The African Development Bank (AfDB) is preparing an initiative to help African countries improve the quality of information available for sovereign credit assessments, a move the bank says could help address perceptions of risk and reduce borrowing costs.
Sidi Ould Tah, AfDB president, announced the initiative on Thursday while speaking at the S&P emerging markets conference in London.
According to Tah, weaknesses in economic data, market infrastructure and transparency can affect how African economies are assessed by international credit rating agencies and contribute to perceptions of elevated sovereign risk.
“What is missed in Africa is the data and the infrastructure…the opacity in some markets creates this notion of high risk, which leads to high cost of borrowing,” Tah said.
The initiative will be implemented through the African Legal Support Facility (ALSF) and will seek to help governments better prepare for sovereign credit assessments.
The focus will include improving the quality and availability of economic information and strengthening transparency around national economies.
Tah said improving credit ratings is a shared objective for African countries, noting that only three of the continent’s 54 countries are currently investment grade.
For governments that rely on international capital markets, sovereign credit ratings can influence how investors assess risk and the terms on which countries access external financing.
The AfDB’s approach, however, is focused on improving the underlying information available to ratings agencies rather than directly determining how countries should be rated.
The AfDB initiative comes alongside broader efforts by African institutions to develop an alternative approach to sovereign credit assessment.
The African Peer Review Mechanism (APRM), an African Union-backed institution, is preparing to launch an Africa-wide credit rating agency, with proponents arguing that a locally grounded institution could provide additional perspectives on African economies.
The initiative reflects longstanding concerns among African policymakers about the methodology and risk perceptions used in international sovereign ratings.
Nigerian President Bola Tinubu has also advocated the creation of an Africa-owned credit rating agency.
In an opinion article published by the Financial Times earlier this year, Tinubu argued that what he described as an “Africa premium” contributes to higher capital costs for African countries.
He also pointed to the influence of major international rating agencies, including Fitch Ratings, Moody’s and S&P Global Ratings, on investor sentiment and access to international capital markets.
The establishment of an African rating agency would represent a separate initiative from the AfDB’s current programme, which is primarily focused on strengthening the quality of data and transparency used in existing credit assessments.
