African Union plans to launch its own credit ratings agency

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The African Union plans to launch a new African credit rating agency next year to address the group’s concerns that ratings given to countries on the continent are unfair, an official told Reuters.

The agency, which would craft its own assessment of the risks in lending to African countries, would be based on the continent and would add context to the information investors consider when deciding whether to buy African bonds or lend privately to countries, said Misheck Mutize, lead expert for country support on rating agencies with the African Union.

“We already have quite a huge interest in the private sector to support the implementation of this,” Mutize said, adding they are targeting a launch in 2024.

The AU, and leaders of member nations from Ghana to Senegal to Zamia, allege that the “big three” ratings agencies – Moody’s, Fitch and S&P Global Ratings – do not fairly assess the risk of lending to African countries, and claim that they are quicker to downgrade them during crises such as the COVID-19 pandemic.

All three ratings agencies have denied bias and say their ratings follow the same formula across continents.

Moody’s, Fitch and S&P Global Ratings did no immediately respond to a request for comment. Ravi Bhatia, S&P’s lead analyst for sovereign ratings, has said recently that the agency applies the same criteria consistently all regions.

Broadly speaking, credit ratings are designed to gauge a borrower’s risk of default, and factor in the terms on which banks and others will lend to them. More than a dozen African countries have outstanding international bonds.

Mutize said the new agency was a push to change the narrative.

“Our goal has not been to replace the big three…we need them to support access to international capital. Our view has been to widen diversity of opinions,” said Mutize

“We know the big three follow the opinion of other smaller ratings agencies. They’ve acknowledged that other smaller ratings agencies have got an edge in understanding domestic dynamics.”

AU finance ministers passed a resolution over the summer to endorse the plan for the new agency, an effort spearheaded by the African Peer Review Mechanism (APRM), a branch of the AU formed last year to improve governance across the continent. The full AU executive council is expected to adopt the same resolution in February.

The agency would be self funded and private sector driven with AU oversight, Mutize said. He said they are working on a pitch book to potential investors and collaborators, so it was too early to say which private sector and multilateral organizations would run the agency.

“Investors have been quite positive. They want to see what will be the output of this,” Mutize said. “Any investor will pay attention to anything that brings them information.”

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