The presidency of the G20 in 2025 for South Africa comes at a time marked by global instability. With heightened volatility in financial markets, increasing geopolitical conflicts, and obstacles to multilateral cooperation, the need for international collaboration has never been more urgent. As the first African nation to lead the G20, South Africa faces considerable challenges, but also tremendous opportunities.
President Cyril Ramaphosa has pledged to utilize the G20 platform to emphasize the developmental requirements of Africa and all lower middle-income countries. A central aspect of these priorities is the pressing concern over the high costs associated with capital.
This issue is not just a matter of finance; it’s a fundamental barrier that restricts governments and businesses from investing in human development, boosting resilience against climate change, and competing effectively in the global economy. By addressing this challenge head-on, South Africa can potentially reform the global financial system, benefiting not only Africa but the broader developing world.
The cost of capital: a crisis rooted in inequality
Over the decade leading up to 2022, Africa’s total debt more than doubled, skyrocketing from $283 billion to $655 billion. The significant increases observed in 2023 were largely due to contributions from private creditors and multilateral institutions, which accounted for 38% and 35% of Africa’s debt, respectively. Moreover, China represented 12.4% of this debt.
This rise in debt was a logical response to historically low interest rates and the continent’s pressing infrastructure demands. For many African countries, borrowing was not an irresponsible move but an essential one.
However, the dynamics drastically changed due to the Covid-19 pandemic. As tourism and remittance revenues fell sharply and government spending soared in response to the health crisis, the viability of this debt came into question.
At the same time, inflation driven by expansive stimulus measures and global disruptions, such as the conflict in Ukraine, has placed additional strain on public finances. The swift rise in interest rates by central banks—intended to curb inflation—has increased the costs associated with dollar-denominated debt, bringing several nations to the brink of default.
Currently, 23 out of 40 African countries assessed by the World Bank are at high risk of debt distress or are already experiencing such distress.
In 2024, nearly half of the $102 billion in debt service payments made by African nations was directed to private creditors, and this debt has become prohibitively expensive. On average, African countries face a 500% premium on private loans compared to rates offered by organizations like the World Bank. In 2021, for every $1 billion in loans, lower middle-income nations in Africa paid an average interest rate of 5.79% to private lenders and 1.16% to the World Bank, while upper middle-income countries paid 5.92% to private creditors and 0.5% to the World Bank. This gap has serious consequences. Between 2016 and 2021, the additional interest costs from these premiums totaled $56 billion—funds that could have been used to fortify health systems, improve infrastructure, or enhance educational opportunities.
Global implications
The high cost of capital in Africa is not an issue confined to the continent. It emphasizes structural challenges within global finance that prevent developing nations from fully participating in the global economy.
African leaders have long argued that their nations receive unfair credit ratings from agencies such as Moody’s, S&P Global, and Fitch—ratings that fail to reflect the region’s economic potential or the resilience of its governments. While these agencies strive to enhance the transparency of their methodologies, more needs to be done.
Furthermore, prudent regulations implemented to protect the banking sector following the 2008 financial meltdown—such as the Basel III framework—discourage private investment in emerging markets by increasing capital liquidity ratio requirements, even when such investments pose no systemic risk to the banking system.
Lastly, insufficient data and domestic regulations can amplify these costs. By aligning various agendas, the G20 can develop a framework to address these challenges across multiple regulatory and market structures that need reform.
The importance of South Africa’s G20 presidency
The G20, as the leading forum for international economic collaboration, is well-positioned to tackle the structural factors that contribute to the high cost of capital. Representing 85% of global GDP, 75% of global trade, and 64% of the world’s populace, the G20 wields substantial influence over global financial standards and practices.
President Ramaphosa has already set forth an ambitious agenda, which includes the proposal for a “Cost of Capital Commission.” This commission would bring together experts from both the public and private sectors to examine the root causes of high borrowing costs for developing nations. It would evaluate credit rating frameworks, prudential regulations, and the data deficiencies that worsen risk perceptions. This initiative builds upon successful financial measures established by the G20, such as the Debt Service Suspension Initiative (DSSI) launched during the pandemic and the Independent Expert Group (IEG) formed during India’s G20 presidency to address reforms in multilateral development banks. The Cost of Capital Commission could provide the necessary technical expertise and political will to drive these solutions forward.
Building coalitions for transformation
South Africa is not alone in recognizing the urgency for reform. Key G20 members like Brazil, India, and Indonesia have expressed similar priorities during their tenure. The African Union, now with a permanent seat at the G20, also serves as a critical platform to advocate for African interests.
Moreover, informal coalitions such as the Bridgetown Initiative and the Paris Pact for People and Planet have already laid the groundwork for multilateral cooperation on financial reform. By synchronizing its G20 agenda with these initiatives, South Africa can cultivate a broad coalition of support, bridging gaps between established powers like the G7 and emerging groups like BRICS.
This collaborative approach is essential for navigating the geopolitical tensions that often complicate G20 discussions. Simultaneously, the legitimacy of the G20, grounded in its diverse membership and economic might, provides a robust mandate for action.
A global imperative
Addressing the high cost of capital is not just an African goal; it is a global imperative. Emerging economies face an estimated $2.3 trillion to $2.5 trillion in annual financing needs to meet climate goals and achieve sustainable development by 2030. Without access to affordable capital, these ambitions will remain out of reach, exacerbating inequalities and threatening global stability.
The implications for advanced economies are equally profound. The economic health of emerging markets is intricately linked to global trade, investment, and financial stability. By tackling the cost of capital, the G20 can unlock new pathways for growth and innovation, benefiting both developed and developing nations alike.
Seizing the moment
South Africa’s G20 presidency offers a crucial opportunity to confront one of the most urgent challenges of our time. By advocating for the establishment of a Cost of Capital Commission and forming coalitions for reform, South Africa can help pave the way for a fairer and more inclusive global financial system.
This is not merely an opportunity for Africa; it is a chance for the entire world. By addressing the structural inequalities within global finance, the G20 can lay the foundation for a more resilient, equitable, and sustainable global economy.
As the first African nation to lead the G20, South Africa has the moral authority and political clout to advance this agenda. The stakes are high, but the potential for transformative change is equally significant. The time for decisive action is now.
