Which regions of world have the lowest default rates?
When it comes to entrusting governments with big ticket loans for major infrastructure projects, Middle East and African nations have by far the best record, surpassing the US and European nations with the lowest default rates globally, according to Moody’s data.
One reason is that overall borrowing levels are lower. Most African countries have debt equivalent to 40-60% of GDP while developed countries often owe more than 100%.
Even so, investors demand much higher interest rates, or yield premiums, particularly for investment in Africa.
This has a devastating impact.
"If an African country is paying rates four or five times more than in the developed world then, as a business, fundamentally you are already at a huge loss before you even start to try and get a return on whatever you are using the bond or the funds for," Kojo Annan, Chairman of Vector Global, and son of Kofi Annan, said at one of our recent client webinars titled Anti-Africa Bias: Does Presumption of Risk Colour Investment?
Africa's lower default rates have had little bearing on the inflated rates charged by bondholders. “Argentina reneged on its debt nine times and yet three years ago became the first junk-rated country to sell bonds with no repayment required for a century,” Elizabeth Rossiello, CEO of AZA, pointed out at another of our client webinars. “Angola hasn’t defaulted since the end of its civil war in 2002 and yet bondholders charged a higher rate of over 9% for shorter-dated bonds. So is there some sort of truth in bad behavior, or is it more of a bias against African markets?”
A big part of our discussions in events and with media is about truly understanding the nature of risk in business and financial markets. Comments from our webinars prompted several media articles exploring prejudice in attitudes to risk, including on CNBC: ‘Enormous bias’ clouds international approach to African debt relief, experts say