How An African Credit Rating Agency Can Tame Risk Perception

While preparing a keynote speech on risk, debt and credit ratings in Africa, I asked an AI-powered application this question: is it riskier to invest in Africa or send men and women to the Moon? The response was interesting. The question was undoubtedly on our leaders and experts' minds as they gathered on the margins of the of the 38 th African Union Summit in Addis Ababa.

On the agenda was the progress on shaping the African credit rating agency AfCRA. It aims to provide another perspective on risk perception and international credit rating agencies assessments that do not work for Africa. Risk misperception has reportedly cost the continent over 24bn in excess interest and more than 46bn in forgone lending. The objective is also to provide more data, accurate and contextualised economic assessments resulting in more nuanced evaluations of governments' credit worthiness.

I had welcomed the initiative while underlining the need to focus on financial markets development in Africa. This matters for Africa's financial sovereignty and to diversify the sources of funding for crucial infrastructure development needs. This also matters to gradually rebuild a shrunk fiscal space over time. According to the IMF's regional economic outlook for Sub-Saharan Africa in 2025 , fiscal challenges will persist with a deficit estimated at about 4 of GDP, although masking efforts by several countries in fiscal consolidation.

In such a context, the African credit rating agency should help provide a more balanced view and offer additional data to potential investors interested in Africa. However, setting up the agency will take time. The competitive landscape, largely dominated by the "big three" international credit rating agencies Fitch, SP Global Ratings and Moody's, should prompt those leading this task to be strategic and to define the value propositions for the AfCRA. There could be three of them.

Inasmuch as an African credit rating agency may be the solution, it will come with its own challenges about staffing, funding, and governance. Therefore, we should use what we have, and intensify collaboration with the credit rating agencies already on the continent. These are interlocutors that not only understand our local context and the complexities of our economies, but are also independent, while caring for quality and high standards. Strengthening that collaboration is necessary and will also offer regional perspectives as several of these private companies work beyond their country. This collaboration, based on quantitative and qualitative data, will provide a more objective assessment, and help better capture the specificities of our economies. The prevalence of informality is one of them and gets discarded even though it generates income and jobs. This could be an angle for the AfCRA.