over the last few
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years to improve that in many of these economies, and you've seen it.
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Our ratings have actually followed that process in many ways.
9:45
We have seen improvements countries like banana.
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Or Ko Devo.
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We've also seen a, a fair amount of countries that already had that, like
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South Africa continuing that, that road.
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So you, there is a lot, there.
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there's also tremendous amount of work with multilateral development
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institutions to improve that.
10:06
When you think about more the long term aspect of it, they worked, they've been
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working a lot, a lot with them and, um.
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But also they had to deal with the day-to-day issues.
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They had to deal with the short term too.
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Right.
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And they had to deal with the different volatility that markets, present.
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And, you know.
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As I said before, and I guess this is kind of the theme, the reality is very diverse.
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There are those that are able to access markets with much more longer
10:36
term and a more preferable cost.
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And there are others that had to deal with, either shorter term or at times,
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there is no capacity to access, the international capital markets, so
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they have to turn to local markets.
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We usually tend to be shorter term and which higher cost.
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But I think in a nutshell, if you look at, the trade off, in, in many ways
11:03
have been, dealt with kind of different, different tools at different times.
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Most recently, what we, how survey has been a turn to the local markets
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in many of these economies, which came in the one hand, the access
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to the financing they needed.
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When they needed the flip side of that.
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It was, it was more expensive and shorter term.
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Samirah, that's a perfect transition to a question that I'd like to ask you.
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S&P Global Ratings Research estimates that about two dozen African countries have
11:37
markets comparable to other frontier, or in some cases emerging economies globally.
11:43
Why is developing domestic capital markets so significant to driving
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sustainable growth across Africa?
11:53
Thank you, Molly.
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So, development of capital markets is an absolutely a foundational step for
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Africa's development, economic development at large, perhaps two aspects here
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in my, in, in the way we look at it.
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The first one is a way of providing funding.
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Not only to sovereigns, so to governments, but also to the private sector, to
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enable grow throughout the economic and value chain, in the economy.
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Accessing market, domestic, market in particular.
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Um.
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Mitigates, if you will, external shocks, foreign currency risk, for instance.
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Optimize the mobilization of private capital, to the benefit of infrastructure
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funding in a given country, but also, to corporates, as they look to
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invest in specific, project and hire.
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Create job, hire people to, to essentially uplift, you know, the
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population, in, in their own country.
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So it's extremely important, at large, in a country.
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The other aspects, and I touched upon it already, which is mobilization
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of private, of private savings.
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Touching on that, I think it's important to raise awareness about,
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pockets of liquidity that are already existing, in sovereign wealth funds.
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Some countries do have those, but also pension funds.
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Yes, it's not as developed at as perhaps, you know, in in Europe and
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the us, but some emerging markets.
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And South Africa is a, is a very good example where we have actually large.
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Saving pools.
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And these pension funds can contribute, if well invested into, into the financing of
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specific projects, infrastructure projects in particular require long-term funding.
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And, and as such, of course, it's a, very good financing option.
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And so that enables essentially to have a self.
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Funded almost, type of ecosystem, that protects, sovereigns governments
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economies when, you have external shocks arising, throughout the economic cycle.
14:18
Thank you.
14:19
Now, Elijah, looking at this from the macroeconomic lens, despite global
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uncertainties, African countries have shown a degree of resilience and
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steady growth throughout the cycle.
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How do you explain their economic performance?
14:35
Thank you, Molly.
14:36
Yeah.
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If, if you just take a look at the last five years, African economies
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have gone through the COVID shock.
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The post COVID shock of high inflation, high interest rates, and
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now the shock of higher tariffs.
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And after all of these shocks, if you just look at media and GDP growth in
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the continent, this year is turning to be roughly 4%, which is basically the
15:00
same average growth that the continent saw before all of those shocks.
15:06
And Roberto was talking about the diversity in, in, you know,
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the economies in in Africa.
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So economies have not only been resilient, but there's several economies that are
15:16
among the fastest growing this year.
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So if you look at Côte d'Ivoire, Benin, Rwanda, Ethiopia, these economies
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are growing 6% plus this year.
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So it's resilience and in some cases better than resilience.
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So what are the sources of, of this, you know, relatively good economic performance
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despite all these shocks that we've seen?
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Let me give you three.
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The first one has to do with commodity prices.
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So most of the region has benefited from the mix of lower food and energy prices,
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and at the same time higher metals prices.
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So the region is a heavy importer of food and energy.
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In fact, both of those goods are the largest components of inflation in
16:03
virtually every country in the continent.
16:07
Food alone, for example, in some cases is more than 50%
16:11
of the consumer price basket.
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And as a result, household spending, which is 60% of Africa's GDP, has
16:19
recovered in the last couple of years.
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So that's one source of resilience.
16:22
And on the other hand, the price of metals.
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You know, such as copper, gold, precious metals, are near all time highs.
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And some of these are key exporters for, for, for the region.
16:37
So you have lower inflation and higher exports.
16:40
Now the second factor has to do with external financing conditions.
16:44
We've all seen it.
16:46
You know, global interest rates are starting to come
16:49
down from very high levels.
16:50
We expect that to continue in the coming quarters, and at the same time, we have a
16:54
weaker dollar, which has also helped lower financing costs, in external terms across
17:00
most emerging and frontier economies.
17:02
And then finally, one thing that has been happening in the, in
17:05
the background for some time now.
17:07
Among some African economies, they have been going through some important
17:12
economic reforms, whether that is liberalizing the exchange rate,
17:17
introducing a better monetary policy framework, modernizing their tax systems.
17:22
And those reforms have improved the ability of these economies to
17:26
withstand global economic shocks.
17:28
Now, despite all of this, it is important to acknowledge
17:31
that the region still faces.
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Significant vulner vulnerabilities on the monetary, fiscal and on the external side.
17:37
So more work needs to be done on the reform side.
17:40
On the upside, to what extent could moving up the value chain
17:44
in mineral and commodity sectors improve African countries income
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levels and overall growth?
17:51
Despite all the resilience, one thing that's key is that the,
17:55
the region needs to go faster.
17:57
Faster to accommodate for this rapidly expanding population.
18:01
And just to give you a couple of data points, so today, about 10% of the working
18:07
age population is in Sub-Saharan Africa.
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According to most projections, by 2050, it's gonna be 25%.
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So one in every four people of working age will be in Sub-Saharan Africa.
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So this faster growth will need, will be needed to ensure
18:23
that this growing population.
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Has, you know, a path to higher income levels.
18:28
One key opportunity, which you mentioned, to increase productivity
18:33
is making, unlocking all the potential that we have with the, the, the
18:37
transition minerals that are in Sub-Sahara, Sub-Saharan Africa.
18:42
For example, the DRC holds about 50% of the world's
18:46
reserves of cobalt and lithium.
18:48
Which are key for battery production.
18:50
South Africa, Gabon, Zimbabwe, Zimbabwe, and the list goes on of
18:55
countries that have vast reserves of other critical minerals.
18:58
At the moment, unfortunately, most of these minerals are exported in an
19:03
unprocessed manner, so in raw form, which results in low productivity,
19:07
low employment generation activities.
19:09
So the opportunity here is for African economies to play a larger
19:13
role in refining these metals.
19:15
Which will add higher value, added higher employment generation, and it
19:19
would increase productivity rates.
19:21
That obviously requires a lot of capital, and technical expertise.
19:24
So there are a lot of challenges to get there, but the
19:26
opportunity is certainly there.
19:28
And on the downside, how exposed or vulnerable are African
19:32
economies to tariff risks?
19:35
Well, actually the, the good news is that the direct impact of US
19:40
tariffs, is lower in Africa than in most of the rest of the world.
19:45
So the exposure varies by country, but if you look at Africa as a
19:50
whole, exports to the US account, about 5% of total Africa's exports.
19:57
So very small amount.
19:59
In addition, energy exports and most unprocessed minerals
20:03
are exempt from US tariffs.
20:06
So the direct impact, is, is, is quite low for most countries in Africa.
20:12
However, the indirect impact is higher.
20:15
Africa trades more with China than with the us and if the impact of
20:19
US tariffs means lower growth in China, that obviously could also mean
20:24
lower exports from Africa to China.
20:27
Very interesting.
20:28
So Roberto, this brings my next question all the way back to you.
20:32
With these external dynamics putting on so much pressure, whether from foreign
20:37
exchange risk or tariffs, or an entirely new unforeseen uncertainty on the horizon,
20:44
what will be ultimately guiding African sovereigns in their funding strategies?
20:50
I think at the top of this is improving macro stability.
20:53
Right?
20:54
Long-term macro stability.
20:55
And we spoke earlier on how do you match short-term needs with long-term,
21:04
ideal, structure of your funding?
21:09
I think, also is very important what you are funding for, right?
21:13
And I think if, if what you're trying to achieve, if, if, if, if you're going
21:17
to market to fund an infrastructure project, is, is the type of funding you're
21:23
gonna, maybe you're gonna go through more blended finance or try to get, um.
21:29
Syndicated, group of, of banks or you'll get, multilateral.
21:34
So, so there is, there is the, the good news there is that
21:37
there is plenty of options.
21:39
I think one of the things we've observed over the last few years, and not for
21:43
everybody, but for most, there is plenty of options right out, out there.
21:48
So I think.
21:51
As we've been talking about how diverse each countries are.
21:55
I think the blend, it's also going to be diverse.
21:58
Then the second point that, that is very important, I think as Elijah
22:01
was mentioning it, is, you know, how, how the market looks like when
22:06
you are going to market, right?
22:07
One thing was to have to go to market in 2020.
22:11
In April of 2020 when the market was closed or after, you know, the, the
22:16
war between Ukraine and Russia, Russia started, it's a very different thing
22:21
as we saw only a few months ago, when many frontier markets went to
22:26
market and were able to place bonds at a, you know, reasonable price.
22:30
And I think these other factor also sometimes gets overlooked.
22:34
I think people have still, the memory of the pre COVID years
22:39
where many frontier markets were issuing a very, very low rates.
22:43
Because global rates were very low, but now we're coming from a process, period
22:48
of time where global rates are quite high.
22:50
So, that also is important.
22:53
Right.
22:53
When, when you think about your funding strategies and how do you
22:57
kind of stack up your needs and how.
23:00
How to, to, to project that, that the good news, and I mentioned this
23:04
before, but I think it's very important, is that we have seen a very strong
23:09
improvement in debt management capacity and debt management units in general
23:14
participating, quite a lot and in a much more dynamic and engaging, way
23:20
that we have seen in in the past.
23:23
I think there's still some, some, some, some stuff to do going
23:26
forward, but I think when you put all these components, I think.
23:30
They all, they all kind of come in line to support macro stability for, for these
23:35
countries, which I think it really is what, what they need to, to kind of move
23:40
to the next step and to when, when, you know, kind of ending where you started,
23:44
when you were describing where, where the structure of ratings are today.
23:48
Yes.
23:50
We're probably not where.
23:52
Where it's ideal today, but if I look back where we were 6, 7,
23:57
8 years ago, I think, you know, you can see an improvement right?
24:01
Then you can see, a trajectory with, with, you know, kind of
24:05
a positive trend in general.
24:07
And I think that is very much linked to their capacity to fund themselves,
24:13
their capacity to, to go to market and get the resources they need
24:16
to do the things they have to do.
24:19
Hmm.
24:20
So Samirah, in a very similar vein, in what ways can African sovereigns utilize
24:25
credit ratings to enhance their financing strategies for their development goals
24:30
and to promote sustainable growth?
24:33
Yes.
24:33
Thank you for the question.
24:35
Molly, it's extremely important and foundational for Africa's
24:40
development to develop and build on domestic capital markets.
24:44
Um.
24:46
The use, the usage of credit ratings goes hand in hand actually with a domestic
24:52
and international, credit, markets.
24:56
We provide global scale ratings and national scale ratings for that matter.
25:02
And it enables essentially, sovereigns, corporates, financial,
25:06
non-financial corporates to essentially, leverage and raise.
25:12
Funding, for their, sustainable development goals, but also build up,
25:17
their economy and provide, certainly, social uplift to their population.
25:23
So this is extremely important.
25:25
At the same time, credit ratings, they contribute to,
25:29
raise institutional credibility.
25:32
Policy clarity, and this is something that Roberto alluded to, transparency
25:37
around management of strategic assets.
25:39
And as they do so of course, these tend to attract, more FDIs to, which
25:47
in turn essentially, you know, provide funding and, raise, the
25:54
economic prospect in a given country.
25:57
And perhaps the last point I would like to make here is about, the,
26:01
the optimization of debt management.
26:06
As, as we look at, at, you know, repayment of debt in time and in full,
26:12
by, issuers, credit ratings and access to capital market essentially enable.
26:19
Debt management offices, for instance, to optimize, align their financing options to
26:25
meet, not only their short term funding needs, but also, align with their longer
26:32
term and sustainable development goals.
26:35
So it has, a multi-form essentially and multi goals to, to, to, to
26:41
develop these capital markets and access capital markets.
26:44
And because there's always something to look forward to the inaugural
26:48
S&P Global Africa Summit titled The Path to Capital Markets is coming
26:53
up on November 20th in Johannesburg, in collaboration with the Arab Bank
26:59
for Economic Development in Africa.
27:01
This summit aims to enhance credit market development and highlight the
27:05
role of multilateral development.
27:08
Financial institutions in supporting Africa's capital markets.
27:13
Samirah, how will the S&P Global Africa Summit contribute to addressing
27:18
the challenges faced by Africa?
27:21
Yes.
27:23
Look, this is an inaugural platform, a premier event for us.
27:27
It's a Pan-African event.
27:28
It's extremely important for us to contribute, in our own way to the
27:33
development of domestic capital markets.
27:35
And I think your questions really, pointed to the fact that we, we take
27:39
this, this question extremely seriously.
27:42
Along with, access to capital is cost of, of capital, which is extremely
27:48
sensitive for African economies.
27:51
So raising awareness about credit ratings, what they are, their role in capital
27:57
markets, is, absolutely essential.
28:00
And we hope, and we aim to, to do exactly that.
28:04
With the launch of this platform, supporting stakeholder
28:08
engagement, true dialogue.
28:11
With, policy makers, you know, central banks, dmo, government officials, but
28:19
also mlis, so, development finance institutions, along with investors.
28:25
So the private sector is extremely important to move the needle and
28:30
to contribute, to, to, to new pathways, in, in addressing some
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of the road roadblocks that we, um.
28:39
We are facing, or, or that the continent is facing.
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And then the third one, we are deploying, a significant amount of resources
28:49
in terms of research and insight.
28:52
And for us it's extremely important to be able to identify, these long-term trends.
28:57
That can take the form of, you know, climate change, environmental risk,
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technological risk, geopolitical risk to just name a few and
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share those, with, the market.
29:12
And as we do that, I think it's important, for everybody to understand
29:16
that, you know, credit markets are moved by a number of factors and some
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of them are not necessarily tangible and are emerging and morphing.
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Into something, different, as we, as we, as we progress.
29:32
Well, I certainly learned so much from this conversation.
29:36
Thank you, Roberto, Samirah and Elijah for joining.
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And thank you for listening to the Look Forward podcast.
29:43
To read the research we discussed, visit spglobal.com.
29:48
I'm Molly Mintz and I'm looking forward to seeing you next time.