The imperative for an indigenous credit rating agency in Africa
By Lucy Ogalue, News Agency of Nigeria (NAN)
In the ever-evolving landscape of global finance, Africa stands at a crucial juncture with its burgeoning economies, industries, and a young, dynamic workforce.
The continent holds immense potential, yet, in spite of these promising indicators, Africa still grapples with a significant challenge one of which is the absence of a robust credit agency tailored to its unique economic landscape.
Credit rating is an evaluation of the credit risk of a prospective debtor, predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting.
Credit rating represents an evaluation from a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency’s analysts.
African economies, both emerging and established, face hurdles when it comes to accessing credit on favorable terms.
Traditional credit rating agencies, predominantly based in the West, often lack the level of understanding required to accurately assess African businesses and sovereign entities.
Consequently, this knowledge gap perpetuates a cycle of limited access to affordable credit, hindering the continent’s growth prospects.
In the intricate space of global finance, Africa’s economic potential shines brightly, yet, in spite the continent’s vast opportunities; its journey to prosperity faces a formidable obstacle, which is the absence of a credible, indigenous credit rating agency.
Stakeholders, experts, partners and shareholders on the continent have strongly advocated the creation of an Afrocentric credit rating agency, designed to better understand and fairly assess the continent’s conditions.
Dr Akinwumi Adesina, President, African Development Bank (AfDB), has been an ardent advocate for rectifying the disparity in rating, emphasising the critical need for Africa to have its own credit-rating institution.
Adesina contends that major international credit rating agencies often paint an inaccurate picture of African risk, unfairly penalising the continent.
Speaking at the 2024 AfDB Annual Meeting in Nairobi, he said although the continent needed its own rating institution, it was not intended to replace the global rating agencies.
“What the Heads of States are saying is that saying is that they want a counterpart institution that understands the conditions in the continent better.
“There is need for reform in the global rating system. The global system has to change. We need to create a fair response that rates African countries properly and with equity.
“Africa is not asking for a pass, but there needs to be a fair process that rates African countries properly. It is about fairness, it is about equity, it is about making sure that both sovereign and non-sovereign are rated properly,” he said.
Similarly, while speaking at the Chatham House in London, Adesina highlighted how Africa was unjustly perceived, as being riskier than other regions, in spite evidence to the contrary.
He said over the past five years, the AfDB had facilitated investments exceeding 180 billion dollars in Africa underscoring the continent’s immense potential for growth and development.
The AfDB boss said: “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 180 billion dollars in investment interest. This tells you the opportunities are limitless.
“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.“
Addressing participants at the 2024 AfDB meeting in Kenya, President William Ruto also called on the AfDB to establish an African Credit Agency and conduct a comprehensive review of African states’ Gross Domestic Product (GDP) to reflect their true economic status.
Ruto disclosed how perceptions had impacted Kenya’s credit rating on Eurobond issuance.
According to him, countries on the continent borrow from international markets at rates far above those paid by the rest of the world, often up to eight to 10 times more.
He said these rates were said to factor in an arbitrary risk profile that is notably not applied when considering mineral extraction, even in areas of active conflict.
President Nana Akufo-Addo of Ghana expressed similar sentiments while addressing the 35th Africa Union summit in Addis Ababa, Ethiopia.
He said: “We need to guard against the continuing consequential stranglehold of rating agencies, which has affected the cost and access to capital markets for African countries”.
Experts argue that the problem with African debt is not just the interest that is paid on them, but also the tenure of the loans as repayment periods tend to be shorter than for elsewhere around the world.
Mr Jeffrey Sachs, an American economist, academic and public policy analyst, said long-term development cannot be based on short-term loans.
“Thus, the loans granted to Africa should have at least a 25-year term, or longer. Short-term borrowing is dangerous for long-term development,” Sachs said.
For Dr Mohammed Adam, Ghana’s finance minister, establishing an African sovereign credit rating agency would ensure a balanced, accurate, and comprehensive assessment of credit risk.
He said it would therefore facilitate access to competitive capital and foster domestic financial market development across the continent.
The minister decried what he described as unfair assessments of developing countries by international rating agencies.
“If we have our own rating agency, we will have an alternative professional second opinion.
“When challenged, the facts can be brought to bear, and I think the AfDB should lead by organising stakeholders to determine the modalities.
“Such a stakeholder meeting is crucial to build credibility that will reflect the ratings given to African nations,’’ the media quoted Adam as saying.
According to a United Nations Economic Commission for Africa (ECA) report, in the first half of 2023, the top rating agencies issued 13 negative decisions to 11 African countries, including downgrades and negative outlook assessments.
The report stated: “These developments have reversed the optimism among investors on the international financial markets that African countries are recovering from the devastating Covid-19 economic shocks.”
To address these credit rating issues, the ECA and the African Peer Review Mechanism (APRM) hosted a workshop in Accra from July 9 to July 12.
The event brought together stakeholders and major credit rating agencies, including S&P Global and Moody’s, to discuss the credit rating methodologies.
The workshop aimed to provide a comprehensive understanding of the factors that influence these ratings and to identify actionable steps that African countries could take to enhance their creditworthiness.
“By bringing together diverse stakeholders we can foster a deeper understanding of credit rating methodologies.
“We work collaboratively to improve the financial stability and economic prospects of African nations,” Sonia Essobmadje, Chief of Section on Innovative Finance at ECA said.
McBride Nkhalamba, Acting Director, Governance and Specialised Reporting at APRM, highlighted the significance of the initiative.
Nkhalamba said that consistency in policy communication and transparent reporting were imperative in fostering investor confidence and mitigating potential rating downgrades.
Amb. Albert Muchanga, African Union (AU) Commissioner for Economic Development, Trade, Tourism, Industry and Minerals, says the continent was on track to establishing a credit rating agency by 2025.
According to Muchanga, the project was at the operationalisation stage, adding that APRM, AfDB, African Export-Import Bank and AU Commission are involved in the task.
Hello, after reading this awesome paragraph i am also cheerful to share my familiarity here with mates.
Today, considering the fast way of life that everyone is having, credit cards have a huge demand throughout the market. Persons coming from every area are using credit card and people who not using the card have arranged to apply for one. Thanks for revealing your ideas on credit cards.
Thanks for these tips. One thing I also believe is that credit cards featuring a 0 interest often lure consumers in zero interest, instant acceptance and easy on the web balance transfers, nevertheless beware of the main factor that is going to void your current 0 easy street annual percentage rate and to throw one out into the bad house quick.
I?d must test with you here. Which isn’t one thing I usually do! I get pleasure from studying a submit that will make individuals think. Additionally, thanks for allowing me to comment!
Definitely believe that that you said. Your favourite justification seemed to be on the net the simplest factor to understand of. I say to you, I certainly get annoyed whilst folks consider concerns that they plainly do not understand about. You managed to hit the nail upon the top and defined out the entire thing without having side effect , other folks could take a signal. Will probably be again to get more. Thank you
Hey! Would you mind if I share your blog with my myspace group? There’s a lot of people that I think would really enjoy your content. Please let me know. Many thanks
I have discovered that sensible real estate agents just about everywhere are Promotion. They are seeing that it’s more than merely placing a poster in the front property. It’s really regarding building human relationships with these sellers who one of these days will become purchasers. So, when you give your time and efforts to encouraging these vendors go it alone – the “Law regarding Reciprocity” kicks in. Great blog post.
I have read several good stuff here. Certainly worth bookmarking for revisiting. I wonder how much effort you put to make such a magnificent informative web site.
Hmm it appears like your website ate my first comment (it was super long) so I guess I’ll just sum it up what I wrote and say, I’m thoroughly enjoying your blog. I too am an aspiring blog blogger but I’m still new to everything. Do you have any recommendations for novice blog writers? I’d definitely appreciate it.
I can’t express how much I value the effort the author has put into producing this remarkable piece of content. The clarity of the writing, the depth of analysis, and the plethora of information offered are simply astonishing. Her passion for the subject is apparent, and it has certainly resonated with me. Thank you, author, for offering your wisdom and enlightening our lives with this incredible article!
Would you be desirous about exchanging links?
Excellent blog here! Additionally your web site lots up fast! What web host are you using? Can I am getting your affiliate link on your host? I desire my web site loaded up as quickly as yours lol
Many thanks for this article. I’d also like to mention that it can become hard if you find yourself in school and starting out to create a long credit rating. There are many college students who are simply trying to live and have a protracted or beneficial credit history can sometimes be a difficult thing to have.
Howdy! I’m at work browsing your blog from my new iphone 4! Just wanted to say I love reading through your blog and look forward to all your posts! Carry on the outstanding work!
Thanks for your fascinating article. Other thing is that mesothelioma is generally a result of the breathing of materials from mesothelioma, which is a extremely dangerous material. It’s commonly seen among personnel in the structure industry who definitely have long experience of asbestos. It is also caused by moving into asbestos covered buildings for years of time, Genetics plays an important role, and some consumers are more vulnerable towards the risk when compared with others.
Thanks for expressing your ideas here. The other element is that each time a problem occurs with a computer system motherboard, people today should not take the risk involving repairing that themselves for if it is not done right it can lead to irreparable damage to all the laptop. It will always be safe to approach your dealer of any laptop for the repair of that motherboard. They’ve technicians who definitely have an competence in dealing with pc motherboard troubles and can make the right analysis and perform repairs.
I’m in awe of the author’s capability to make complex concepts approachable to readers of all backgrounds. This article is a testament to his expertise and dedication to providing useful insights. Thank you, author, for creating such an compelling and enlightening piece. It has been an absolute pleasure to read!
I am very happy to read this. This is the kind of manual that needs to be given and not the accidental misinformation that’s at the other blogs. Appreciate your sharing this greatest doc.
That is the best weblog for anybody who needs to search out out about this topic. You understand a lot its almost hard to argue with you (not that I actually would need?HaHa). You undoubtedly put a new spin on a topic thats been written about for years. Great stuff, simply nice!
You can definitely see your skills within the work you write. The sector hopes for more passionate writers such as you who aren’t afraid to say how they believe. At all times go after your heart.
Thanks for giving your ideas. Something is that pupils have an option between federal government student loan along with a private student loan where it’s easier to decide on student loan consolidation than over the federal student loan.
Thanks for your recommendations on this blog. One particular thing I want to say is purchasing electronic devices items from the Internet is nothing new. The fact is, in the past several years alone, the market for online electronic devices has grown substantially. Today, you will discover practically any kind of electronic device and gizmo on the Internet, from cameras plus camcorders to computer parts and gambling consoles.
It’s the best time to make some plans for the longer term and it is time to be happy. I have read this submit and if I may I wish to recommend you few interesting things or tips. Maybe you could write subsequent articles referring to this article. I want to read even more issues about it!
Hello there, You have done an incredible job. I will certainly digg it and personally recommend to my friends. I am confident they’ll be benefited from this site.
One thing I want to say is that often before acquiring more laptop or computer memory, have a look at the machine within which it would be installed. If your machine is usually running Windows XP, for instance, the actual memory threshold is 3.25GB. The installation of above this would simply constitute any waste. Make sure that one’s motherboard can handle the actual upgrade quantity, as well. Good blog post.
Hey very nice site!! Man .. Excellent .. Amazing .. I will bookmark your web site and take the feeds also?I’m happy to find numerous useful information here in the post, we need work out more techniques in this regard, thanks for sharing. . . . . .
magnificent submit, very informative. I ponder why the opposite specialists of this sector do not understand this. You should continue your writing. I am sure, you’ve a huge readers’ base already!
Thanks , I have recently been looking for information about this subject for ages and yours is the best I’ve discovered till now. But, what about the bottom line? Are you sure about the source?
UpvoteRocket is the #1 automated voting service for private MMORPG servers. Climb toplist rankings on XtremeTop100, TopG, GTop100 with smart undetectable automation. Ragnarok, WoW, Mu Online & 20+ platforms supported. Pay only for delivered votes.