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The writer is the President of the Federal Republic of Nigeria
Africa pays too much to borrow. Calls to end the ‘Africa bounty’ – the gap between the way Africa is judged and the reality of its economies – can no longer be ignored. Fitch, Moody’s and S&P Global Ratings, the three dominant global credit rating agencies, exert outsized influence over Africa’s access to international capital. Their judgments shape investor behavior, yet they consistently misjudge African risk.
Only three African countries are rated ‘investment grade’, while the IMF predicts that this continent will be the world’s leading country fastest growing region this year. Africa is now setting up its own rating agency; it is a necessary correction. Opponents claim that Africa wants to do its own homework. The evidence suggests otherwise: A 2023 U.N. Development Program report notes that “quirks” in credit ratings cost Africa $75 billion annually in excessive interest and foregone loans.
An African rating agency would address the biggest weakness of the ‘Big Three’: their limited presence on the ground. Their models weigh quantitative data against subjective judgments about political risk, institutional strength and policy sustainability. How these judgments are made – and how much they count – is left to the opaque ‘assessment of the analyst’. Conclusions drawn from afar fail to reflect local reality.
Reliance on such judgments means that global market cycles trump the economic fundamentals of individual states. Many countries on the continent have export-led economies based on raw materials. When prices fall or markets tighten, African countries are rapidly and broadly downgraded – even if their reserves are strong, fiscal buffers are intact and the debt profile remains manageable. Downgrades then become self-fulfilling, raising financing costs and putting pressure on public finances.
But an African rating agency alone will not be enough. The agency must earn the trust of global capital with assessments anchored in the kind of timely, comprehensive data that international markets respond to.
Better data has been partly responsible for Nigeria’s recent upgrades: improving the timeliness and breadth of economic statistics; transferring previously off-balance sheet central bank loans to the official public debt register; rebasing GDP to more accurately reflect economic reality; publish more budget documents to strengthen budget transparency. The rest reflects tough policy choices, such as eliminating a wasteful fuel subsidy and liberalizing the exchange rate. Non-oil growth has helped diversify the economy as the naira decouples from global crude oil prices for the first time.
Yet Nigeria’s ratings continue to lag behind reforms and market sentiment. Our November dollar-denominated bonds were oversubscribed 5.5 times. Slow upward adjustments are common across Africa, especially when measured against the speed of downgrades. Smaller countries, which lack Nigeria’s size and analyst coverage, bear the brunt of the costs of this slowdown.
A continental credit rating agency will be able to harness the reform momentum in real time. Delayed upgrades cost money: African countries cannot afford to wait years to gain access to markets after implementing tough reforms. Nations must stand on their own two feet – especially in the wake of aid cuts. But they must be able to do this on a level playing field.
We understand that global capital will still look to established bodies for validation. However, if an African agency can see progress earlier, later confirmed by the Big Three, it will gain credibility while serving as an early signal to both the markets and those agencies. It is not a replacement, but a supplement. Affordable access to credit will determine whether Africa becomes the growth engine that the demographic boom promises. By mid-century, the continent will represent a quarter of the world’s working-age population. Africa’s success is not a regional concern, but a global opportunity.
