The African credit rating landscape has undergone significant changes in a span of just 10 weeks. On July 28, S&P Global agreed to acquire a majority stake in Agusto & Co, one of Africa's oldest domestic rating agencies, with operations in Nigeria, Kenya, Ghana, and Rwanda. This move was swiftly followed by the African Union's launch of its own Africa Credit Rating Agency (AfCRA) on October 7 in Port Louis, Mauritius. These developments have raised questions about the future of credit rating in Africa and the role of global and domestic rating agencies.
The acquisition by S&P Global and the launch of AfCRA have significant implications for the credit rating industry in Africa. Two of the continent's best-known domestic rating houses, Agusto & Co and Sovereign Africa Ratings, now sit or are about to sit inside global groups. AfCRA, backed by the African Union, has the potential to bring a new perspective to credit rating in Africa. The buyers, S&P Global and Moody's, have rejected the charge that they rate Africa unfairly, with S&P Global assuring that Agusto & Co will maintain its own methodologies and issue its own ratings.
The African Union's launch of AfCRA closes a project endorsed in 2018, and it should be welcomed. Africa deserves institutions that assess the continent with its realities in view. Officials at the launch emphasized that the aim is more accurate ratings, not more flattering ones. Afreximbank noted that the agency should not be judged on whether it awards better ratings than established agencies. The harder questions are commercial and structural, with AfCRA yet to publish a rating and earlier timetables having slipped.
AfCRA's interim chief executive, Dr. Sifiso Falala, founded Sovereign Africa Ratings. Reports indicate that the agency is currently wholly held by Plus94 Research, the firm co-founded by Dr. Falala, and that 2,000 new shares will be offered to outside investors. AfCRA intends to acquire Sovereign Africa Ratings and expects around 70 percent of its early work to be sovereign ratings. Investors will look closely at who owns the agency, how it is governed, and how its methodology is disclosed.
The gap that matters most to Kenyan business is the lack of credible, affordable credit information for mid-sized and larger companies. The International Finance Corporation has committed $3.6 billion in local-currency financing across 25 African currencies, much of it aimed at mid-sized and larger companies. However, many of these companies lack standardized financial data, and a conventional rating can be costly, annual, and manual. A new product that wins this segment will need to be continuous, built on data, and priced for the mid-market.
Repayment behavior is a clear example of the kind of data that can be used to monitor credit quality. Credit bureaus record how a firm actually pays its lenders long before that story appears in audited accounts. Agencies able to draw on that kind of data can monitor credit quality between review dates at far lower cost. This is the model being built at Metropol Credit Rating Agency, and it is why the opportunity for domestic agencies is seen as larger, not smaller, after this year's events.
Going forward, transparency from every agency is crucial. Domestic, global-owned, and continental agencies alike should publish ownership, governance arrangements, methodologies, and conflict-of-interest rules in plain language. Regulators should move toward mutual recognition of ratings, and investors should write domestic ratings into their investment policies where methodology and track record justify it. The verdict will come from the market, with competition among domestic agencies, global-owned affiliates, and a continental newcomer being healthy for African borrowers, provided it is fair and transparent.
Key points
- The African Union's launch of AfCRA and S&P Global's acquisition of Agusto & Co have significantly altered the credit rating landscape in Africa.
- The new players in the market face challenges in terms of transparency, governance, and methodology.
- The market will ultimately decide the success of these new players based on their track record and ability to provide credible, affordable credit information.
