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Updated Feb 1, 2020

Credit ratings for countries can be a decisive factor for the future economic well-being of a given country. For Africa, which has some of the lowest credit ratings globally, recent assessments by the three US-based ratings agencies—Moody’s, Standard & Poor, and Fitch—have drawn ire over what they perceive as a subjective bias that hampers investment opportunities and perpetuates slow development.

Low credit ratings discourage international investors from getting involved. Several public pension funds and central banks of foreign countries have strict rules about which credit ratings they are allowed to engage with to minimize risk as much as possible. Fourteen out of twenty-one African countries rated by Moody’s have a designation of “high credit risk” or “very high credit risk”.

The ratings agencies maintain that their assessments are not entirely subjective. For their reports, they look at a number of factors, including whether the country is politically stable or close to the outbreak of war. They also consider whether the country has paid back prior debts in a timely manner and the existence of independent courts to fairly arbitrate outstanding debt disputes. That leaves about 20 percent of the rating up to subjective interpretation, according to Kai Gehring, a senior economics researcher at the University of Zurich, speaking with Deutsche Welle.

Gehring has found that African countries with similar economic conditions to a European counterpart are given a lower credit rating, an indication of cultural and linguistic bias. The three ratings agencies analyze 128 countries but have only one office in Africa proper, located in Johannesburg, South Africa. African economists argue for a strict regulatory framework to prevent such biases. Some have argued for the African Union to create such a framework to assess whether ratings are fair. Others have gone a step further and believe economic blocs like BRICS—Brazil, Russia, India, China, and South Africa—should establish their own credit rating agency, though it’s doubtful foreign investors would trust such ratings.

 

https://www.dw.com/en/are-ratings-agencies-hurting-africas-economies/a-47870146

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