African Development Bank Considers Creating Continent's Own Credit Rating Agency
The African Development Bank is seriously considering the creation of a continental credit rating agency to accurately assess the risks of different countries. Several governments believe that international rating agencies have a biased perception of African risk.
Africa is Not Riskier than Other Regions
Africa is not more risky than any other part of the world, and the current perception is not reality. There are great investment opportunities, but they are being penalized by poor risk assessment. Critics have long accused international credit rating agencies of rating Africa more harshly than other regions. Some go further, saying they do not consult stakeholders sufficiently and lack independence and objectivity.
UN Report Highlights Potential Savings
According to a report by the United Nations Development Programme, African countries could save up to $74.5 billion if credit ratings were based on less subjective evaluations.
Moody's Analytics Study Debunks Risk Myth
A 2020 study by Moody's Analytics showed that Africa has the lowest default risk in infrastructure among major regions. Countries are being unfairly rated based on events that occurred in completely different regions of the continent.
Creating an African Credit Rating Agency
Efforts are underway to create an African institution that can rival international players. The African Peer Review Mechanism, a specialized agency of the African Union, has announced its intention to launch an African credit rating agency (AfCRA) by the end of the year, after several years of feasibility studies and declarations.
Inspiration from China's National Rating Agencies
AfCRA could draw inspiration from China's experience, which has 52 national rating agencies, some of which even evaluate African countries. For example, the Chinese rating agency Dagong rates Botswana and Nigeria.
A Boost for Tunisia and Other African Countries
Such an institution would be good news for Tunisia, which has been unfairly rated by Moody's and Fitch Ratings. The models should not differ quantitatively, but the weightings would change, with less emphasis on political questions. The question remains, however, whether such a sovereign rating would carry the same weight as an S&P or Moody's rating. We highly doubt it, especially in the short term.
