Ratings Company to Serve Africa Set to Be Ready by Next Year 2025

Ratings Company to Serve Africa Set to Be Ready by Next Year 2025

Ratings Company to Serve Africa Set to Be Ready by Next Year

• Proposed rater to operate independently of the African Union
• Continent’s borrowers seek fairer treatment in debt markets

• A fairer credit rating system for African countries could save billions

• Improving African countries’ credit ratings has critical implications for borrowing costs and resource allocation.
• Government investments in accurate, consistent, and transparent data collection can help improve African countries’ credit ratings.
• Empowering local credit rating agencies can lead to more accurate and fairer ratings for African countries.

Subjectivity and bias in African credit ratings costs countries up to $24 billion in interest and over $46 billion in foregone lending. Host Landry Signé is joined by Raymond Gilpin and Daouda Sembene to discuss their 2024 Foresight Africa piece “Making Africa’s credit ratings more objective.” Gilpin and Sembene discuss the reasons this subjectivity exists, the costly implications, and government and private-sector solutions for improving credit rating objectivity across the continent.

Landry Signé, a senior fellow at the Brookings Institution, hosts the Foresight Africa podcast. In a recent episode, he converses with Raymond Gilpin, chief economist at the UNDP’s Regional Bureau of Africa, and Daouda Sembene, CEO of AfriCatalyst. They discuss their collaboration on improving Africa’s credit ratings.

Gilpin and Sembene emphasize the need for accurate, timely, and verifiable data to reduce subjectivity in credit ratings. Gilpin notes that while African countries have made progress, more needs to be done to ensure data availability and reliability. Sembene highlights the importance of transparency and the challenges posed by both conscious and unconscious biases in credit ratings. They also discuss the necessity of understanding the methodology and processes behind credit ratings, advocating for better engagement and negotiation by African governments. Both believe that enhancing data quality and addressing biases can lead to more favorable and fair credit ratings for African countries.

In a discussion on improving credit ratings for African countries, Sembene and Gilpin emphasize the importance of local presence and understanding in rating agencies. Sembene suggests that being on the field, not just based in South Africa, can reduce biases and better reflect country progress. He also highlights the need for African authorities to understand rating methodologies to optimize their ratings and for transparent engagement between policymakers and rating agencies.

Sembene acknowledges the oligopolistic nature of the credit rating market, dominated by Standard & Poor’s, Fitch, and Moody’s. He advocates for empowering local African rating agencies to create a more transparent and effective ecosystem. Gilpin supports this by noting the role of local agencies like Bloomfield in Cote d’Ivoire and the potential of the African Union’s credit rating initiative. He suggests that Africa could benefit from a model like Europe’s post-financial crisis, which involved regulatory changes to improve rating transparency and methodology.

Gilpin also mentions a UNDP project in partnership with AfriCatalyst to provide high-level advisory services, a comprehensive web portal, and a community of practice to support African countries in the ratings process. Sembene and Gilpin agree on the critical role of partnerships, both within African countries and with external partners, to mobilize resources and improve development financing.

For youth, both advise forging their own paths, emphasizing the importance of hunger for knowledge, proactive engagement, and overcoming obstacles. They stress the importance of partnerships, hard work, and learning from failures.