Look Forward | Episode 18: Unlocking Africa's Potential: Navigating Credit Dynamics and Sustainable Growth

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Molly Mintz: [00:00:00] Welcome to the Look Forward Podcast from S&P Global. My name is Molly Mintz. I'm the lead strategist for research and development at S&P Global Ratings. When this podcast originally launched six years ago, I was supporting the show as its executive producer behind the scenes. Now I'm thrilled to be back in the studio and in front of our audience as one of the shows new hosts.

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The Look Forward Podcast delivers fresh insights, deeper [00:01:00] analyses, and innovative approaches that are essential in this rapidly changing world to help you prepare for future risks and opportunities. We bring you specialist perspectives on capital markets, trade and supply chains, the multidimensional energy transition, sustainability and climate, global realignment, technology and digital disruption, and beyond.

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As the world's second largest continent, Africa is endowed with abundant natural resources critical to the energy transition, and a population of roughly 1.5 billion people [00:02:00] supported by young demographics and a growing middle class, which presents exponential investment opportunities across sectors.

The implementation of effective policies and innovative financing solutions can unlock Africa's potential, allowing the growth frontier market to emerge as a key player in the global economy. We already project Africa's GDP growth rate in 2025 to nearly triple that of advanced economies, but infrastructure deficits, climate change and debt sustainability challenges are hindering

the pace of development. On this episode, I'm joined by three of my S&P global ratings colleagues to go deeper into their essential intelligence on Africa's macro credit dynamics, access to sustainable and blended finance, and the importance of robust domestic capital markets.

Robert Sifron-Arevalo: Yes. Hi. [00:03:00] My name is Roberto Sifron.

I'm Chief Analytical Officer for Sovereigns and multilateral lending institutions globally for S&P. I work, with all the teams across the world, managing, the analytical aspect of the practice and of course, thriving for consistency and, and, and, and a more harmonious approach on our methodologies.

Samira Mensah: I am Samirah Mensah, managing director, head of, Africa Research and Analytics. I'm in charge of coordinating research, across practices, for the African continent and also in charge of our stakeholder engagement and outreach initiatives. I'm also the country head of South Africa. I am based in South Africa.

To, to be able to deploy our emerging market at African Strategy. [00:04:00]

Elijah Oliveros-Rosen: And I am Elijah Oliveros-Rosen. I am the Chief Economist for Emerging Markets. My team forecasts some of the key macroeconomic variables for the largest emerging markets that we cover.

Molly Mintz: Thanks so much for joining me today. It's only fitting that we start the conversation from the credit perspective. To set the stage,

sovereign ratings in Africa are largely at the lower end of the spectrum with about half of the countries rated between B minus and B plus, and the third rated double B minus and above. Out of 54 countries S&P Global Rating's rates 26 African sovereigns. At their request, the continent had more upgrades in 2024 than any other region globally with five sovereigns on a positive outlook at the start of the year. So far in 2025 S&P Global Rating's upgraded to African sovereigns from their positive outlook moving one into investment grade.

Roberto looking at [00:05:00] you. Debt sustainability is central to assessing sovereign's credit worthiness. So what are the primary factors that are driving refinancing risks for African sovereigns?

Robert Sifron-Arevalo: The first point I would like to make is, when we look at sovereigns, we don't look at sovereigns differently, whether they are in Africa or in Latin America or in Asia or anywhere in the world.

We look at all of them through the same prism of our, of of our methodology. Um. And so does the market, especially in the sovereign world and especially in emerging market and frontier market investors look at these sovereigns, through the same type of, of analysis. Of course, understanding the differences that being in Africa might have vis-a-vis being in Latin America, and what, what, what aspects do you need to know of each region, but in general.

The credit considerations seems usually, seem to be, rather similar. [00:06:00] Some of the aspects are, you know, the, the, the basic aspect is of course the size of the diversification of the economy. As you mentioned earlier, I think, that for many in Africa places a strength as you go through the recent processes where you have a fair amount of.

Growth on, on the minerals, hydrocarbons and other air, rare earth materials that the continent has, you know, quite a lot and that has. Play quite favorably on sustaining growth and providing a fair amount of, of growth for a region that, that has been lagging on that, on that regard, vis-a-vis other emerging markets, in, in the world.

The next aspect is of course, the strength of the infrastructure that you have to support that growth, and that's an aspect. I think is very, very important and there's been a lot of work, to, to jumpstart that process in Africa. There are [00:07:00] economies that have a much stronger degree there there is a quite, divergence, I would say, on the degree of infrastructure.

Development in the continent, and therefore there is a spot there for opportunities going forward. And then the last point that I would like to make is just the, the, you know, the, the health of public finance. That's, that's very important for, for, for credit worthiness and for refinancing access.

Investors will look at that, will look at how, you know, what's your capacity to, to, to produce revenues. Which in, when I look at, Africa vis-a-vis other emerging market, that's an area of opportunity where you could see an increase there, vis-a-vis, let's say Latin America or Southeast Asia, where, where the, the revenue takes are much stronger.

Bottom line. I think a lot has to do with the combination of all these factors. What, what different strategies governments have, [00:08:00] with each of these factors. You could see a very, very diverse, as you were mentioning earlier, a quite diverse group of sovereigns in, in, in the continent, right?

You have, as you said, sovereigns that not only have had investment grade, but there are others that. Have recently obtained investment grade. And then there are others that have much more challenges because they have to deal with other issues inherent to their own realities. We had, you know, civil wars, we have coup d'é·tat's and we also have economies that are booming these days.

So, you know, this is not just one fits all. You, you really had to make a, a case by case analysis, which is what we do, and honestly, what is at the center of what, um. What, what, what factors are going to drive your capacity to access market? It's gonna be very different depending on, on the situation you have to, you're dealing with.

But the framework is the one I mentioned earlier with these key pillars that that investors usually use.

Molly Mintz: And how do [00:09:00] these countries manage the trade-offs between meeting their short-term financing needs and then ensuring long-term debt sustainability?

Robert Sifron-Arevalo: Great. No, that's, that's a great point. And again, not just these countries, every country has to deal with that, dealing with the reality of what I need today, versus what I wanna look like in the long-term future.

And I think a law has to do number one. You know, they, they've done a lot of work and, and I think. Again, this was a continent that was lagging on, debt management, for example, capacity. And there has been a tremendous amount of work over the last few years to improve that in many of these economies, and you've seen it.

Our ratings have actually followed that process in many ways. We have seen improvements countries like banana. Or Ko Devo. We've also seen a, a fair amount of countries that already had that, like South Africa continuing that, that road. So you, there is a lot, [00:10:00] there. there's also tremendous amount of work with multilateral development institutions to improve that.

When you think about more the long term aspect of it, they worked, they've been working a lot, a lot with them and, um. But also they had to deal with the day-to-day issues. They had to deal with the short term too. Right. And they had to deal with the different volatility that markets, present. And, you know.

As I said before, and I guess this is kind of the theme, the reality is very diverse. There are those that are able to access markets with much more longer term and a more preferable cost. And there are others that had to deal with, either shorter term or at times, there is no capacity to access, the international capital markets, so they have to turn to local markets.

We usually tend to be shorter term and which higher cost. But I think in a nutshell, if you look at, [00:11:00] the trade off, in, in many ways have been, dealt with kind of different, different tools at different times. Most recently, what we, how survey has been a turn to the local markets in many of these economies, which came in the one hand, the access to the financing they needed.

When they needed the flip side of that. It was, it was more expensive and shorter term.

Molly Mintz: Samirah, that's a perfect transition to a question that I'd like to ask you. S&P Global Ratings Research estimates that about two dozen African countries have markets comparable to other frontier, or in some cases emerging economies globally.

Why is developing domestic capital markets so significant to driving sustainable growth across Africa?

Samira Mensah: Thank you, Molly. So, development of capital markets is an absolutely a foundational step [00:12:00] for Africa's development, economic development at large, perhaps two aspects here in my, in, in the way we look at it.

The first one is a way of providing funding. Not only to sovereigns, so to governments, but also to the private sector, to enable grow throughout the economic and value chain, in the economy. Accessing market, domestic, market in particular. Um. Mitigates, if you will, external shocks, foreign currency risk, for instance.

Optimize the mobilization of private capital, to the benefit of infrastructure funding in a given country, but also, to corporates, as they look to invest in specific, project and hire. Create job, hire people to, to essentially uplift, you know, the population, [00:13:00] in, in their own country.

So it's extremely important, at large, in a country. The other aspects, and I touched upon it already, which is mobilization of private, of private savings. Touching on that, I think it's important to raise awareness about, pockets of liquidity that are already existing, in sovereign wealth funds.

Some countries do have those, but also pension funds. Yes, it's not as developed at as perhaps, you know, in in Europe and the us, but some emerging markets. And South Africa is a, is a very good example where we have actually large. Saving pools. And these pension funds can contribute, if well invested into, into the financing of specific projects, infrastructure projects in particular require long-term funding.

And, and as such, of course, it's a, very good financing option. And so that [00:14:00] enables essentially to have a self. Funded almost, type of ecosystem, that protects, sovereigns governments economies when, you have external shocks arising, throughout the economic cycle.

Molly Mintz: Thank you. Now, Elijah, looking at this from the macroeconomic lens, despite global uncertainties, African countries have shown a degree of resilience and steady growth throughout the cycle.

How do you explain their economic performance?

Elijah Oliveros-Rosen: Thank you, Molly. Yeah. If, if you just take a look at the last five years, African economies have gone through the COVID shock. The post COVID shock of high inflation, high interest rates, and now the shock of higher tariffs. And after all of these shocks, if you just look at media and GDP growth in the continent, this year is turning to be roughly 4%, which is [00:15:00] basically the same average growth that the continent saw before all of those shocks.

And Roberto was talking about the diversity in, in, you know, the economies in in Africa. So economies have not only been resilient, but there's several economies that are among the fastest growing this year. So if you look at Côte d'Ivoire, Benin, Rwanda, Ethiopia, these economies are growing 6% plus this year.

So it's resilience and in some cases better than resilience. So what are the sources of, of this, you know, relatively good economic performance despite all these shocks that we've seen? Let me give you three. The first one has to do with commodity prices. So most of the region has benefited from the mix of lower food and energy prices, and at the same time higher metals prices.

So the region is a heavy importer of food and energy. In fact, [00:16:00] both of those goods are the largest components of inflation in virtually every country in the continent. Food alone, for example, in some cases is more than 50% of the consumer price basket. And as a result, household spending, which is 60% of Africa's GDP, has recovered in the last couple of years.

So that's one source of resilience. And on the other hand, the price of metals. You know, such as copper, gold, precious metals, are near all time highs. And some of these are key exporters for, for, for the region. So you have lower inflation and higher exports. Now the second factor has to do with external financing conditions.

We've all seen it. You know, global interest rates are starting to come down from very high levels. We expect that to continue in the coming quarters, and at the same time, we have a weaker dollar, which has also helped lower financing costs, in external terms [00:17:00] across most emerging and frontier economies.

And then finally, one thing that has been happening in the, in the background for some time now. Among some African economies, they have been going through some important economic reforms, whether that is liberalizing the exchange rate, introducing a better monetary policy framework, modernizing their tax systems. And those reforms have improved the ability of these economies to withstand global economic shocks.

Now, despite all of this, it is important to acknowledge that the region still faces. Significant vulner vulnerabilities on the monetary, fiscal and on the external side. So more work needs to be done on the reform side.

Molly Mintz: On the upside, to what extent could moving up the value chain in mineral and commodity sectors improve African countries income levels and overall growth?

Elijah Oliveros-Rosen: Despite all the resilience, one thing that's key is that the, the region needs to go faster. Faster to accommodate for this [00:18:00] rapidly expanding population. And just to give you a couple of data points, so today, about 10% of the working age population is in Sub-Saharan Africa. According to most projections, by 2050, it's gonna be 25%.

So one in every four people of working age will be in Sub-Saharan Africa. So this faster growth will need, will be needed to ensure that this growing population. Has, you know, a path to higher income levels. One key opportunity, which you mentioned, to increase productivity is making, unlocking all the potential that we have with the, the, the transition minerals that are in Sub-Sahara, Sub-Saharan Africa.

For example, the DRC holds about 50% of the world's reserves of cobalt and lithium. Which are key for battery production. South Africa, Gabon, Zimbabwe, Zimbabwe, and the list goes on of countries that have vast reserves of other critical minerals. At the moment, unfortunately, [00:19:00] most of these minerals are exported in an unprocessed manner, so in raw form, which results in low productivity, low employment generation activities.

So the opportunity here is for African economies to play a larger role in refining these metals. Which will add higher value, added higher employment generation, and it would increase productivity rates. That obviously requires a lot of capital, and technical expertise. So there are a lot of challenges to get there, but the opportunity is certainly there.

Molly Mintz: And on the downside, how exposed or vulnerable are African economies to tariff risks?

Elijah Oliveros-Rosen: Well, actually the, the good news is that the direct impact of US tariffs, is lower in Africa than in most of the rest of the world. So the exposure varies by country, but if you look at Africa as a whole, exports to the US account, about 5% of total Africa's exports.

So very small amount. In [00:20:00] addition, energy exports and most unprocessed minerals are exempt from US tariffs. So the direct impact, is, is, is quite low for most countries in Africa. However, the indirect impact is higher. Africa trades more with China than with the us and if the impact of US tariffs means lower growth in China, that obviously could also mean lower exports from Africa to China.

Molly Mintz: Very interesting. So Roberto, this brings my next question all the way back to you. With these external dynamics putting on so much pressure, whether from foreign exchange risk or tariffs, or an entirely new unforeseen uncertainty on the horizon, what will be ultimately guiding African sovereigns in their funding strategies?

Robert Sifron-Arevalo: I think at the top of this is improving macro stability. Right? Long-term macro stability. And we spoke earlier on how do you match [00:21:00] short-term needs with long-term, ideal, structure of your funding? I think, also is very important what you are funding for, right? And I think if, if what you're trying to achieve, if, if, if, if you're going to market to fund an infrastructure project, is, is the type of funding you're gonna, maybe you're gonna go through more blended finance or try to get, um.

Syndicated, group of, of banks or you'll get, multilateral. So, so there is, there is the, the good news there is that there is plenty of options. I think one of the things we've observed over the last few years, and not for everybody, but for most, there is plenty of options right out, out there. So I think.

As we've been talking about how diverse each countries are. I think the blend, it's also going to be diverse. Then the second point that, that is [00:22:00] very important, I think as Elijah was mentioning it, is, you know, how, how the market looks like when you are going to market, right? One thing was to have to go to market in 2020.

In April of 2020 when the market was closed or after, you know, the, the war between Ukraine and Russia, Russia started, it's a very different thing as we saw only a few months ago, when many frontier markets went to market and were able to place bonds at a, you know, reasonable price. And I think these other factor also sometimes gets overlooked.

I think people have still, the memory of the pre COVID years where many frontier markets were issuing a very, very low rates. Because global rates were very low, but now we're coming from a process, period of time where global rates are quite high. So, that also is important. Right. When, when you think about your funding strategies and how do you kind of stack up your needs and how.[00:23:00]

How to, to, to project that, that the good news, and I mentioned this before, but I think it's very important, is that we have seen a very strong improvement in debt management capacity and debt management units in general participating, quite a lot and in a much more dynamic and engaging, way that we have seen in in the past.

I think there's still some, some, some, some stuff to do going forward, but I think when you put all these components, I think. They all, they all kind of come in line to support macro stability for, for these countries, which I think it really is what, what they need to, to kind of move to the next step and to when, when, you know, kind of ending where you started, when you were describing where, where the structure of ratings are today.

Yes. We're probably not where. Where it's ideal today, but if I look back where we were 6, 7, 8 years ago, I think, you know, you can see an [00:24:00] improvement right? Then you can see, a trajectory with, with, you know, kind of a positive trend in general. And I think that is very much linked to their capacity to fund themselves, their capacity to, to go to market and get the resources they need to do the things they have to do.

Molly Mintz: Hmm. So Samirah, in a very similar vein, in what ways can African sovereigns utilize credit ratings to enhance their financing strategies for their development goals and to promote sustainable growth?

Samira Mensah: Yes. Thank you for the question. Molly, it's extremely important and foundational for Africa's development to develop and build on domestic capital markets.

Um. The use, the usage of credit ratings goes hand in hand actually with a domestic and international, credit, markets. We provide global scale ratings and national scale [00:25:00] ratings for that matter. And it enables essentially, sovereigns, corporates, financial, non-financial corporates to essentially, leverage and raise.

Funding, for their, sustainable development goals, but also build up, their economy and provide, certainly, social uplift to their population. So this is extremely important. At the same time, credit ratings, they contribute to, raise institutional credibility. Policy clarity, and this is something that Roberto alluded to, transparency around management of strategic assets.

And as they do so of course, these tend to attract, more FDIs to, which in turn essentially, you know, provide funding and, raise, the economic prospect in a given country. And perhaps the last point I would like to make [00:26:00] here is about, the, the optimization of debt management. As, as we look at, at, you know, repayment of debt in time and in full, by, issuers, credit ratings and access to capital market essentially enable.

Debt management offices, for instance, to optimize, align their financing options to meet, not only their short term funding needs, but also, align with their longer term and sustainable development goals. So it has, a multi-form essentially and multi goals to, to, to, to develop these capital markets and access capital markets.

Molly Mintz: And because there's always something to look forward to the inaugural S&P Global Africa Summit titled The Path to Capital Markets is coming up on November 20th in Johannesburg, in collaboration with the Arab Bank for Economic [00:27:00] Development in Africa. This summit aims to enhance credit market development and highlight the role of multilateral development.

Financial institutions in supporting Africa's capital markets. Samirah, how will the S&P Global Africa Summit contribute to addressing the challenges faced by Africa?

Samira Mensah: Yes. Look, this is an inaugural platform, a premier event for us. It's a Pan-African event. It's extremely important for us to contribute, in our own way to the development of domestic capital markets.

And I think your questions really, pointed to the fact that we, we take this, this question extremely seriously. Along with, access to capital is cost of, of capital, which is extremely sensitive for African economies. So raising awareness about credit ratings, what they are, their role in capital markets, is, absolutely [00:28:00] essential.

And we hope, and we aim to, to do exactly that. With the launch of this platform, supporting stakeholder engagement, true dialogue. With, policy makers, you know, central banks, dmo, government officials, but also mlis, so, development finance institutions, along with investors.

So the private sector is extremely important to move the needle and to contribute, to, to, to new pathways, in, in addressing some of the road roadblocks that we, um. We are facing, or, or that the continent is facing. And then the third one, we are deploying, a significant amount of resources in terms of research and insight.

And for us it's extremely important to be able to identify, these long-term trends. That can take the form of, [00:29:00] you know, climate change, environmental risk, technological risk, geopolitical risk to just name a few and share those, with, the market. And as we do that, I think it's important, for everybody to understand that, you know, credit markets are moved by a number of factors and some of them are not necessarily tangible and are emerging and morphing.

Into something, different, as we, as we, as we progress.

Molly Mintz: Well, I certainly learned so much from this conversation. Thank you, Roberto, Samirah and Elijah for joining. And thank you for listening to the Look Forward podcast. To read the research we discussed, visit spglobal.com. I'm Molly Mintz and I'm looking forward to seeing you next time.