Why Africa wants a bigger say over its credit ratings

You can also listen to this podcast on iono.fm here.

JIMMY MOYAHA: The African Union, through its African Peer Review Mechanism arm, APRM, has officially come to the end of its build process. And yes, Africa will be receiving its first credit agency by the end of this week.

The Africa Credit Rating Agency [AfCRA] is set to officially launch in Mauritius later this week, on Wednesday. We’re going to take a closer look at this with the chief executive officer of the African Peer Review Mechanism, Ambassador Marie-Antoinette Rose Quatre [of the Seychelles], to see what we make of it.

Read: Africa needs its own credit rating agency: Here’s how it could work

Ambassador, lovely having you on the show. Thanks so much for taking the time. Let’s perhaps start our conversation with a background around this particular journey. It’s almost exactly a year to the day from where we began this journey, and I want to get a sense of what this has been like.

What was the initial vision behind creating this agency, and where do we find ourselves today?

MARIE-ANTOINETTE ROSE QUATRE: Thank you, and thank you for having me this evening.

You won’t believe it, but the journey actually started a decade ago – 10 years ago, when our heads of state began a conversation around perceived risks on the continent and actual risks on the continent, and the risk premium that the continent was paying.

ADVERTISEMENT

CONTINUE READING BELOW

So when you look at the average percentage in terms of interest that’s paid beyond the continent, the continent was paying much more because of certain perceived risks.

This was a conversation that was actually happening in individual member states, but also at the level of the African Union.

And we came to the realisation that what we needed were two things:

Yes, to improve the economies of African member states; but
Also to add another credit rating agency in the marketplace of opinions.

So, as you know, we have three international credit rating agencies operating across the continent, assessing sovereigns, member states, sub-sovereigns, the provinces, local governments and also the corporate sector and APRM.

We have been challenging some of these assessments over the years and talking about how Africa has been inaccurately assessed through some of these assessments.

So we were given the mandate to then operationalise the Africa Credit Rating Agency, AfCRA. But, as you know, AfCRA – which is going to be launched on Wednesday – is an entirely independent, private-sector-driven institution.

Our internal discussion started by having a deeper conversation on how an African Union organisation institution like the APRM [could] give birth to a private-sector entity.

We decided that it had to be done entirely by the private sector itself with the support of the African Union Commission and the APRM.

We went through the process of getting and engaging with the private sector – because at that time we were sitting on a lot of information – on a feasibility study on the market continent. As you know, the continent is endowed with a lot of potential resources, human capital, et cetera.

So we undertook a feasibility study, and it was clear that the market itself was ready for a continental credit rating agency. I say a ‘continental’ because in countries that are smaller, African credit rating agencies operate in different regions.

We also engaged with the private sector about the shape and form of what an African credit rating agency must look like.

So we worked with them. We’ve been working with them now for two years because in June 2024 we were given a very clear deadline that this needs to be happening by June 2026.

So we engaged with the private sector. We had a lot of meetings. And the product that’s going to be launched on Wednesday is a product coming entirely [from] the private sector. It has been registered by the private sector itself.

The methodology has been developed by the private sector. We have merely facilitated engagements between all stakeholders.

ADVERTISEMENT:

CONTINUE READING BELOW

The assumption is that it’s going to be very close with the African Union; or maybe not so independent is wrong.

The process which we have undergone and made sure of, that AfCRA is operationalised, has been done completely outside the political space that the African Union Commission occupies, and these are the member states.

Of course, AfCRA will need sovereign clients, and these are the member states; but that will be an engagement between the management of AfCRA itself and the potential sovereign clients.

JIMMY MOYAHA: Ambassador, the specific jurisdiction chosen for this African credit rating agency is Mauritius, and that is where the rating agency will be launched this week.

I want to get your thoughts around the rationale and perhaps the reasoning behind Mauritius as the destination of choice here.

We know that from a Financial Action Task Force perspective Mauritius has been one of the most impressive countries on the African continent in terms of financial security and financial regulation.

What were some of the considerations here when looking at determining where it is that the agency would be located?

MARIE-ANTOINETTE ROSE QUATRE: The selection process was a competitive process.

What we did is we sent out a call of interest to all member states, and Mauritius and a number of member states submitted the bid, along with very specific requirements needed for an independent, credible credit rating agency to operate.

As you have so rightly said, this is a country that has a very good record when it comes to governance –  political governance, economic governance – but it is also a very strong player in the financial services sector. The legislative framework that it has is at international level.

ADVERTISEMENT:

CONTINUE READING BELOW

And Mauritius currently is ranked 13 out of 119 global economies when it comes to the ease of doing business.

So it’s among the top performers in Africa when it comes to investment and the ease of doing business.

[For] AfCRA, we are sitting in a capital that provides the right kind of environment and independent thinking that an African credit rating agency needs.

Mauritius, Port Louis, will be the prime jurisdiction, which means that another country can then become a secondary jurisdiction.

I think one of the challenges and issues we’ve had with the international CRAs [credit rating agencies] – and we’ve said it quite often – is that in these international CRAs we are assessing our member states, but they were not domiciled on the continent.

There were a lot. We had offices in London or maybe Hong Kong or maybe Washington or New York, but most of them were not domiciled on the continent.

What is interesting, and what we have seen over the last 12 months, is that a lot of these international CRAs are now establishing offices on the continent, in South Africa, in Cairo – which then indicates that [the] concerns were real.

Read:

Rating agencies and Africa

Godongwana hits out at credit rating ‘bias’ as upgrade awaited

There were genuine concerns about them assessing member states, but not really being interested to set up offices in our African capitals.

So for AfCRA, the primary jurisdiction is Port Louis, Mauritius. But there will be, of course, secondary jurisdictions across different regions of the continent.

JIMMY MOYAHA: Ensuring that Africa’s creditworthiness is representative of its financial architecture and the growing financial stability of the African continent,  the African Peer Review Mechanism – alongside the African Union – this week set to launch the Africa Credit Rating Agency in Mauritius.

#Africa #bigger #credit #ratings