The presidency of G20 by South Africa in 2025 comes amidst a landscape of global uncertainty. With ongoing financial market fluctuations, heightened geopolitical tensions, and challenges to international cooperation, the need for collaborative efforts has never been more urgent. As the first African nation to take the helm of the G20, South Africa faces significant challenges, but also immense opportunities.

President Cyril Ramaphosa has pledged to utilize the G20 platform to bring attention to the developmental needs of Africa and other lower middle-income countries. A primary focus of these efforts will be the pressing issue of the prohibitively high costs associated with capital financing.

This dilemma transcends mere technical details; it represents a fundamental obstacle preventing governments and businesses from investing in human capital, bolstering resilience against climate change, and competing in the global economy. By tackling this issue head-on, South Africa stands to transform the global financial landscape, benefiting not only Africa but also the wider developing world.

The cost of capital: a crisis rooted in inequality

In the ten years leading up to 2022, Africa’s total debt soared from $283 billion to $655 billion, more than doubling in size. The significant rise in debt in 2023 was primarily due to private creditors and multilateral institutions, which accounted for 38% and 35% of Africa’s debt, respectively. Moreover, China represented 12.4% of this debt burden.

This debt accumulation was a logical response to historically low interest rates coupled with the continent’s extensive infrastructure needs. For many African countries, borrowing was a necessity rather than a recklessness.

However, the scenario changed drastically with the Covid-19 pandemic. As tourism revenues and remittances dropped and government expenditures surged to combat the health crisis, debt sustainability came into serious jeopardy.

At the same time, inflation – fueled by unprecedented stimulus measures and global disruptions such as the Ukraine conflict – has compounded the stress on public finances. The swift rise in interest rates by central banks, intended to control inflation, has escalated the costs associated with dollar-denominated debt, pushing several nations close to default.

Currently, the World Bank indicates that 23 out of 40 evaluated African nations are either at high risk of debt distress or are already experiencing distress.

In 2024, half of the $102 billion in debt service paid by African countries went to private creditors, making this debt particularly burdensome. On average, African nations endure a 500% premium on private loans compared to those offered by institutions like the World Bank. In 2021, for every $1 billion in loans, lower middle-income countries in Africa faced an average interest rate of 5.79% from private creditors against just 1.16% from the World Bank, while upper middle-income countries paid 5.92% and 0.5%, respectively. This disparity has stark ramifications: between 2016 and 2021, these additional interest expenses totaled $56 billion – funds that could have been allocated to bolster health systems, improve infrastructure, or expand educational initiatives.

Global consequences

The high cost of capital in Africa is not merely a regional concern; it underscores structural issues within global finance that hinder developing nations from fully participating in the global economic landscape.

African leaders have long contended that credit ratings from agencies such as Moody’s, S&P Global, and Fitch do not fairly reflect the economic potential or resilience of the region’s governments. While these agencies are making strides toward transparency, further action is required.

Additionally, prudential regulations implemented to safeguard the banking system after the 2008 financial crisis, such as the Basel III framework, inadvertently deter private investments in emerging markets by increasing capital liquidity ratio requirements for investors, even though these investments pose no systemic risk to the banking sector.

A lack of sufficient data and domestic regulations can further exacerbate these costs. By consolidating these diverse agendas, the G20 can create a roadmap to address these challenges across various regulatory and market-based frameworks needing reform.

The importance of South Africa’s G20 role

The G20, as the leading forum for international economic collaboration, is uniquely positioned to tackle the structural issues that contribute to the high cost of capital. With representation of 85% of global GDP, 75% of global trade, and 64% of the world’s population, the G20 wields significant influence over global financial policies and practices.

President Ramaphosa has already proposed an ambitious agenda which includes establishing a “Cost of Capital Commission.” This commission would gather experts from both the public and private sectors to investigate the underlying causes of elevated borrowing costs faced by developing nations. It would evaluate credit rating methodologies, prudential regulations, and the data shortcomings that worsen risk perceptions. This initiative would build on successful G20 financial initiatives, such as the Debt Service Suspension Initiative (DSSI) launched during the pandemic and the Independent Expert Group (IEG) set up during India’s G20 presidency to address reforms in multilateral development banks. The Cost of Capital Commission could provide the essential technical knowledge and political commitment needed to advance these solutions.

Creating coalitions for reform

South Africa is not isolated in its quest for reform. Major G20 countries, such as Brazil, India, and Indonesia, have expressed similar priorities during their leadership stints. The African Union’s permanent seat in the G20 also presents a crucial forum for advocating for African interests.

Moreover, initiatives like the Bridgetown Initiative and the Paris Pact for People and Planet have already laid the groundwork for multilateral cooperation on financial reform. By aligning its G20 agenda with these efforts, South Africa can cultivate a robust coalition of support that bridges gaps between established powers like the G7 and emerging groups like BRICS.

This collaborative approach is essential for navigating the geopolitical complexities that often hinder G20 dialogues. Simultaneously, the legitimacy of the G20 framework, grounded in its diverse membership and economic influence, offers a strong mandate for action.

A global imperative

Addressing the high cost of capital is not exclusively an African goal; it is a global imperative. Emerging economies require an estimated $2.3 trillion to $2.5 trillion annually to fund climate objectives and achieve sustainable development by 2030. Without access to affordable capital, these goals will remain out of reach, exacerbating inequalities and threatening global stability.

For advanced economies, these challenges are equally profound. The economic vitality of emerging markets is closely tied to global trade, investment, and financial stability. By tackling the cost of capital, the G20 can open 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 play a key role in shaping a more equitable and inclusive global financial system.

This is not just an opportunity for Africa; it is an opportunity for the world. By addressing the systemic inequalities in 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 possesses the moral authority and political capital necessary to advance this agenda. The stakes are high, yet the potential for transformative change is equally significant. Now is the time for decisive action.