
The presidency of the G20 by South Africa in 2025 occurs against a backdrop of global instability. With growing volatility in financial markets, escalating geopolitical tensions, and mounting challenges to multilateral cooperation, the need for international collaboration has never been more pressing. For South Africa, becoming the first African nation to lead the G20 presents significant challenges, but also immense opportunities.
President Cyril Ramaphosa has pledged to utilize the G20 platform to underscore the developmental needs of Africa and all lower middle-income countries. Central to these priorities is the pressing issue of the disproportionately high costs associated with capital.
This predicament extends beyond mere technicalities; it poses a structural barrier that impedes governments and businesses from investing in human capital, bolstering resilience to climate change, and competing effectively in the global marketplace. By tackling this issue head-on, South Africa has the chance to redefine the global financial framework, benefiting not only Africa but the entire developing world.
The cost of capital: a crisis rooted in inequality
In the ten years leading up to 2022, Africa’s total debt skyrocketed from $283 billion to $655 billion. Private creditors and multilateral institutions were largely responsible for the significant increases in 2023, constituting 38% and 35% of Africa’s debt, respectively. Additionally, China accounted for 12.4% of this total.
This accumulation of debt was a logical reaction to historically low interest rates and the continent’s pressing infrastructure demands. For many African nations, borrowing was not a reckless choice but a necessary one.
However, the environment changed drastically due to the Covid-19 pandemic. As revenue from tourism and remittances dwindled, and government expenditure surged to tackle the health crisis, the sustainability of debt became increasingly fragile.
At the same time, inflation, ignited by excessive stimulus measures and global disruptions like the conflict in Ukraine, has further strained public finances. The swift rise in interest rates by central banks – a strategy aimed at stabilizing inflation – has inflated the costs of dollar-denominated debt, pushing several nations towards the brink of default.
Currently, 23 out of 40 African nations assessed by the World Bank are at high risk of debt distress or are already experiencing it.
In 2024, half of the $102 billion in debt service payments made by African countries was allocated to private creditors, and this debt has grown burdensome. African nations, on average, face a 500% premium on private loans compared to the rates offered by entities like the World Bank. In 2021, for every $1 billion in loans, Africa’s lower middle-income nations paid an average interest rate of 5.79% to private creditors and 1.16% to the World Bank, while upper middle-income countries paid 5.92% to private lenders and 0.5% to the World Bank. This disparity has dire consequences. Between 2016 and 2021, the additional interest costs from these premiums amounted to $56 billion – resources that could have enhanced health systems, improved infrastructure, or expanded educational opportunities.
Global implications
The high cost of capital in Africa is not merely an African dilemma. It underscores structural issues within global finance that impede developing nations from fully participating in the global economy.
African leaders have long argued that African countries are subjected to unfair credit ratings from agencies like Moody’s, S&P Global, and Fitch – ratings that do not accurately reflect the region’s economic potential or the resilience of its governments. While these agencies are beginning to improve their methodologies, more steps are necessary.
Furthermore, prudential regulations implemented to protect the banking system post-2008 financial crisis – epitomized by the Basel III framework – contribute to deterring private investment in emerging markets by raising capital liquidity ratio requirements for investors, even though such investments pose no systemic risk to the banking sector.
Lastly, insufficient data and domestic regulations can exacerbate these costs. By harmonizing these various challenges, the G20 can create a strategy to address systemic barriers across the various regulatory and market frameworks that need reform.
The importance of South Africa’s G20 leadership
As the foremost platform for international economic cooperation, the G20 is appropriately positioned to tackle the structural components that contribute to the exorbitant cost of capital. Representing 85% of global GDP, 75% of global trade, and 64% of the world’s population, the G20 wields significant influence over global financial standards and practices.
President Ramaphosa has already outlined an ambitious agenda, proposing the establishment of a “Cost of Capital Commission”. This commission would gather experts from both the public and private sectors to explore the fundamental causes of elevated borrowing costs for developing nations. It would evaluate credit rating systems, prudential regulations, and data gaps that worsen risk perceptions. This initiative builds on successful G20 financial measures, such as the Debt Service Suspension Initiative (DSSI) launched during the pandemic and an Independent Expert Group (IEG) formed during the Indian G20 presidency to address multilateral development bank reforms. The Cost of Capital Commission could provide the requisite technical expertise and political commitment to champion these solutions.
Building coalitions for change
South Africa is not alone in acknowledging the need for reform. Key G20 countries, including Brazil, India, and Indonesia, have underscored similar priorities during their leadership tenures. The African Union, now holding a permanent seat at the G20, also serves as a crucial platform for promoting African interests.
Additionally, informal coalitions such as the Bridgetown Initiative and the Paris Pact for People and Planet have already set the groundwork for multilateral cooperation on financial reform. By aligning its G20 agenda with these initiatives, South Africa can cultivate a broad-based coalition of support, bridging gaps between established powers like the G7 and emerging blocs like BRICS.
This collaborative approach is vital for navigating the geopolitical tensions that often complicate G20 discussions. Simultaneously, the legitimacy of the G20 framework – rooted in its diverse membership and economic authority – provides a strong impetus for action.
A global imperative
Addressing the high cost of capital is not solely an African goal; it is a global necessity. Emerging economies encounter an estimated $2.3 trillion to $2.5 trillion in annual financing needs to achieve climate objectives and sustainable development by 2030. Without access to affordable capital, these aspirations will remain out of reach, further exacerbating inequalities and threatening global stability.
For advanced economies, the stakes are equally high. The economic vitality 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, to the benefit of both developed and developing nations.
Seizing the moment
South Africa’s G20 presidency offers a critical chance to confront one of the most urgent challenges of our time. By advocating for the establishment of a Cost of Capital Commission and building coalitions for reform, South Africa can help pave the way for a more equitable and inclusive global financial system.
This is not merely an opportunity for Africa; it is an opportunity for the entire world. By addressing the structural disparities inherent in global finance, the G20 can lay the foundation for a more resilient, equitable, and sustainable global economy.
As the first African nation to take the helm of the G20, South Africa possesses the moral authority and political influence to propel this agenda forward. The stakes are high, yet the potential for transformative change is equally significant. Now is the moment for decisive action.