When international capital retreats, the true value of a financial institution is revealed not in good times, but when everyone else steps back.
Ghana experienced this during its recent debt crisis. As the country lost access to international capital markets, its currency came under severe pressure and financing options narrowed. An African institution stepped forward. Afreximbank provided Ghana with a $750 million facility in 2022, helping to support reserves, exchange-rate stability and critical financing needs.
The significance of that intervention was felt far and wide. It demonstrated that African institutions have the capacity to provide countercyclical capital when global markets become unavailable or prohibitively expensive.
African economies must simultaneously finance infrastructure, manage debt, withstand external shocks and pursue industrialisation. At a time when investors are becoming more sensitive to sovereign, currency, climate and geopolitical risks, the central question is who will provide capital when risk rises – and who will understand that risk in its African context?
Africa has more of the institutional architecture required to answer that question than is sometimes recognised.
Afreximbank, the African Development Bank, Trade and Development Bank, Africa Finance Corporation, African Trade and Investment Development Insurance, Africa Re and other regional institutions have created sophisticated ecosystems spanning development finance, trade finance, guarantees, insurance and reinsurance.
The establishment of the Alliance of African Multilateral Financial Institutions has further recognised the value of greater institutional co-operation. The challenge now is to move from co-operation to scale – and from a collection of institutions to a genuinely integrated African risk architecture.
African institutions should be part of the continent’s strategic financial and risk infrastructure.
A development bank capable of raising funds competitively in international markets and lending counter-cyclically during a crisis performs a risk-management function as much as a development function. An insurer or reinsurer that retains more infrastructure and trade risk within African balance sheets reduces the amount of capital that must leave the continent. A guarantee institution transforms an otherwise unbankable project into an investable one.
These are functions that directly influence the cost, resilience and sustainability of African development.
But the systems architecture remains incomplete. One of its most persistent weaknesses is the way African risk is assessed. International credit ratings play an important role in allocating capital, but ratings inevitably depend on models, assumptions and available data. Where information is limited and markets are shallow, perceptions of risk become self-reinforcing.
Higher perceived risk increases the cost of capital. Higher financing costs weaken fiscal positions and constrain investment. Those weaker positions then reinforce the original perception of risk.
The result is a cycle in which the cost of capital itself becomes a source of vulnerability.
This is why, as Umoja Conservation Trust, we are proposing the establishment of the Africa Risk Rating Agency (ARRA), a discussion and proposition that deserves serious consideration.
ARRA should not be established to produce more favourable ratings or to challenge international agencies for political reasons. Such an approach would undermine its credibility from the outset.
Its purpose would be to establish a rigorous, independent African centre of risk intelligence, capable of combining high-quality data, institutional knowledge and country-specific analysis with internationally recognised methodologies.
African multilateral institutions are expected to provide development finance and countercyclical support while accessing global capital markets that may not always fully reflect their mandates, legal protections, capital structures or preferred-creditor characteristics.
Africa does need special treatment or regulatory exemption. Africa needs appropriate treatment based on its institutions’ actual balance sheets, governance, legal status, capitalisation and demonstrated performance.
The stronger these institutions are, the more effectively they will fulfil the countercyclical role for which they were created.
Major African infrastructure projects face multiple layers of risk – political, currency, construction, climate, catastrophe, regulatory and counterparty. Where such risks are poorly allocated or inadequately insured, investors demand higher returns, projects become more expensive and governments inherit substantial contingent liabilities.
Prudent risk management is not an administrative afterthought. It is a development-financing instrument.
Africa must retain more of these risk-management functions within its own financial ecosystem through stronger insurance and reinsurance capacity, expanded guarantees, local-currency financing and pooled risk solutions.
This is where a strengthened Alliance of African Multilateral Financial Institutions becomes critical.
The alliance could evolve into an integrated platform linking development and trade finance with guarantees, insurance, reinsurance and risk intelligence. Member institutions could share data, coordinate balance-sheet capacity, establish common standards and jointly structure complex infrastructure transactions.
The underlying objective is to make Africa’s existing institutions more powerful collectively.
Afreximbank’s intervention demonstrated that African institutions can and will act when conventional financing channels close.