Finally an African financial rating agency?

vsHow can the risk of investing in Africa be assessed at the right level, away from unfounded prejudices and using criteria unsuitable for the African context? The question is essential, because its answer depends on the rates at which the countries of the continent can borrow on international markets to finance their development projects. To provide an adequate response, the Senegalese head of state, who is also the current president of the African Union (AU), calls for the creation of an African financial rating agency. In his view, this solution is essential in the face of “sometimes very arbitrary assessments by international agencies that exaggerate the risk of investing in Africa, which increases the cost of credit”. This is how he expressed himself in a speech broadcast on Sunday on the private Senegalese radio RFM. Already the day before, during the Economic Conference Dakar 2022 “organized by African economists on the theme “Africa as a leading partner”, he had denounced the current situation.

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Denounce the use of subjective cultural or linguistic criteria

“In 2020, while all economies felt the effects of Covid-19, 18 of the 32 African countries rated by at least one of the main rating agencies saw their rating downgraded. This represents 56% of ratings degraded for African countries against a global average of 31% during the period,” said President Macky Sall. “Studies have shown that at least 20% of the qualification criteria for African countries are based on rather subjective cultural or linguistic factors, unrelated to the parameters that calibrate the stability of the economy,” he said. One of the consequences is that “the perception of the risk of investment in Africa is always higher than the real risk. We thus find ourselves paying more than necessary in insurance premiums, which increases the cost of credit granted to our countries”. “We continue to pay very high interest rates because of an unfair system to assess the risk of investment in Africa”, he insisted.

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A call after the Dakar consensus

While Covid-19 blatantly illustrated the imbalances in risk assessment in Africa, it was not at the origin of the reflection towards the creation of a pan-African financial rating agency. From December 2, 2019, at the conference organized in Dakar on the theme “Sustainable development and sustainable debt: finding the right balance”, the presidents of Senegal, Macky Sall, Togo, Faure Gnassingbé, Côte d’ Ivoire, Alassane Ouattara, of Benin, Patrice Talon, and also the former presidents Mahamadou Issoufou of Niger, Roch Marc Christian Kaboré of Burkina, and Boubou Cissé, then Prime Minister of Mali, have, with the active support of the Circle of Economists chaired by Jean-Hervé Lorenzi. , exchanged with the Managing Director of the IMF, Kristalina Goergieva, for whom it was the first exit, Amina Mohammed, Deputy Secretary General of the United Nations, and Hafez Ghanem, Vice President for Africa of the World Bank. Together, in cold anger, they expressed their concerns and their vision of the relationship between their countries and international institutions. Thus, they did not hesitate to blacklist the World Bank, the International Monetary Fund, the Organization for Cooperation and Economic Development without forgetting the rating agencies, especially the rating agencies.

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What are the reproaches of the heads of state?

First, to have a great responsibility in the negative perception of his country, in the poor appreciation of his economic governance, and to fuel the great fear of the financial markets in relation to Africa. What has been called the Dakar consensus, as opposed to the Washington consensus, a body of liberal-inspired measures that date from the presidency of Ronald Reagan and whose consequences have appeared devastating over the years. Seven points were highlighted in this Dakar consensus:

First, in line with a more accurate assessment of the African risk, the need to “provide more objective opinions because they take more into account the reality of the situations and not the perception around often negative generalities”. Then: strengthen the mobilization of internal fiscal resources and public savings to finance development. “This, the consensus felt, is the responsibility of the country and the government with the sure support of the partners.” Third point: the imperative for States to continuously improve the governance of public finances and that of the business environment. The next point: take into account the environmental impact, in particular climate change, but also the cost of security in the face of threats linked to terrorist attacks. Fifth point: integrate the double urgency of investments and the needs of the population. At this level, the Dakar consensus strongly recommends that bilateral and multilateral partners “take into account the value of assets and potential revenues in the analysis of the debt sustainability of African states”. Sixth point: the denunciation of the misdeeds of the unequal exchange. The allusion is made here to what in the early 1960s was called the deterioration of the terms of trade. The Dakar consensus thus scored the low remuneration of the raw material and the still persistent deficit in the creation of value chains through the local transformation of raw materials into products. Citing the cases of cocoa, cotton, peanuts and mining products, the Dakar Consensus did not hesitate to consider that this is a kind of organized tax evasion, because the consequence is that it impacts on-site processing (therefore, the potentially taxable employment). ) and the question of industrialization, the establishment of which will allow to strengthen the creation of value chains in situ. Finally, the last point: “lay the foundations for a fairer global financial governance so that Africa, thanks to massive investments, is able to be the engine of global growth”.

These are all points that make the call for the creation of an African rating agency an important step to take into account the objective and impactful African realities in terms of inclusion and economic development. After analysis and wishes, place for action. The ball is now in the court of African decision-makers.

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