In today’s most pressing need to finance its development, experts assert that Africa needs to invest in the development of domestic markets and establish a fairer and more efficient credit rating agency. Credit ratings reflect agencies’ opinions on countries’ economic fundamentals, fiscal strength, and the resilience of financial systems that enable them to attract investments and finance their development activities. Globally, there are three credit rating agencies; S&P Global Ratings (S&P), Moody's, and Fitch Group, that have gained significant credibility and trust from various stakeholders, and especially investors. ALSO READ: Development Bank of Rwanda (BRD) Achieves Landmark AAA Long-Term Domestic Credit Rating However, African and institutional leaders insist that these agencies continue to underserve the continent, pointing out that they have an inaccurate perception of African risk. Currently, out of 33 African countries with sovereign credit ratings from at least one out of the three major rating agencies, only Botswana and Mauritius are in the investment grade, whereas, three African frontier market countries – Ethiopia, Ghana and Zambia, have defaulted on their sovereign debts. It is no secret that Africa faces a massive debt challenge, with the continent expected to pay $163 billion in 2024 just in interest. It is estimated that approximately 60 percent of countries allocate more resources to external debt interest payments than investments in social and climate actions. Credit rating downgrades have been major contributors to the continent’s fiscal space has been put under pressure by rising borrowing costs, reduced investor confidence, triggered capital flight and aggravated risk perceptions. Available data indicates that in 2023 alone, 17 downgrades were recorded across nine African countries, with only a single upgrade granted to the Republic of Congo. Amb. Claver Gatete, the United Nations Under-Secretary-General and Executive Secretary of ECA (UNECA), said that these trends cannot continue if Africa is to become a global solutions powerhouse. He noted that whilst several countries have already established domestic regulatory bodies for rating agencies, continental harmonization and optimization remain critical to ensure that they speak with one voice, and advocate for transparency, fairness, and accountability in both rating assignments and processes. Gatete said: “An Africa credit rating agency offers a strategic opportunity to complement the existing global rating agencies. It will serve as an important capacity-building tool for African institutions involved in the rating process and prepare them for future interactions with the agencies.” Managed expectations However, it is important to know that this continental agency would bring both costs and benefits, “managing and improving credit ratings is a complex process that requires coordinated efforts at national, regional and continental levels,” he said. “It will also be important to manage expectations regarding what the Africa CRA could achieve in terms of commercial success and investor trust in the near term, as the market continues to be dominated by the three largest agencies.” He added that work should be centered around strengthening macroeconomic and overall governance to bolster economic stance, improving data quality, availability, and transparency, enhancing technical capabilities, and promoting deeper engagement of governments with rating agencies. “We can engender local expertise, expand the corporate ratings market to attract new investments, and offer an alternative, African-centered perspective based on rigorous research. If well done, these actions can help build market confidence and trust.” A report from the United Nations Development Programme says that African countries could save up to $74.5 billion if credit ratings were based on less subjective assessments.
