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Africa will soon have its credit rating agency

Wednesday, 13 September 2023 18:33
Africa will soon have its credit rating agency

(Ecofin Agency) - Africa will soon have its credit rating agency. The AU is currently studying this project, as many of the continent's leaders believe the existing agencies exaggerate the risk of investing in Africa and increase the cost of lending.

“The agency, which would craft its assessment of the risks in lending to African countries, would be based on the continent and will also add context to the information investors consider when deciding whether to buy African bonds or lend privately to countries,” said Misheck Mutize, lead expert for country support on rating agencies with the African Union, according to comments reported by Reuters.

The expert pointed out that the private sector is already supporting this project, which is expected to launch in 2024. As a reminder, the AU and the leaders of several African countries, including Ghana, Senegal, and Zambia, have repeatedly criticized the fact that the three major rating agencies (Moody's, Fitch, and S&P Global Ratings) "do not fairly assess the credit risk of African countries," and that they are "quicker to downgrade them during crises such as the Covid-19 pandemic."

As a reminder, in May 2022, while holding the AU rotating presidency, Senegalese President Macky Sall called for the creation of an African financial rating agency to "put an end to the injustices" suffered by countries on the continent. "In 2020, when all economies were suffering the effects of Covid-19, 18 of the 32 African countries rated by at least one of the major rating agencies had their ratings downgraded. This represents 56% of downgraded ratings for African countries, compared with a global average of 31% over the period," he explained.

"Studies have shown that at least 20% of the rating criteria for African countries are based on rather subjective factors of a cultural or linguistic nature, unrelated to the parameters that assess the stability of an economy," he added, pointing out that "this increases the cost of credit granted to our countries."

Moody's, Fitch, and S&P, however, denied any bias, asserting that their ratings follow the same formula from one continent to another.

"Our goal has not been to replace the big three (rating agencies) (…) we need them to support access to international capital. Our view has been to widen diversity of opinions. We know the big three follow the opinion of other smaller rating agencies. They've acknowledged that other smaller rating agencies have got an edge in understanding domestic dynamics," explained the lead expert Misheck Mutize.

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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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