Africa’s Bond Costs Fall But “Premium” Gap Persists

BREAKING NEWSNovember 24, 2025 at 2:14 PM UTC

TLDR

Africa’s return to global debt markets has accelerated this year, with countries raising about $18 billion in international bonds—almost all arranged by Citigroup
But one feature has remained unchanged: African governments continue to pay more to borrow than peers with similar credit metrics
The Africa Finance Corp describes the gap as a “prejudice premium,” estimating that countries pay as much as $75 billion a year in additional costs

Africa’s return to global debt markets has accelerated this year, with countries raising about $18 billion in international bonds—almost all arranged by Citigroup’s Daniel Lebetkin. But one feature has remained unchanged: African governments continue to pay more to borrow than peers with similar credit metrics.

Lebetkin says the difference reflects a structural yield gap that investors have come to expect. Policymakers across the continent argue that part of the gap is justified by past defaults in countries such as Ghana and Zambia, as well as political risk. Others, including South Africa’s finance minister Enoch Godongwana, say African issuers face a bias from rating agencies and investors.

The Africa Finance Corp describes the gap as a “prejudice premium,” estimating that countries pay as much as $75 billion a year in additional costs. Research from the IMF shows sub-Saharan African nations pay about 0.5 percentage points more than similarly rated peers, especially in periods of market stress.

Still, borrowing conditions have eased. Nigeria and Kenya saw strong demand in recent eurobond sales, cutting their issuance costs. Africa’s average spread over US Treasuries is now about 3.7 percentage points, the lowest since 2018, though still above other emerging regions.

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Points clés à retenir

The debate over Africa’s borrowing premium reflects both measurable risks and harder-to-quantify perceptions. Analysts say default history, governance concerns and small market size all play roles in shaping yields. But several studies suggest the premium is also inflated by limited data, inconsistent ratings and low investor familiarity. African issuers form less than 10% of emerging-market hard-currency bonds, which reduces analyst coverage and slows buy recommendations. During global shocks, African countries tend to be downgraded more quickly than others. Gemcorp data shows more than 60% of rated African sovereigns were downgraded during the pandemic, compared with about a third globally. That dynamic raises borrowing costs further and reinforces investor caution. Yet recent demand for African debt suggests investors are more willing to re-engage when policy reforms are visible. Nigeria’s exchange-rate unification and Kenya’s fiscal adjustments helped lower their issuance costs. The broader challenge is building transparency, improving data, and engaging investors consistently—steps that could gradually narrow the long-standing premium.

Finance

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