Obstacles to Sub-Saharan Africa’s clean energy transition: the ‘tyranny of sovereign ratings’

Abstract

Sub-Saharan Africa’s clean energy transition is constrained by a financial architecture shaped by persistent perceptions of high risk. Sovereign credit ratings (SCRs) play a central role in determining borrowing costs and access to capital, yet in sub-Saharan Africa they appear misaligned with observed default and recovery outcomes, particularly in infrastructure finance, where default rates are low and loan recovery is high. While high borrowing costs also reflect structural economic, institutional, and political challenges, we argue that prevailing credit rating methodologies and regulatory frameworks amplify these constraints by transmitting sovereign risk mechanically to long-term, asset-backed clean energy investments. Drawing on evidence from multilateral development banks and private infrastructure finance, we show how this misalignment contributes to elevated costs of capital, reinforcing procyclical investment dynamics, and slowing clean energy deployment. We situate this argument within broader debates on climate finance and just transitions, highlighting how distorted risk assessments disproportionately affect the deployment of capital-intensive clean energy in low-income contexts. We conclude by outlining policy-relevant reforms – including adjustments to credit rating practices, recognition of infrastructure as a distinct asset class in financial regulation, and the development of credible Africa-based rating institutions – that could help align financing costs more closely with underlying risks and support a more equitable global energy transition.