A recent study by Africa No Filter highlights how negative media stereotypes could be costing Africa $4.2 billion in inflated interest payments each year.
According to the report, African countries receive significant media attention during elections, but much of this coverage focuses on negative issues like violence and election fraud. This skewed representation affects global perceptions of the continent, leading to serious financial consequences.
The report found that Africa consistently receives higher negative sentiment and bias scores in the media compared to non-African countries with similar political risks. Headlines frequently associate the continent with “violence” during election periods, reinforcing stereotypes. This negative media bias increases the perceived risk of investing in Africa, even when political risks are comparable to those in other regions.
One major consequence of this negative perception is an increase in borrowing costs for African nations. Due to the perception of higher risk driven by biased media coverage, investors charge African countries higher interest rates. According to the study, this results in increased credit costs, with Africa paying more to borrow than non-African countries facing similar economic conditions.
Sovereign bond yields or interest rates were used as an indicator of financial flows for the study because they determine investors’ perception of risk, which is driven up by the negative stereotypes according to this study.
If a country is considered high risk 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.
According to the United Nations Conference on Trade and Development World Investment Report 2023, foreign direct investment (FDI) flows to Africa declined to $45 billion from the record set in 2021. Nigeria, which held elections in 2023, was the biggest loser lost a $187 million as a result of equity divestments.
Media reports during Nigeria’s elections touched on themes of violence, for example, this title from The Conversation: Presidential elections in Nigeria: alarm over violence and security likely to drive vote, or Nigeria’s Elections Remain Risky for Many Citizens from Human Rights Watch, which alludes to issues of violence at the polls.
Recent reports have also shown that US dollar bonds in Mozambique dropped to their lowest amid political tensions following the October 9 elections when the police had to use “tear gas to disperse demonstrations that followed the weekend murder of a lawyer who represents Venâncio Mondlane, an independent presidential candidate who claims he won the vote,” Bloomberg reported.
The impact of these reports extends beyond debt costs. The study suggests that other sectors, such as tourism, are also affected by negative sentiment in the media. Potential tourists may be deterred by the focus on instability and violence, impacting the continent’s economy even further. Research also shows that among the other factors, negative news coverage also affects credit rating agencies’ decisions on their credit ratings for entities and debt securities, such as bonds, notes, and asset-backed securities, adding to the impact of negative news coverage.
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