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'Black Box Rating Models' Don't Reflect Africa's Economic Potential, Expert Says

'Black Box Rating Models' Don't Reflect Africa's Economic Potential, Expert Says
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Credit rating agencies use methodologies that disproportionately punish the Global South, driving up borrowing costs and curtailing investment despite pressing development needs.
Global wealth and economic indicators overwhelmingly favor the Global North, leaving the Global South at a persistent disadvantage. This imbalance manifests in trade terms, investment flows, and access to affordable credit. For poorer nations, the deck is stacked: they often face dire circumstances that limit their policy options due to external pressures.
A clear illustration of this imbalance is the behavior of Western-based credit rating agencies—Moody’s, Fitch, and S&P Global—which evaluate governments and corporations worldwide. These agencies issue low ratings that downgrade many African countries and others in the Global South, triggering capital flight and undermining foreign investor confidence. In contrast, wealthier nations with much larger debt burdens typically avoid such scrutiny, and they benefit from lower interest rates and greater financial flexibility. Consequently, the Global South remains perpetually on the back foot.
However, economists and multilateral organizations have begun to challenge these practices, arguing that the current approach perpetuates inequality. Poorer countries thereby end up paying more for loans and suffer reputational damage, further entrenching a system that advantages the Global North at their expense.
In a recent interview with African Currents, Kalu Ojah, Wits Professor Emeritus of Financial Economics, University of Pretoria’s Gordon Institute of Business Sciences, South Africa, lamented that sovereign credit ratings—though presented as technical assessments—often overlook the unique contexts of developing economies.
"There are multiple factors that one could adduce as being responsible for that bias [of Western credit rating agencies]. The most fundamental one, which is often ignored, is the fact that all rating models, and particularly those of [credit] rating agencies are a black box. You don't know completely what's in there [...]. But then you do have qualitative issues that may not be easily codified or quantified in terms of numbers. And those, for me, are areas that are susceptible to human judgment and proclivity towards biases [...]. And oftentimes, you then get ratings that do not reflect what the countries or the companies rated consider fundamental strong points that says they should be rated higher," Professor Ojah expressed.
To find out what else our guest had to say, tune in to the African Currents podcast, brought to you by Sputnik Africa.
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