African money and capital markets are located at a critical crossroads. Faced with persistent volatility in rates of change, economic fragility and the threat of restructuring risks on local loans, they are arousing growing distrust among investors. To turn these challenges into opportunities, experts call for a revolution in financial instruments.

The objective is twofold: to secure long-term investments term and mobilize the vast resources of institutional savings. However, the funders and the development institutions agree to promote innovative instruments as a key to unlocking the enormous capital potential of mainland.

If the instruments innovative financial and structural measures are essential to unleash investment potential, perception which depends on the solvency or otherwise of a country plays a very important role. In In this process, the role of credit rating agencies is to give creditors Private companies a fairly reasonable estimate of the risks faced by debtor countries are subject to. But several countries, institutions and companies are rising for several years to challenge the ratings believing that the agencies of ratings exaggerate by overestimating risks.

On the sidelines of the last AU summit in Addis Ababa, the Kenyan president, William Ruto had said: “the global rating agencies didn't just have us played a bad trick, they also deliberately let Africa down”,

The risk level is very High ratings have consequences for countries African countries: The cost of credit in countries on the continent is higher than for others. Between 2020 and 2024, the average interest rate is estimated at 9.8% for Africa, compared to 5.3 for Asia and 6.8% for Latin American countries. For developed countries, it is much lower: for example it is 0.8% for Germany and 2.5 for the US, according to UN Global Crisis Response Group 2024.

Exaggeration in the level The sovereign risk of African countries may be due to poor knowledge savings, or lack of confidence in the information system financial resources of African countries. So, Africa is working to launch its own credit rating agency in order to demystify and democratize credit evaluation sovereigns.

The initiative, led by the African Union intends to better reflect the reality of risks on the mainland. The aim is far from being to compete with or eliminate the agencies of existing notation. The aim will be to encourage the development of markets. domestic investors and broaden the local investor base.

Money and capital market challenges in Africa There

is a strong demand for finance in all sectors, and a well-developed capital market could help free up numerous economic opportunities on the continent. However, discussions around investment opportunities on the capital markets, elicit a variety of reactions. For some, these markets are full of opportunities to seize. For others, the markets of African capital is synonymous with regulatory uncertainty and slowness judicial, illiquid markets and a multitude of obstacles to overcome.

The market is facing a low Regional Savings Rate that limits the local capital base available for investment and the financing for development. Africa Sub-Saharan Africa has a savings rate of 18%, according to Bank data worldwide, less than half of the global average of 36%, due to especially the low disposable income of its young population.

One of the main obstacles to the development of markets for Capital on the continent is the continuing regulatory uncertainty. Les local and foreign investors still fear the adoption of new laws that may affect investments or the repatriation of capital, or even to question the very foundations of their initial investments.

Exchange-rate volatility, economic fragility, debt management and political uncertainty increase the premium of risk required by investors.

The IMF warned that the low liquidity hampers the mobilization of funds. Market capitalization financial centers in sub-Saharan Africa, excluding South Africa, represented on average less than 20% of GDP, compared to 50% in the others developing economies and 126% in advanced economies.

Low liquidity makes it more difficult and more expensive buying and selling securities, which discourages investors, by especially long-term institutional investors.

The risk of local restructuring in the event of non-payment creates increased distrust and may hamper efforts to mobilize internal resources.

Samuel Maimbo, development finance expert and candidate for the leadership of the African Development Bank (AfDB) ”, serif"> said To Reuters that leaders should reforming Africa's “entire financing system” to unlock more liquidity.

Innovative instruments to free up capital

Financial and structural innovation is a way essential for attracting capital and improving resilience. The IMF and its partners promote innovative instruments to mobilize capital in Africa, in particular hybrid capital linked to special drawing rights (SDRS) for a multiplier effect, green and sustainable bonds, and the hybrid capital with credit guarantee to attract investments private. The Resilience and Sustainability Trust Fund (FFRD) offers also long-term financing for issues such as climate, such as The IMF points this out.

On the occasion of the launch of SDRs in 2024, Dr. Akinwumi Adesina, President of the African Bank of Development has indicated that the region needs solutions to address the growing development challenges in Africa.

Efforts to deepen financial markets, such as the creation of equity markets dedicated to SMEs and markets regional bond holders, can expand financing options. The Victoria Falls Stock Exchange (VFEX) at Zimbabwe offers an overview of innovation, using labelled quotations in US dollars to attract foreign investors, but a wider adoption will require monetary stability and the confidence of regulatory authorities.

In full global growth, Thematic Bonds (Green and Social) make it possible to link investment with specific development objectives (climate, social). They attract a new class of investors (ISR), often less so sensitive to immediate political volatility, and may even benefit from a “green premium” (lower returns) because of their impact positive.

The Mobilization of Institutional Savings represents a underused lever. Regulatory reforms are needed for encourage a significant portion of investment in infrastructure projects and on local capital markets, subject to an improvement in the governance and transparency.

Risk Reduction Mechanisms that result in the use of guarantees, credit enhancements or co-guarantee platforms, often established with the support of multilateral institutions, can reduce the perceived risk of African projects and bonds, making these assets more attractive for private investors.

Félicien HOUESSOU