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The African Union (AU) is gearing up to establish its own African credit rating agency next year, aiming to address concerns that current ratings assigned to African nations are not equitable, according to an official statement to Reuters.
The proposed agency will evaluate lending risks to African countries and will be headquartered on the continent, revealed Misheck Mutize, the lead expert for country support on rating agencies within the African Union.
Additionally, this agency intends to provide contextual information for investors, assisting them in their decisions to purchase African bonds or engage in private lending to African countries.
Mutize stated, “We already have quite a huge interest in the private sector to support the implementation of this,” and the target is to launch the agency in 2024.
The AU, in conjunction with member nations from Ghana to Senegal to Zambia, contends that the “big three” credit rating agencies—Moody’s, Fitch, and S&P Global Ratings—do not objectively assess the lending risk of African countries. They argue that these agencies are quicker to downgrade African nations, especially during crises such as the COVID-19 pandemic.
All three major credit rating agencies have denied allegations of bias, asserting that their ratings methodology is consistently applied across regions.
A study conducted by the United Nations Development Programme in April found that African nations could potentially save up to $74.5 billion if credit ratings were based on less subjective assessments.
Misheck Mutize clarified that the intention behind the new agency is not to replace the “big three” but rather to diversify opinions and perspectives in the credit rating landscape. He mentioned that the major agencies often rely on assessments from smaller rating agencies with a deeper understanding of local dynamics.
The resolution for the establishment of this new credit rating agency was endorsed by AU finance ministers during the summer and was championed by the African Peer Review Mechanism (APRM), a branch of the AU established to enhance governance in Africa.
The agency will be privately funded and self-sustaining, with AU oversight.
Investor response to this initiative has been positive, as they are keen to see the agency’s impact on providing valuable information to guide their investment decisions.
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