African economies must reduce borrowing costs, strengthen foreign exchange reserves and deepen domestic capital markets to build resilience against mounting global economic shocks, S and P Global has said, warning that sustained economic growth alone will not shield the continent from external financial pressures.
The ratings agency said Africa’s ability to translate improving economic growth into lasting financial stability would depend on how governments, banks, and corporates mobilise long-term capital, diversify funding sources and reduce their exposure to international market volatility.
Speaking during his keynote speech in Luanda on Africa’s economic resilience, Pierre Gautier, managing director – emerging and frontier markets ratings, S and P Global, projected that the continent’s median gross domestic product (GDP) growth would reach 4.6 percent over the next three years, reflecting its relatively strong performance despite successive global disruptions.
He said the continent must address structural weaknesses in its financial architecture, particularly high borrowing costs, limited foreign exchange buffers and underdeveloped local currency markets, to sustain its growth trajectory.
‘One of the critical things to make sure that Africa and many of its sovereigns can be less vulnerable to external shocks is building FX reserves,’ he said.
The assessment comes at a time when African economies are navigating an increasingly fragmented global trading environment, geopolitical tensions, tariff uncertainties and tighter international financing conditions.
According to S and P Global, the traditional global trade arrangement, in which China manufactures goods, Europe and the United States consume them, while Africa supplies critical raw materials, is gradually giving way to a system characterised by regional alliances, shifting supply chains and competition for strategic resources.
The agency believes this transition presents an opportunity for African economies to reposition themselves within global trade, particularly as demand increases for minerals critical to the energy transition and industrial development.
However, it warned that the opportunity would deliver limited economic benefits if African countries continued to concentrate on extracting and exporting unprocessed commodities.
Instead, governments must prioritise local processing, refining, and manufacturing to retain more value within their economies, generate employment and strengthen export earnings.
S and P Global argued that moving further up the global value chain could help African countries increase foreign exchange earnings and build stronger external buffers, reducing their vulnerability to sudden changes in global financing conditions.
This is particularly important because the continent’s dependence on international capital markets exposes governments and businesses to movements in global interest rates and the strength of the US dollar.
Dollar dominance raises Africa’s financing vulnerability
One of the major challenges highlighted by S and P Global is the relationship between dollar liquidity and Africa’s borrowing costs.
The agency noted that when dollar financing conditions tighten, African sovereigns typically experience higher borrowing costs in international markets, making it more expensive to refinance existing obligations and finance new development projects.
Although international financing conditions improved during 2025, the agency observed that pressures had increased since March, partly reflecting geopolitical developments and the conflict in the Middle East.
This creates a difficult financing environment for governments already grappling with competing development priorities and limited fiscal resources.
For African economies, higher external borrowing costs can also complicate debt management, increase pressure on foreign exchange reserves and constrain the capacity of governments to invest in infrastructure and productive sectors.
S and P Global therefore argued that building financial resilience requires more than maintaining economic growth. Governments must strengthen their capacity to withstand fluctuations in international capital flows.
The agency identified the expansion of foreign exchange reserves, alongside the development of domestic financing alternatives, as important measures for reducing exposure to external shocks.
Local currency markets offer alternative financing
Beyond foreign exchange reserves, S and P Global identified deeper domestic capital markets as another critical component of Africa’s financial resilience.
The agency said African countries must increasingly explore domestic funding options, including local bond markets, to reduce excessive reliance on international borrowing.
However, the capacity of domestic banks to absorb additional government debt remains relatively limited across much of the continent, except in a few countries with deeper and more developed banking sectors.
This limitation underscores the need to broaden the sources of long-term financing beyond commercial banks.
S and P Global highlighted the potential of innovative financing structures, total return swaps, guarantee-backed financing and concessional funding to expand access to capital.
It also emphasised the role of multilateral development institutions in providing long-term financing, guarantees and local currency funding that could support investment while reducing exposure to foreign exchange volatility.
The development of local currency capital markets is particularly important for African corporates seeking to raise funds without taking on excessive foreign exchange risks.
‘Currently, South Africa remains one of the few African markets with sufficiently developed local currency debt markets to support corporate bond issuance at scale, highlighting the considerable development gap across the continent.
‘Expanding these markets would allow more companies to finance long-term investments domestically while creating additional opportunities for institutional investors to deploy capital,’ he said.
Growth prospects remain strong, but inflation poses risks
Despite these structural challenges, S and P Global maintained a relatively optimistic outlook for African economic growth.
The agency attributed part of the continent’s growth potential to domestic consumption, particularly household spending, which tends to be more resilient to external shocks than export-dependent economic activities.
Africa’s demographic profile also presents a significant opportunity, as its expanding population could support consumption, labour supply and long-term economic expansion.
However, the agency identified inflation as one of the most significant short-term risks confronting policymakers.
Persistent inflation could undermine household purchasing power, increase operating costs for businesses and complicate monetary policy decisions, potentially affecting investment and economic activity.
The agency therefore stressed the importance of strengthening the relationship between economic growth and financial stability, arguing that countries must reduce funding costs while expanding their revenue bases.
It identified Morocco, Botswana, and South Africa among the African sovereigns occupying a stronger position in terms of government revenue generation and debt-servicing capacity.
According to the agency’s analysis, a more resilient fiscal position is one in which governments can expand revenues while reducing the proportion consumed by interest payments.
This would create greater fiscal space for infrastructure, social investment, and productive economic activities.
Africa must turn trade fragmentation into industrial opportunity
The changing global trade environment also presents an opportunity for African countries to strengthen regional economic integration and build more competitive industries.
S and P Global said the continent could benefit from shifting supply chains and regional trade partnerships if governments invested in infrastructure, mineral processing and industrial capacity.
However, this would require a departure from the commodity-export model that has historically exposed many African economies to volatile international prices.
By developing domestic processing capacity, African countries could capture more value from their natural resources, increase export earnings and strengthen their foreign exchange positions.
The agency’s position suggests that Africa’s long-term economic resilience will depend on addressing interconnected challenges across trade, financing, fiscal management and industrial development.
Ultimately, the continent’s challenge is no longer simply how to sustain GDP growth amid global uncertainty, but how to build financial systems capable of protecting that growth from external disruptions.