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African countries feel that the ratings they receive from global credit rating agencies are biased since they would exaggerate the perceived risk of investing in Africa based on subjective factors
African countries feel that the ratings they receive from global credit rating agencies are biased since they would exaggerate the perceived risk of investing in Africa based on subjective factors.
The African Union chairperson President Macky Sall recently called for the setting up of an African credit rating agency to insulate countries in the region from evaluations by international agencies that exaggerate the risk of investment in Africa. A lower rate increases the cost of credit. The subject also came up for discussion at the “Dakar 2022 Economic Conference ” organised by African economists on the theme “Africa as a leading partner” recently.
Significantly, the AU chairperson highlighted that 18 of the 32 African countries rated by at least one of the major rating agencies had their ratings downgraded in 2020. This represents 56% of downgrades for African countries, The global average is 31% for the corresponding period. The impact of the Covid-19 pandemic terribly hit the period under review.
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The AU chairperson lamented that at least 20% of the rating criteria for African countries are based on rather subjective factors of a cultural or linguistic nature. They were unrelated to the parameters that gauge the stability of an economy. One of the consequences was that the perception of investment risk in Africa was still higher than the real risk, resulting in paying up more in insurance premiums. This makes lending more expensive.
