Africa Wants to Mark Own Homework with Homegrown Credit Agency
Africa is a place where the frustrations of its elites run high due to what they feel are external yardsticks distorting the continental potential. Ironically, successive generations of leaders have long borrowed foreign institutional models from the African Union (AU), inspired by the EU, to various economic and security blocs. Yet, they have not seen the promised transformations.
On February 13, 2025, at a summit in Addis Abeba, heads of state endorsed yet another initiative to create the African Credit Rating Agency (AfCRA), due to launch in June. They hope it will offer fairer assessments of African economies and counter the “African Premium” critics see in the big three agencies: Moody’s, Fitch, and Standard & Poor’s. Indeed, in global finance, these few powerful agencies steer entire economies, and creditworthiness assessments are never limited to technicalities.
Anecdotes from around the world can reveal the distortions in assigning credit.
Japan, for instance, enjoys an A+ rating despite a massive debt-to-GDP ratio of 235pc and modest growth of 1.7pc. India, by contrast, has a healthier debt ratio of 69pc and vigorous growth of 6.6pc yet is rated BBB-. Greece, which once lurched near economic collapse, still boasts a BB- rating, far higher than Tanzania (B), Rwanda (B+), Ivory Coast (B+), and Ethiopia (CCC+), each with growth above five percent. Critics see in these comparisons a double standard that unfairly penalises African countries.
None of this is an academic quibbling. Credit ratings dictate borrowing terms, shape investor perceptions, and constrain public spending. An overly pessimistic rating can be devastating for a continent that requires 130 billion to 170 billion dollars a year to plug its infrastructure gap. Africa’s rocky rapport with these rating agencies dates back decades. South Africa became the first African country to receive a sovereign rating in 1994. By September 2018, 31 African countries had secured ratings from at least one of these agencies, yet most languished in “junk” status, leaving only Botswana, Morocco, and Mauritius at the investment-grade table.
Surprisingly, global financiers are not entirely put off. Even high-yield African bonds, rated far below investment grade, often attract billions in long-term commitments, indicating that official ratings omit nuances investors sometimes spot.
For Africa’s elites, these seem to be a test of economic self-determination. The sentiment explains why leaders have championed institutional reform, echoing past regional initiatives yet wanting to usher in financial integration. With AfCRA, they vow to tackle the chronically low ratings that block access to global capital.
High borrowing costs and unsustainable debt plague many African economies. Low ratings compel them to pay punishing bond yields, diverting funds from infrastructure, education, and healthcare. Although the continent’s growth of 3.7pc last year is set to exceed the 3.2pc global average, yet risk assessments remain stuck in what African elites believe are outdated views. They argue that the agencies ignore resilience and reforms across the continent.
Four African countries raised 5.7 billion dollars through Eurobonds this year, signalling that investors still see promise despite yields of seven to 10pc. However, such borrowing often funds recurrent expenses rather than the growth-enhancing investments needed.
That mismatch frustrates African political leaders and economic elites, who argue that international agencies apply a harsher benchmark to emerging markets and frequently ignore reforms and investment opportunities.
Akinwumi Adesina (PhD), the outgoing president of the African Development Bank (AfDB), is a vocal voice blaming the credit rating agencies for failing to assess Africa’s risk accurately, failing to consult stakeholders sufficiently and lacking independence and objectivity.
It is not only African leaders who find fault with the global financial system. In April, at a high-level gathering of the United Nations (UN), Secretary-General Antonio Guterres branded them “outdated and unjust,” especially in their treatment of developing economies. Hopefully, the UN Summit of the Future this September may yield proposals for systemic reform, but such ambitions rarely materialise overnight. For African countries, the priority would be to ensure that sovereign ratings reflect real performance, not outmoded formulas.
Low ratings wreak havoc well beyond finance. Governments saddled with steep borrowing costs face impossible trade-offs. Take Cote d’Ivoire, whose latest bond issue demanded coupons of 7.625pc on a nine-year bond and 8.25pc on a 13-year bond, a leap from the 5.375pc coupon it offered on a 10-year bond a decade earlier. Investor wariness and the influence of global rating agencies imposed additional strain on national budgets. Many fear, understandably, that the result would be a vicious cycle as interest payments devour resources that might otherwise fund public infrastructure and social services.
AfCRA’s advocates believe it will provide more balanced and contextually attuned analyses of African economies. With backing from the African Union (AU) and Afreximbank, the new agency could account for the continent’s unique structural and economic settings, in contrast to the uniform templates used by the major agencies. Supporters believe a fairer rating will unlock capital at lower rates, spurring development.
Yet, sceptics abound. They see biased assessments as only part of the problem. Massive debts, inadequate revenues, frail institutions, and political fragility grip many African countries. Without facing these structural shortcomings, a fresh rating agency may do little to calm wary investors. Data quality poses another problem as a report by the Open Data Inventory found last year that only one African country scored above 60 for statistical openness, laying bare the difficulties for any rating body seeking reliable information. Missing or inconsistent data could easily undermine AfCRA’s credibility.
It is also unlikely for the AU to muster sufficient institutional heft to guide AfCRA toward credibility in the eyes of global markets. Even a well-intended alternative to the big three may be brushed aside if doubts swirl about its independence or rigour.
The trouble is compounded by the issuer-pay model. Between 2008 and 2017, African countries collectively shelled out 186 million dollars to the major rating agencies, with South Africa alone paying 10.2 million. Critics warn that a system requiring borrowers to pay for their own assessments invites conflicts of interest. The 2008 financial crisis exposed precisely this flaw, when agencies assigned triple-A ratings to dubious mortgage-backed securities. Tensions around such practices add urgency to Africa’s call for an alternative. Yet, setting up AfCRA is no magic wand. If states fail to fortify fiscal institutions, improve data gathering, and anchor political stability, creating another new agency could only struggle to be taken seriously.
AfCRA could be dismissed as an exercise in political posturing. The Agency risks becoming more symbol than substance, leaving governments in the same predicament of overpaying for credit essential to development and chafing under an external verdict that rarely meets their aspirations.
PUBLISHED ON
Feb 23, 2025 [ VOL
25 , NO
1295]
Crédito: Link de origem