Experts revive calls for an African sovereign credit rating agency

By Monica MUEMA

African business leaders and financial experts meeting in Nairobi today have revived calls to create a new sovereign credit rating agency, saying such a move could provide more accurate risk assessments for governments across the continent.

Proponents like Geoffrey Odundo – the Group financial markets adviser at CPF Group believe that an independent credit rating agency in Africa could better assess economic indicators and credit risk across the region.

Further underscoring the need for proper oversight mechanisms as well as the creation of a favourable regulatory environment to encourage competition especially in the capital markets space and reduce entry barriers for new credit reporting agencies.

“Credit rating is very key and having our own home – made agencies is the way to go,” said Odundo.

The credit rating industry in Africa is currently dominated by three international agencies, namely; Moody’s, S&P and Fitch – who together control an estimated 95% of the credit rating business globally.

Credit rating agencies are simply institutions that assess a borrower’s creditworthiness in general terms, or with respect to a particular debt or financial obligation.

A credit rating can be assigned to any entity that seeks to borrow money – an individual, a corporation, a state or provincial authority, or a sovereign government. And as such, investors use a credit rating to make decisions about risk and return.

The rating is ideally required if an institution wants to raise funds on financial markets.

“We need a regional credit rating agency that will not only provide avenues for not only affordable capital but also appropriate capital,” said Sam Omukoko, the managing director of Metropol Corporation Limited.

Similar proposals were made last year in October by the African Union (AU) to have a new agency named the African Credit Rating Agency (ACRA), in a report by the United Nations Economic Commission for Africa.

It had claimed that today’s leading credit rating firms make “significant errors in their ratings.” The erroneous ratings, according to the report, are often based on narrow assessments that don’t take into account positive economic indicators and can impact the flow to capital in the region.

We need to foster agency for African people to meet development aspirations and a system where risk can be fairly priced,” said Ahunna Eziakonwa, UN Assistant-Secretary General at the time.