African nations could be losing up to $4.2 billion annually on debt servicing alone as their risk profiles increase, driven by media stereotypes, a new study has found.
The study, titled The Cost of Media Stereotypes to Africa, was conducted by Africa No Filter, a nonprofit organisation that works to challenge African narratives, and strategic advisory firm Africa Practice.
As the basis for their research, the companies hypothesised that “negative or biased media coverage about Africa affects economic development by creating a negative perception of the continent and reducing its attractiveness as an investment destination”.
“Through our modelling, we estimate that Africa’s perceived high-risk profile, fuelled by stereotypical narratives in global media, could be costing the continent up to $4.2 billion annually in inflated interest payments on its loans.”
The study found that negative and prejudiced narratives have real-world consequences because they inflate perceptions of risk, leading to unjustifiably high borrowing costs.
Sovereign bond yields or interest rates were used as an indicator of financial flows for the study because they determine investors’ perception of risk.
If a country is considered high risk — in this case because of negative stereotypes — investors might demand a higher interest rate to lend money. This means the country has to pay more to borrow which can increase its total debt servicing costs in the long run.
“Negative media coverage increases a country’s perceived risk, which leads to higher borrowing costs. Conversely, positive media sentiment is correlated with a lower-risk profile and reduced bond yields.”
The study found that, “African countries are unjustifiably perceived as higher risk by international investors, leading to significantly higher credit costs compared to countries with similar political and socio-economic conditions.”
The researchers tested the study in four African nations — South Africa, Kenya, Nigeria and Egypt — and in Malaysia and Thailand as developing countries outside of Africa. They also used Denmark, a developed nation.
They highlighted that African media often focused on negative stories, relating to subjects such as poverty, conflict and disease, and failed to report on positive developments and achievements, including in education and healthcare.
Media stereotyped and grouped Africa’s cultures, economies and political systems and often reported through a Western lens, leading to misinterpretations.
The researchers analysed reporting during election cycles and found that although negative events are common during elections globally, African nations get more negative coverage during these periods, and that the language used is highly emotive and often includes words like “rigging” (elections) and “corruption”.
The study further highlights that violent incidents are rarely discussed in reporting on non-African countries, whereas they are frequently featured in that on Africa. Furthermore, negative sentiment is more prevalent in articles about African countries when compared with Asian countries.
The study found that media sentiment is a key determinant of investor sentiment and perception of risk, which plays a critical role in influencing decision-making regarding the allocation of capital and the rate at which African countries can borrow. It added that if media sentiment levels were more “realistic” about Africa, the interest rate for borrowing money would also decrease.
“This would result in African countries paying much less money over time to repay their loans. They are therefore paying extra money towards debt which could instead be used to pay for public infrastructure and other critical expenditures,” it said.
