AfDB’s Adesina calls for African credit ratings agency

Akinwumi Adesina, president of the African Development Bank, has called for Africa to have its own credit ratings agency to assess risk on the continent, arguing that major international ratings companies have an inaccurate perception of African risk.

“Africa is not any riskier than any other part of the world…Perception is not reality. Over the past five years, we have brought investors to Africa and mobilised well over $180bn in investment interest… It tells you the opportunities are limitless,” Adesina told an audience at Chatham House in London.

Critics have long accused major international credit ratings agencies of rating Africa more harshly than other regions.

Credit rating agencies do not accurately access African risk, fail to consult stakeholders sufficiently and lack independence and objectivity, claims Adesina.

“For Africa to rise and shine brightly among the global community of nations we must accelerate structural transformation and finance its implementation. This is the key to unlocking Africa’s development opportunities,” he said.

A report from the United Nations Development Programme says that African countries could save up to $74.5bn if credit ratings were based on less subjective assessments.

A contested role

Adesina referred to a 2020 study by Moody’s Analytics which showed that Africa had the lowest risk of default on infrastructure among major regions. He cited the report to argue that Africa is being poorly rated by the big three credit rating agencies – Moody’s Investor Services, S&P, and Fitch Ratings – which dominate 80% of the international market.

He also claimed that countries are unfairly rated based on events in entirely different parts of the continent.

“President Ruto had to pay 200 basis points more simply because there was a coup in the Republic of Niger. He told the rating agency that the last time he checked the map of Kenya, Niger was not on it,” Adesina said.

An African credit ratings agency?

Moves are afoot to create an African institution to rival the dominant international players. The African Peer Review Mechanism, a specialised agency of the African Union, has announced plans to launch an African credit ratings agency (AfCRA) by the end of this year following several years of feasibility studies and declarations.

Analysts say that the AfCRA could learn from the experience of countries and regions that have nurtured their own credit rating agencies. The experience of China – which has 52 domestic rating agencies, some of whom even rate African countries – will be crucial to draw on, argues Hannah Ryder, CEO of Development Reimagined.

Chinese credit rating agency Dagong has upgraded the ratings of Botswana and Nigeria, for example.

“Dagong’s ratings can act as a seal of approval, indicating to public investors that China has fostered or intended to foster cooperative ties with these countries, hence facilitating the flow of investments between China and these countries,” said Chunping Bush, lecturer at the University of Exeter in the UK.