Professor Elikplim Komla Agbloyor, an Associate Professor in Finance, University of Ghana Business School (UGBS), says there is the need for under-developing African countries to establish their own credit rating agencies.

This, he said, when done, would make it possible for more companies to issue bonds that could help develop the local financial markets, enable African countries to reduce costs of borrowing and increase access to capital markets.

“We cannot always be going to the Eurobond market to borrow, we need to develop our own financial markets where African countries can issue bonds and ensure that investors will be able to buy these bonds,” he added.

Prof. Agbloyor was speaking at an inter-college lecture during the 2024 celebration of the Day of Scientific Renaissance of Africa (DSRA), which was organised by the College of Humanities of the UGBS in Accra.

The lecture was on the topic: “A $75 Billion Question: Do African Countries Suffer a Systematic Sovereign Credit Ratings Bias?”

As part of the activities for the celebration was the exhibition of scholarly works by the Centre for Migration Studies, School of Performing Arts, Centre for Social Policy Studies, Department of Geography, and other departments, institutes, and centres of the UG.

He said credit ratings in simple terms tell the quality of a borrower, be it a high quality or low quality.

Professor Agbloyor said for some time now, Ghana had experienced credit downgrades, meaning that the quality of borrowers had been reduced, which had its implications.

“If you are downgraded, your credit quality reduces, cost of borrowing increases, making borrowing very expensive. In the case of Ghana, Egypt, and Zambia, you can no longer access international capital market meaning you cannot issue Eurobonds”

“It also leads to capital flow reversals, because investors begin to get weary, making them begin to take their money out, leading to currency depreciation and imported inflation then leading to a banking crisis and subsequently a full-blown economic crisis,” he added.

Prof. Agbloyor said Ghana was likely to get access to the global capital market by 2028 because, currently, Standards and Poor’s, known around the world as a creator of financial market indices had rated Ghana as Selective Default, making it difficult to issue bonds next year.

He said the research was motivated by an article from the Economist, which argued that African countries may suffer a credit rating bias.

The Prof, said there was a study also conducted by the United Nations Development Programme where they argued that if foreign countries received fair credit ratings, the continent would save on average $75 billion annually, which could be used for development purposes.

“Now the credit rating agencies have argued that there is no rating bias and that the ratings are fair and reflect the risks of Africa, which spiked our interest as to whether there was a bias or not and to see what the data actually says,” he added.

The Prof. said from the findings, there was a bias, because during a random sampling of African countries matched against non-African countries, it was clear that Africa was a big predictor of credit rating which should not be the case.

He added that the location of a country should not be used to predict their credit ratings, whether in Africa, the United States, Canada, or Asia.

The Prof. argued that the credit agencies, when established, should be run by the private sector because it may lose trust when run by a government agency.

“People may not trust the ratings from the onset due to credibility issues, but credibility starts from somewhere so let us support our own,” he added.