"The current global financial system is simply not working for Africa" stated Calver Gatete, Executive Secretary, United Nations Economic Commission for Africa at the 2025 World Bank Group and International Monetary Fund Spring Meetings, expressing frustration on the fact that only 2 of 54 African countries are holding investment-grade credit ratings despite its combined GDP of US$3 trillion and being the some of the most dynamic economies in the world.

This connects directly with what we, at the UN Capital Development Fund (UNCDF), see firsthand: Africa’s credit rating landscape limits investment and economic growth. In fact out of 54 African nations, only 32 have one or more sovereign credit ratings from major credit rating agencies (CRAs), and just two, as mentioned by Gatete, hold investment-grade ratings. Unfortunately, this has direct dire financial consequences for these countries with African nations typically paying significantly higher interest costs, averaging 11.6%—a staggering 8.5 percentage points above the U.S. benchmark.

Sub-Saharan African countries specifically paid 2.1% more in coupon rates than other regions between 2004 and 2021. Many Least Developed Countries (LDCs) are exposed to high levels of volatility from economic, political and climate shocks, all of which are difficult to reliably capture in the traditional rating models – typically resulting in weaker credit ratings being assigned. While many factors contribute to the interest rate a country pays for its debt, credit ratings no doubt significantly influence it. The opaque and often subjective methodologies used by CRAs have cost African nations over $75 billion in additional interest payments and forgone funding, which represents 80% of Africa’s annual infrastructure investment needs.

Credit ratings alone won’t solve Africa’s financing gap

While finding ways to enhance the assessment of volatility and its impact on credit rating is necessary as well as making credit ratings more accurate and transparent, it will not be enough to close Africa’s financing gap. The reality is that investment is simply not flowing into Africa at the scale needed. Research from our partners at Convergence - a global thought-leader in blended finance - shows that only 4% of total global assets were invested in low- and middle-income countries (excluding China), with the bulk remaining in developed markets.

Further financial flows are constrained by what is often called the “missing middle” challenge. Small and medium-sized businesses (SMEs), particularly in last-mile markets such as LDCs, struggle to secure funding due to transaction size, collateral requirements, and perceived risks. The current credit rating system does not fully capture the true investment potential in these markets, especially the impact it could have beyond financial returns.

Betting on the bold: high-risk, high-impact finance

At UNCDF, we are not waiting for credit rating agencies to evolve their methodologies—we are actively mobilizing capital and creating solutions that drive investment where it is needed most. As a non-credit rated institution with a unique capital mandate, we enable investment in high-risk but high-impact sectors through blended finance solutions that de-risk markets, strengthen local financial ecosystems, and create a pipeline of investable opportunities. Through:

- De-risking investments and crowding in (private) capital: We provide first-loss capital, credit guarantees, and concessional finance to absorb risk and attract private investments into SDG positive projects. For instance, in Zimbabwe, UNCDF together with the Government of Zimbabwe, the Joint SDG Fund, UNESCO, UNDP, UN Women, and African financial services group Old Mutual, are crowding in private sector investment for the country’s first Renewable Energy Fund, with an expected leverage of 3.5x by the end of 2025.

- Strengthening local capital markets: We help governments develop domestic bond markets, reducing their dependence on costly external debt and volatile foreign capital flows. In Tanzania, with just $1 million, UNCDF helped unlock $20 million of domestic capital, 65% of which from the private sector, to help Tanzania pioneer East Africa’s first sub-national Green Bond, now cross-listed on the Luxembourg Stock Exchange.

- Improving fiscal and debt management reforms: We work with national and subnational governments to enhance fiscal transparency, debt reporting, and economic governance, which are critical to strengthening investor confidence.

- Amplifying the UN’s development impact: We partner with UN agencies to build on their work and amplify their development impact. In Nigeria, UNCDF, in partnership with UNICEF, under the Nutrition Supplier Finance Facility, invested $2.5M in Nigerian company Ariel Foods FZE. This loan will enable on-site installation of food processing equipment for local produce such as peanuts, unlocking opportunities for smallholder farmers, reducing reliance on imports and thereby lowering the cost of ready-to-use therapeutic food (RUTF) so that more malnourished children have access to life-saving locally-produced RUTF using the same amount of donor funds. This is placing African-grown produce at the center of the fight against childhood malnutrition, while also enabling more capital flow into the local economy.

Redefining investment potential on Africa’s terms

In summary, while credit ratings are helpful in attracting capital, they are not a silver bullet. Africa’s financing gap needs complementary strategies—such as blended finance, institutional reforms, risk-sharing mechanisms, and local capital market development.

Blended finance is at the core of our strategy. By strategically combining public, private, and development capital, we lower perceived investment risks and mobilize resources at scale. Our work is not just about bringing in more funding—it is about creating sustainable, long-term investment ecosystems that place African financial resources at the center of Africa’s development.

The current credit rating system is failing Africa. While reforming the system is important, we must focus on what we can control: deploying blended finance solutions that de-risk markets, unlock capital, and build resilient financial ecosystems.

At UNCDF, we are committed to this mission. We work with governments, development partners, and the private sector to create investment-ready markets and mobilize capital where it is needed most. It is time to move beyond outdated models and redefine Africa’s investment potential on its own terms. Reach out to us if you want to know more.