The African Development Bank (AfDB) will launch an initiative to help African governments prepare for credit ratings, President Sidi Ould Tah said on October 1, six days before the African Union-backed Africa Credit Rating Agency (AfCRA) is due to launch in Mauritius.

Tah told an S&P Global Ratings emerging markets conference in London that the bank would run the initiative through the African Legal Support Facility and that it would help countries prepare for ratings through better data and more transparency, Reuters reported. The report gave no start date or budget.

Tah said “the opacity in some markets creates this notion of high risk”, which raises the cost of borrowing. He said only three of Africa’s 54 countries are rated investment grade.

Tah also said the AfDB was leading a continent-wide effort to increase local financing and had met pension funds and banks to identify obstacles to deeper capital markets.

The AfDB plan and the new agency rest on different diagnoses. Tah’s points to gaps in data, which the bank aims to close so that governments give the existing agencies better information. AfCRA’s backers argue the established agencies misjudge African risk, and want a new rater. Moody’s, S&P and Fitch say their ratings follow the same formula across the world.

A 2023 study by the United Nations Development Programme put the cost to African countries of subjectivity in sovereign ratings at up to $74.5bn, counting both higher interest and lending they did not receive.

AfCRA is due to launch in Port Louis on October 7, after a two-day conference on credit ratings there. The African Union has mandated it to operate independently as a privately owned, self-funded agency rating sovereigns, sub-sovereigns and companies.

The African Peer Review Mechanism, which is setting up AfCRA, has said its aim is more precise assessments and not higher ratings. Misheck Mutize, the mechanism’s lead expert on rating agencies, has said AfCRA will have no government shareholding and will issue downgrades where necessary.

Some doubt a new rater can move prices. Muziwethu Ndlovu wrote in South Africa’s Business Day on September 15 that a fourth opinion could give investors more to go on without making African debt any cheaper.

S&P has moved to acquire Nigeria’s Agusto & Co, and Moody’s has bought three regional agencies. Mutize has said the purchases vindicate African complaints that rating the continent remotely misses local conditions.

Source: Intellinews