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African Economies Hurt by Rating Agencies, Says Malian Economist

15:25, 16 September 2023

Samantha Arias

Writer

The UN Economic Development in Africa 2023 report affirms that the continent can become an important participant in global supply chains. Africa has at least a fifth of the world’s reserves in a dozen metals critical for the energy transition, but the continent needs significant investments in infrastructure to strengthen its economic position.

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Africa's economy is suffering from the judgments made by the major international rating agencies, Malian economist Modibo Mao Makalo explained to Sputnik Africa.

These agencies, which analyze the states' solvency and financial viability, make certain loans particularly difficult to get. Their ratings have been expensive for the continent, which has seen many opportunities slip away due to repeated downgrades.

"The opportunity gap due to the poorly adjusted ratings from the three largest rating agencies have cost Africa an estimated $75 billion in lost revenue, according to the United Nations Development Program (UNDP). This is a considerable sum that could have been used for socio-economic investments on the continent," explained Mao Makalo.

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Furthermore, the tools of the main rating agencies do not reliably reflect African reality, he noted. Nearly thirty countries on the continent have seen their rating downgraded, according to the UNDP study, despite that Africa has some countries with the highest growth rates in the world. The Malian economist criticized this paradox, emphasizing that the criteria used to rate developed countries cannot be the same as for emerging economies.

"Algorithms that evaluate risks are not adapted to companies, markets and the sovereign rating of African countries. African companies would like to show investors reliable ratings that reflect reality [...] We cannot compare an industrialized country to a middle-income or low-income country on the same criteria," he explained.

A Pan-African Agency Coming Soon?

To remedy these inadequacies, the African Union is now planning to create its own rating agency in 2024. This is a project called for by several countries on the continent, which do not understand the downgrades by the main agencies, underlined Mao Makalo.

"It's only justice. This is a very good initiative because African countries have nevertheless shown a lot of discontent in recent years, especially during periods of crisis. All African countries found that the downgrading of their rating was unfair or in any case did not correspond to reality," he declares.

A pan-African agency could also collect macroeconomic statistics in real time more easily, which are sometimes lacking among international organizations, added the economist.

On September 13, the African Union announced that it wanted to create its own rating agency, believing that the three main existing agencies, Moody's, Fitch and S&P Global Ratings, unfairly assessed the risk linked to loans granted to African countries.