Why Few Rating Agencies Exist In Africa

Rating Agencies in Africa

At the last count, less than 10 domestic rating agencies exist in Africa. This could be attributed to the fact that the industry is highly regulated and not open to all comers. There must also exist fundamental financial and economic structures that will necessitate the coming on stream of rating agencies, one of the critical structures needed is a vibrant capital market.

The financial market in Africa is still developing at a moderate pace, and rating agencies are unable to expand beyond this speed. The number of transactions the economy demanded was a key element in developing credit rating agencies in Europe. Most African economies have not yet developed to the point where the capital market can conduct high volumes of transactions.

It is also challenging for a credit rating agency to succeed by relying entirely on only that line of business, without other streams of income from associated products and services.

Additional reasons for limited credit rating agencies in Africa could be the lack of capital market in most countries in Africa, currently, there are twenty-nine exchanges in Africa, representing thirty-eight nations’ capital market, for a continent with fifty-four countries.

A huge knowledge gap between the developing countries in Africa and the industrialised countries worldwide may also help to explain why there are fewer credit rating agencies in African countries than in European ones.

Potential conflicts of interest, unreliable techniques, and methodology are common worries when it comes to credit ratings in Africa.

Presently, there are efforts at the regional and continental levels to encourage and promote more domestic rating agencies that will attend to the needs and peculiarities of the African marketplace and sovereign nations.



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