Nigeria, alongside several African nations, is moving forward with plans to establish a continental credit rating agency aimed at counterbalancing the perceived bias of Western credit rating agencies towards the continent.
The announcement was made on Tuesday, December 17, during the launch of the Debt Management Forum for Africa and the inaugural Policy Dialogue on Making Debt Work for Africa: Policies, Practices and Options, organised by the African Development Bank (AfDB) in Abuja.
Currently, the world’s top three credit rating agencies—S&P Global Ratings, Fitch Ratings, and Moody’s—dominate the global ratings landscape.
However, African leaders argue that these agencies often reflect a bias against the continent, a sentiment expressed by several key figures at the event.
Professor Kevin Urama, Vice President and Chief Economist at AfDB, highlighted that the proposed African credit rating agency would serve as a counterweight to the ratings issued by the Western agencies, which, according to him, often rely on asymmetric information and outdated perceptions.
“There is a bias in the credit ratings of Africa, not necessarily because of malintent, but because of the information imbalance that exists. Rating agencies often don’t have the same quality or quantity of data for Africa as they do for other regions. This leads to a perception-driven evaluation that affects the ratings,” Professor Urama explained.
He went on to note that this bias stems from the methodologies used by the agencies, which consider historical trends and human perception. He cited political upheavals, corruption, and economic instability as recurring patterns that tend to skew investor sentiment towards caution when rating African countries.
“Africa has much work to do to address this information asymmetry,” he added, suggesting that a continental credit rating agency could help challenge these misperceptions by providing an African perspective on the continent’s creditworthiness.
The initiative to establish this new agency is seen as part of a broader push to improve transparency and enhance engagement between Africa and global financial institutions. Professor Urama suggested that by providing what he referred to as a “counterfactual” to the ratings of Western agencies, the African agency could foster a more balanced and comprehensive understanding of the continent’s economic landscape.
Patience Oniha, the Director-General of Nigeria’s Debt Management Office (DMO), also weighed in on the issue, acknowledging the inherent bias in the current global rating system. She critiqued the limited time allowed for countries to respond to queries during the rating process. “The feedback mechanism from credit rating agencies is far too short. After they prepare their reports, countries are given very little time—sometimes only 24 hours—to respond,” Oniha noted. “This leaves little room for countries to correct inaccuracies or provide additional context.”
The DMO chief further emphasised the need for flexibility in how rating agencies handle new information. She pointed to Nigeria’s experience with Moody’s Investors Service last year, when the agency downgraded nine Nigerian banks following a downward review of the country’s sovereign rating, despite Nigeria’s efforts to stabilise its economy.
“We had presented all the work we were doing to stabilise the economy, yet these external agencies lacked a full understanding of the domestic situation,” Oniha stated, underscoring the need for greater communication and understanding between Africa and international credit agencies.
The issue of biased sovereign credit ratings has garnered global attention, with some experts suggesting that the current debt crisis affecting many developing nations is, in part, a result of the way credit ratings influence investor behaviour.
Professor Daniel Cash, Associate Professor of Law at Aston University and Senior Fellow at the United Nations University, argued that the subjectivity involved in credit ratings is a key factor in these challenges.
“The credit rating agencies evaluate a sovereign’s ability and willingness to repay debt based on both quantitative and qualitative factors, but the discretionary elements of this process often introduce subjectivity,” Professor Cash explained.
“This subjectivity can distort the true picture of a country’s financial health and exacerbate debt crises.”
The proposal for an African credit rating agency reflects the continent’s growing desire for greater control over its economic narratives and financial future.
With backing from key African leaders and institutions, the plan could fundamentally shift the dynamics of how Africa is perceived in global financial markets, offering a more transparent and locally informed alternative to the traditional Western-dominated rating systems.
