AU creates rating agency to tackle bias, unlock funds
Africa unveiled its own credit rating company to address concerns that evaluations by global agencies carry a costly bias against the continent.
“Global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa,” Kenyan President William Ruto said on Friday at the launch of the African Credit Rating Agency.
“They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs,” he told the event in the Ethiopian capital of Addis Ababa.
The cost of biased grading is a staggering $75-billion in lost opportunities, according to a study by the Africa Peer Review Mechanism and the United Nations Development Programme.
A rating improvement by one notch would unlock $15.5-billion in additional funding for the continent, an amount that could help replace a significant chunk of official development assistance or be spent on Africa’s infrastructure needs, Ruto said in a statement.
The African Union has in the past faulted the agencies’ characterization of Africa and in January said Moody’s Ratings’ seesawing assessment of Kenya’s outlook was flawed.
“It is rare for a credit rating agency to move from ‘negative’ to ‘positive’, skipping a ‘stable’ outlook. The change is an admission, in remedy, that a negative outlook was an incorrect rating,” the AU said in a statement on its website.
Despite Africa’s abundant natural wealth, only two African nations are ranked as investment grade, according to Ruto. “It is time for Africa to use the right scale, one that reflects its true weight,” he said.
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