Bias in Credit Ratings Poses Challenges for African Economies
The issue of biased credit ratings for African countries has come to the forefront, as the African Union (AU) and other key stakeholders argue that the Big Three credit rating agencies—Standard & Poor’s, Moody’s, and Fitch—assign disproportionately low ratings to African sovereigns. This practice allegedly inflates borrowing costs, stifles economic growth, and hinders overall development across the continent.
African Credit Rating Agency Established to Address Bias
In response to these concerns, the AU unveiled plans in February 2025 to establish the African Credit Rating Agency (AfCRA), which will be based in Mauritius. Marie-Antoinette Rose Quatre, CEO of the AU-Africa Peer Review Mechanism, emphasized the need for African nations to take control of their financial narratives. “Africa is no longer content to remain a passive spectator in this debate,” she stated, reflecting a broader desire for self-determination in economic matters.
Current Ratings Reflect Economic Realities
Data indicates that African sovereigns typically receive lower credit ratings from the Big Three compared to developed nations. As of 2025, only Botswana, Morocco, and Mauritius enjoy investment-grade status. South Africa, Ivory Coast, and Benin are close but remain below this threshold, while 49 other countries face significantly lower ratings, with some not rated at all, excluding them from capital markets.
Validity of Existing Rating Criteria
The Big Three maintain that their rating methodologies are uniformly applied across all countries, asserting that African nations simply conform to lower benchmarks. The agencies publish nearly identical criteria that assess factors including economic strength, governance, civil society, and monetary policies.
Subjective Indicators Contribute to the Perception of Bias
An April report from the Konrad Adenauer Foundation (KAS) and the Leibniz Institute for Economic Research revealed that while some metrics, like GDP, are straightforward, others, particularly those addressing governance and institutional integrity, introduce a level of subjectivity. This subjectivity, coupled with the prioritization of certain indicators, opens the door to potential bias against African nations.
The Impact of Economic Metrics on Ratings
The report highlighted that even objective measures can unfavorably impact African governments. For instance, the Big Three’s focus on per capita GDP as a key economic strength metric could penalize poorer nations. In 2023, per capita incomes varied widely, ranging from $511 in the Democratic Republic of Congo to $98,700 in Ireland. The authors noted that for most African nations to achieve even a slight rating improvement, per capita income levels would need to rise significantly.
Challenging the Existing Paradigm
A recent seminar by Chatham House and KAS raised questions about the role of new African credit rating agencies in fostering better lending conditions. While Marie Dillon of Moody’s dismissed accusations of bias, emphasizing that her company had analyzed global debt defaults, the core concern remains whether African agencies like AfCRA can instill confidence among portfolio managers and investors in the continent’s financial landscape.
Assessing the Potential for African Credit Rating Agencies
David Rubin, a senior fellow at Chatham House, pointed out that while the AfCRA may improve decision-making for investments within Africa, skepticism persists about its objectivity compared to the established Big Three. Meanwhile, Hannah Wansie Ryder, CEO of Development Reimagined, urged credit agencies to accommodate additional factors, such as African governments’ proactive measures to avert defaults, and acknowledged that the AfCRA may possess deeper insights into local economies.
Encouraging Independence and Transparency for Success
Historical precedents suggest that new regional credit rating agencies have faced significant challenges. The KAS-Leibniz report cites the European Corporate Scope, which began its operations in 2012 with the goal of providing an alternative to the Big Three. Despite its aspirations, Scope has managed less than a one percent share of the global market and has not succeeded in lowering credit costs for European issuers.
For the AfCRA to thrive, it must uphold rigorous transparency and independence, operating purely as a private entity without dependence on Commonwealth or government funding. It is essential to issue credit ratings that can withstand external scrutiny and foster a better credit environment for African countries.
Even if elevating African nations’ credit ratings proves elusive, ensuring that both the Big Three and local agencies enhance their understanding of the continent’s economic context could improve the prospects for obtaining more favorable ratings.
Peter Fabricius, Consultant, ISS Pretoria
(This article was first published by Premium Times syndication partner ISS Today. We have permission to republish.)
