Nigeria, Africa lose $74.5bn annually to credit ratings ― UN

The United Nations (UN) says inaccurate and context-poor sovereign credit ratings are estimated to cost African countries about $74.5 billion annually through excessive borrowing costs and lost financing.

The UN Office of the Special Adviser on Africa made the disclosure shortly before Wednesday’s formal launch of the Africa Credit Rating Agency in Port Louis, Mauritius.

The new agency, known as AfCRA, is expected to provide independent, Africa-focused assessments of sovereigns, sub-sovereigns, companies and institutions.

The UN described the current situation as a major development penalty on a continent whose actual default experience is lower than prevailing risk perceptions suggest.

“Africa’s actual default rate is far lower than what its credit ratings imply, yet the continent pays the highest cost of capital in the world,” the UN said.

The UN said inaccurate ratings that fail to adequately reflect African economic realities were estimated to cost the continent 74.5 billion dollars annually.

“That is a tax on Africa’s development, paid for no good reason,” the UN stated.

The development has particular relevance for Nigeria, which has repeatedly raised concerns at the United Nations over what it considers a disproportionate risk premium attached to African sovereign borrowing.

At an ECOSOC special meeting on credit ratings in March, Nigeria compared the country’s borrowing costs with those of an unnamed highly indebted European economy.

Nigeria told the meeting that its debt-to-GDP ratio was considerably lower, it had never defaulted on sovereign debt, and its foreign reserves were stronger.

According to Nigeria, however, the country’s recent dollar-denominated sovereign bonds carried yields of between 8.6 and 9.1 per cent.

The unnamed European country, by comparison, borrowed at about 3.9 to 4.0 per cent, Nigeria regretted.

Nigeria also questioned why profitable banks and businesses could operate successfully within African economies while their sovereigns remained below investment grade.

The country argued that international rating agencies needed to engage more deeply with domestic investors and local economic actors rather than rely mainly on externally generated assumptions.

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Nigeria further complained that major global rating agencies had limited physical presence across Africa, potentially constraining their understanding of local economic realities.

The UN says AfCRA is intended to help close such information and methodology gaps through more transparent assessments rooted in African data, expertise and economic context.

It said the agency would place greater weight on factors often inadequately captured in conventional ratings, including informal-sector activity, vulnerability and resilience.

AfCRA is also expected to improve market intelligence and challenge historical biases embedded in perceptions of African sovereign risk.

The African Union said the agency would complement, rather than replace, existing international credit rating agencies.

It said AfCRA would operate independently, be private-sector driven and self-funded, with governments barred from owning shares to protect its credibility.

The agency’s launch follows years of concern among African governments that conventional sovereign ratings often increase borrowing costs and restrict fiscal space for development.

The UN Economic Commission for Africa said the new institution forms part of broader efforts to reform Africa’s financial architecture, deepen domestic capital markets and reduce borrowing costs.

The AU said AfCRA would strengthen Africa’s voice in global financial governance while promoting more evidence-based assessments of African economies.