Kenya’s Bold Step: Converting Dollar Debt to Yuan

Some African governments are rethinking how they borrow. Kenya has taken a pioneering step by converting $3.5 billion of loans from China into yuan-denominated debt, a move expected to save the country $215 million annually. This strategy reduces exposure to the strengthening U.S. dollar and signals a broader push toward “de-dollarisation”, diversifying currency options to stabilise national economies and increase fiscal independence.

Angola’s Return to Global Markets

While Kenya experiments with currency diversification, Angola has chosen to re-engage international investors. The country has issued five- and ten-year Eurobonds to raise $1.5 billion, marking its first bond sale since 2022. Led by major global banks including Citi, Deutsche Bank, JPMorgan, and Standard Chartered, the sale points to renewed investor confidence in African economies. Yet, experts warn that poor credit ratings still force many countries to borrow at interest rates as high as 12%, as noted by MacDonald Goanue of the ECOWAS Bank for Investment and Development.

Creative Financing and Regional Solutions

To ease the debt burden, several African nations are adopting innovative financial tools. Securitisation, which allows governments to use future revenue streams as collateral, and debt-for-nature swaps, which forgive debt in exchange for environmental protection, are gaining traction. Additionally, regional banks are offering concessional loans with lower interest rates and longer repayment periods. There is also growing advocacy for trading in African currencies and building stronger regional financial institutions to reduce reliance on Western lenders.

From Necessity to Strategy

Africa ’s debt story is evolving from borrowing out of necessity to borrowing with strategy. However, global inflation, commodity price drops, and geopolitical instability still threaten progress. As Kenya, Angola, and others demonstrate, African countries are reclaiming agency in the global financial system. The focus is shifting from repayment to reimagining the structures that have historically constrained the continent’s growth.

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World Reframed is produced in London by Global South World, part of the Impactum Group. Its editors are Duncan Hooper and Ismail Akwei.

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“The current global credit rating system often overlooks Africa's unique economic realities, unfairly penalising our countries during periods of global distress. This must change,” Ruto said. “I therefore support the proposal to establish an African credit rating agency, complemented by reforms in global credit rating systems to address structural inequalities,” he added.

While Ruto stressed the importance of deepening regional integration through the African Continental Free Trade Area (AfCFTA), he also called for sweeping reforms to the international financial system and urged African nations to boost trade with each other. He said the continent could no longer afford to be held back by external dependence and unfair credit ratings.

“Intra-African trade accounts for only 15 percent of total continental trade. By all credible estimates under AfCFTA, intra-African trade can surge by up to 50 percent in just ten years,” he said. “This would generate immense wealth, create millions of decent jobs, expand opportunities for MSMEs, and open new markets for African goods and services.”

Currently, intra-African trade accounts for only 16 percent of the continent’s total, compared with 70 percent in Europe and 60 percent in Asia. The disparity highlights Africa’s continued reliance on external markets for growth, Viory reports. 

Why ratings matter

Credit rating agencies such as Moody’s, Fitch and S&P Global assess amongst others, a country’s ability to repay debt. Their ratings heavily influence how much governments and businesses pay when they borrow money.

For African countries, a downgrade can mean significantly higher interest rates on loans, even when economic fundamentals remain stable. Leaders argue this creates a cycle where debt becomes harder to manage, limiting resources for investment in infrastructure, healthcare, and education.

In response to Moody's analysis of Egypt’s economy, the country's Minister of Finance, Mohamed Maait, emphasised that the global rating agency failed to consider the government's ongoing efforts to stabilize the economy.

Maait described the current approach to handling Egypt’s economy as one that is flexible and balanced in managing macroeconomic risks, absorbing external shocks, and addressing negative impacts stemming from geopolitical tensions. He highlighted the government's commitment to meeting citizens' basic needs, expanding social protection networks, and maintaining financial discipline.

He further highlighted the success of the government's strategy, leading to an initial surplus of EGP 150 billion (approximately $4.8 billion) in the first half of the current fiscal year (July to December 2023), compared to EGP 25 billion in the same period last fiscal year.

The Finance Minister drew attention to Egypt's ability to meet financing needs over the next two years through its Initial Public Offering (IPO) program, attracting investments and reducing reliance on external financing. He noted the government's withdrawal of $3.5 billion from economic activities under the IPO scheme and access to approximately $5 billion in concessional financing from multilateral development banks.

“This reflects the confidence of these international institutions in the economic path pursued by the Egyptian government through financial policies more capable of achieving financial discipline and maintaining a sustainable primary surplus, along with continuing to implement structural reforms that enhance economic growth by making more room for the private sector,” Maait is quoted by Ahram Online.

Despite expectations of increased financial support from the IMF and the government running a fiscal surplus when debt payments are excluded, Egypt still faces significant challenges. Analysts have pointed to very weak debt metrics and heightened exposure to foreign exchange and interest rate risks. The country is grappling with its most severe economic crisis in decades, triggered by the ongoing conflict between Israel and Hamas.

According to a report from Reuters, Qualitas, an Australian real estate specialist backed by the Abu Dhabi Investment Authority, has nearly doubled its assets under management to A$8 billion ($5.07 billion) since mid-2022, with approximately half of this growth occurring since June.

U.S.-based PGIM Real Estate intends to deploy an additional $1 billion in the Australian market over the next few years, as noted by its head of Australian real estate, Steve Bulloch.

Over the past 12 to 18 months, there has been a noticeable increase in institutional investor interest, with many viewing the Australian market as an attractive entry point to diversify their investment portfolios.

These developments are part of the ongoing expansion of non-bank lenders in a market where four major banks (Commonwealth Bank, National Australia Bank, Westpac, and ANZ Group) continue to dominate the majority of lending activities.

Nonetheless, non-bank lending in Australia, accounting for approximately 5% of all financial assets in 2022, remains relatively small in comparison to the International Monetary Fund's estimate of 50% on a global scale.

Non-bank lending has been on the rise, with over A$600 billion in assets reported last year, encompassing lenders focused on retail credit. Lenders are diversifying into residential and commercial construction, filling the void left by banks that are reducing lending or exiting such sectors, according to a March report from the Reserve Bank of Australia (RBA).

Investors can expect returns ranging from 9% to 11%, with the added security of loans secured against tangible assets such as condominiums or warehouses, often featuring a 30% to 40% equity buffer.

While these returns offer attractive investment opportunities, they also translate into higher costs for borrowers. The Reserve Bank of Australia (RBA) reported in March that the spread over a major bank loan is approximately 200 basis points for various types of business loans.

A United Nations Development Programme (UNDP) study in April also projected a US$ 74.5 billion savings for African countries if credit ratings were based on “less subjective assessments”.

At an explosive side meeting in Washington DC on the margins of the 2023 World Bank/IMF Spring Meetings, the UNDP opened a can of worms on the impact of credit ratings on the cost of development finance in Africa. African finance and economy ministers unequivocally backed the call for a review of international financing systems.

“If we want to bring about change, we need to change the game,” said Oulimata Sarr, Senegal’s economy minister. “It is time for Africa to have its own credit rating agency. However, major challenges, such as systemic bias and limited data are still a hindrance,” said Ken Ofori-Atta, Ghana’s finance minister present at the event. 

The UN Assistant Secretary General and UNDP Regional Director for Africa, Ahunna Eziakonwa, further painted a picture of the financial poverty Africa is facing against the injustice served by the rating agencies. “We are at the heart of polycrisis and African governments are struggling with a drought in development financing… We urgently need more fairness and justice in the way we conceptualize multilateral agencies. We need to foster agency for African people to meet development aspirations and a system where risk can be fairly priced.”

Meanwhile, the capacity of the “big three” rating agencies to determine the sovereign credit ratings for African countries where data is often missing or of poor quality was questioned at this meeting organised by the UNDP, the Africa Growth Initiative at the Brookings Institution and AfriCatalyst.

The Director of the Africa Growth Initiative at the Brookings Institution, Aloysius Uche Ordu, explained that despite the difficulty in quantifying future uncertainties by the rating agencies, “they employ inexperienced staff who are good in mathematics but lack an appreciation of the complexity of the real world, especially the complex operating environment in Africa.”

Coincidentally,  S&P Global Ratings and Moody's are based in the U.S., while Fitch is dual-headquartered in New York City and London, and is controlled by Hearst.

Ghana has been the most vocal against the “big three” after all the international rating agencies downgraded the country’s creditworthiness to junk status at the height of its economic crisis. The country has struggled to access the capital market following the rating. 

“The tag of Africa as investment risk is little more than, in substance, a self-fulfilling prophecy created by the prejudice of the international money market, which denies us access to cheaper borrowing, pushing us deeper into debts,” said Ghana’s president Nana Akufo-Addo in his speech at the UN’s 77th General Assembly in 2022.

“It has become clear if ever there was any doubt, that the international financial structure is skewed significantly against developing and emerging economies like Ghana. The avenues that are opened to powerful nations to enable them to take measures that would ease pressures on their economies are closed to small nations,” he added.

Criticism Outside Africa

While Africa battles with its rating woes, the Arab states have also called for an Arab credit rating agency to “operate with utmost impartiality, transparency, and reliability, free from the influence of personal biases and international interests observed in certain renowned global rating agencies.”

This call was championed by Adnan Yousif, Chairman of the Bahrain Association of Banks (BAB) at the Annual Investment Forum held in Abu Dhabi, UAE, in May 2023 with the same complaints as the African region. 

India also made an appeal to the “big three” this year for an upgrade while questioning the rating agencies about their parameters in deciding a country's rating. Moody's, like S&P and Fitch which rated India with 'BBB-', had rated India at the lowest investment grade of "Baa3" with a "stable" outlook.

All three ratings agencies have denied any bias and say their ratings follow the same formula everywhere in the world.

Alternative Agencies

Like China which has its own Dagong Global Credit Rating Company Ltd. that issues credit ratings for all bond issuers in China, the African Union has advanced discussions to create an African credit rating agency.

According to the lead expert for country support on rating agencies with the African Union, Misheck Mutize, the agency would craft its own assessment of the risks in lending to African countries and would be based on the continent.

"Our goal has not been to replace the big three...we need them to support access to international capital. Our view has been to widen diversity of opinions. We know the big three follow the opinion of other smaller ratings agencies. They've acknowledged that other smaller ratings agencies have got an edge in understanding domestic dynamics," he was quoted by Reuters.

In an article published by Misheck Mutize outlining the implementation of the African credit rating agency, he stated categorically that despite the adopted declaration and developed proposal for the legal, financial and structural aspects of the rating agency, “what’s not yet agreed is how the sustainability, credibility and independence of the agency will be achieved”.

However, he outlined how it could be achieved stating that it could either be an organ of the union, funded by its member states’ contributions or a self-funded autonomous specialised agency of the union, with the latter being the better option.

“Because the credit rating business requires credibility and independence, the best option is the specialised agency. Examples already in operation are the African Export-Import Bank and the Africa Risk Capacity Agency.

“As an independent specialised agency of the AU, the agency would have diverse classes of shareholders. African governments could own it either directly or through their designated public institutions. Shareholding could include other smaller African-owned rating agencies, multilateral finance institutions and African national financial institutions.

“As a financing structure, the agency would adopt the “issuer-pay” business model. The issuers of debt will pay the agency for rating its entity and products.

“It would be fully funded by its shareholders and through loans from pan-African financial institutions. Multilateral development banks would either encourage or make it mandatory for their clients to have a rating from the African rating agency. Once this is done it should be able to sustain itself through revenue generated from its services,” Misheck Mutize explained in an article published by The Conversation.

The African rating agency could be established through an agreement signed by at least 10 member states targeting a 2024 launch, Mutize added. 

So far, only  32 African countries have received a sovereign rating from at least one of the “big three” agencies since 1994 when South Africa became the first African country to receive a sovereign rating.