One thing costs South Africa R50 billion a year

South Africa’s credit rating should be higher than it currently is, with its economic and fiscal fundamentals far healthier than those implied by its rating. 

This mismatch costs the country around R50 billion in higher debt-servicing costs as a result of investors demanding a larger premium on government borrowing. 

While South Africa provides the clearest example, such a mismatch impacts countries across the African continent. This makes it more difficult for governments and companies to borrow capital to fund infrastructure projects or expand their operations. 

Speaking on the sidelines of Standard Bank’s second African Markets Conference, Corporate and Investment Banking CEO Luvuyo Masinda explained just how costly this mismatch can be. 

“We believe that on average, and I hate averages because every country is different, but there is between three and four ratings difference from where African countries should be on a like-for-like basis,” Masinda said. 

While a seemingly small difference, this translates into billions more being spent on debt-servicing costs than African countries should. 

Many have pointed to the creation of an African ratings agency as the solution, arguing that analysts’ bias in developed economies creates the mismatch. 

However, Masinda said this is not the case. “We do not believe that setting up an African ratings agency solves the problem. Unless you only want to borrow from Africa,” he said. 

“What we do believe is that governments, finance ministries, and central banks should really invest in what we call investor relations.”

Masinda explained that the onus is on states and their financial institutions to make their data readily available and have a team to engage with rating agencies and their staff. 

“It is actually quite predictable and easy to understand the models that are used by credit rating agencies. But, often our governments are not providing the right level of data or transparency,” Masinda said. 

“The Middle East had a similar problem years ago. They faced a massive mismatch. And now they don’t, because they really invested in this capability.” 

While an increased presence from rating agencies on the continent is positive news, without access to data and engagement with the state, it will not have a significant impact. 

South Africa’s R50 billion headache

Standard Bank has previously used South Africa as an example of how much this mismatch can cost African countries, leading to increased debt-servicing costs. 

Relative to its peers, South Africa’s National Treasury has extensive investor relations and, alongside the Reserve Bank, provides ample data to rating agencies.

This means the mismatch is largely down to a wait-and-see approach from rating agencies regarding improvements to South Africa’s economic and fiscal fundamentals.

Standard Bank CEO Sim Tshabalala previously told Daily Investor how the bank has engaged with rating agencies to address this mismatch. 

“We are in the process of engaging the rating agencies as we speak. We are going to keep making this point. Just look at the fundamentals and your rating. The mismatch is too large for us not to have a say,” Tshabalala said. 

While South Africa’s economy is not growing, it has a relatively stable macroeconomic environment and a highly sophisticated financial system. 

These characteristics are unique among its peers and are vastly different to other countries that are rated at a similar level by credit rating agencies.

“I would invite you to analyse the economic and financial fundamentals of South Africa and compare them relative to the country’s credit rating,” Tshabalala said. 

“I would contend to you that you will find there is a mismatch between those fundamentals and the ratings. Put differently, our research at Standard Bank shows that South Africa should have a BBB rating.”

This results in an excessive premium being paid on the country’s debt, making it more challenging to attract capital for investment needed to boost economic growth. 

Tshabalala estimated that the mismatch results in South Africa spending around R50 billion more on debt-servicing costs than it should. 

The R50 billion going to additional interest payments could be used much more effectively to fund education, healthcare, or infrastructure development.

“The additional cost is why it is so important to keep the debate alive and keep making the argument. It is not a trivial matter,” he said. 

The mismatch has been slightly narrowed by South Africa’s credit rating upgrade from S&P Global after the 2025 Medium-Term Budget Policy Statement. 

However, the other two major rating agencies, Moody’s and Fitch, are yet to budge.