“Africa is paying too much to borrow.” With that opening line in the Financial Times, President Bola Tinubu challenged the global architecture of sovereign risk assessment. He argued that the so-called Africa premium reflects “the gap between how Africa is assessed and the reality of its economies” and that dismantling it is overdue.
From that diagnosis follows his proposed remedy: the creation of an African credit rating agency. The case is straightforward. The dominant agencies, he suggests, rely heavily on analyst discretion when judging political risk and institutional durability, often from a distance.
A continental institution, grounded in regional data and closer engagement, would be better placed to capture reform momentum and economic nuance.
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But the argument inevitably leads to a harder question. The issue is not whether Africa can establish its own rating agency. It is whether such an institution can win the confidence of global capital markets, whose investment decisions are shaped by regulatory rules, benchmark indices, and long-standing institutional mandates.
“The African rating agency will be able to capture more granular details and contexts of the African economies better than these foreign agencies,” said Muda Yusuf, an economist and former director general of the Lagos Chamber of Commerce and Industry.
“But perception, data integrity, and country risk are all major factors in these ratings. The rating outcomes are not intended for lenders in Africa.”
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Why ratings matter beyond borrowing costs
Sovereign ratings do more than influence yields. They shape regulatory capital requirements under Basel rules for banks holding sovereign paper.
They determine eligibility for benchmark indices such as JP Morgan’s EMBI, which in turn governs passive capital flows. They restrict or permit participation by pension funds and insurance companies bound by investment grade mandates.
Ratings are not simply opinions. They are entry tickets to global liquidity.
The president’s argument rests on documented concerns. A 2023 UN Development Programme report estimated that rating “idiosyncrasies” cost African economies roughly $75 billion annually in excess interest payments and foregone financing. Prior to the pandemic, African Eurobond spreads often exceeded those of similarly rated emerging market peers by 200 to 400 basis points.
Jumoke Oduwole, Nigeria’s trade minister, has reinforced that position in public commentary, framing the country’s recent sovereign upgrades as evidence that transparent reform and improved data disclosure can gradually narrow perception gaps.
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In her telling, the combination of fiscal transparency, exchange rate reform, and statistical improvements demonstrates that disciplined policy attracts recognition.
Reform recognised, but risks remain
Recent Nigerian developments illustrate both the progress and the limits of reform recognition.
Nigeria’s recent rating actions are factual. In April 2025, Fitch upgraded the sovereign from B minus to B. Moody’s followed in May, lifting the rating from Caa1 to B3.
Both cited improved policy coherence, foreign exchange reform, and greater fiscal transparency. Nigeria’s 2031 Eurobond yields narrowed materially during that period, and a subsequent dollar bond issuance was heavily oversubscribed.
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But recognition does not erase fundamentals.
Non-oil revenue mobilisation remains below 7.5 percent of GDP, limiting fiscal headroom. Oil production has averaged roughly 1.4 to 1.5 million barrels per day, below the OPEC quota of 1.8 million.
More than 60 percent of domestic debt is short-term, creating refinancing exposure in a high-interest-rate environment. Inflation, though moderating, remains elevated.
Femi Awoyemi, a participant in Nigeria’s capital markets, has argued that dismantling the Africa premium is leadership, but selective validation of reforms through upgrades should not be mistaken for structural transformation. His caution underscores a central tension: rating upgrades move Nigeria within speculative grade territory, not into investment grade status.
Kenyan President Ruto holds same view as Tinubu
William Ruto, the Kenyan president, succinctly captured this disparity when he criticised the bias in credit ratings that drives up interest rates for poorer nations, making borrowing prohibitively expensive.
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In a 2023 interview with the New York Times, Ruto raised concerns about systemic inequalities in the global financial system, particularly regarding how poorer countries are profiled in credit markets.
He highlighted that African nations like Kenya are often charged significantly higher interest rates—sometimes four to five times more than advanced economies—due to what he described as biased risk assessments by credit rating agencies.
Ruto argued that this profiling not only increases borrowing costs but also pushes many African economies into debt distress. He criticised the methodologies used by agencies like S&P, Moody’s, and Fitch, pointing out their historical misjudgments, including during the 2007-2008 financial crisis.
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In his words, these agencies have once again “priced frontier economies out of the market,” ignoring critical nuances of their economic potential and reforms.
The credibility question
Credibility remains the biggest issue. There is an internal contradiction that deserves scrutiny. If the Big Three rating agencies systematically misjudge African risk, their methodology is flawed. Yet their upgrades are cited as proof of reform success. Either their methodology possesses analytical validity, or it does not; selective endorsement weakens the critique.
An African credit rating agency could still add value. Limited local presence and procyclical downgrades during global stress have long drawn criticism. A complementary institution, particularly one focused on local currency debt and real-time reform tracking, might shorten the lag between policy change and market recognition.
But credibility will be decisive. If the new agency consistently assigns materially more favourable ratings than established peers without superior methodological transparency and independence, institutional investors constrained by regulatory and mandate frameworks will discount its conclusions.
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As Yusuf succinctly puts it: “If you have an African rating agency, that agency will still struggle with credibility problems. It’s like marking your own script.”
Africa’s cost of capital is shaped not only by ratings but also by global liquidity cycles and investor risk appetite. When markets tighten, frontier economies are repriced collectively. A new agency cannot override that structural reality.
President Tinubu is correct that Africa’s demographic growth makes affordable capital a global priority. By mid-century, the continent will account for roughly a quarter of the world’s working-age population. Closing the Africa premium will require more than establishing an agency; it depends on sustained fiscal reform, deeper revenue mobilisation, and macroeconomic stability.
Africa can build its own rating agency, but the greater challenge will be earning the trust of global investors and ensuring that its assessments carry weight in international markets.
