About the Africa Credit Ratings Initiative

The financing landscape in Africa has changed dramatically over the past few decades. With more than half the continent now at middle-income status, the relative role of Official Development Assistance (ODA) has declined, and more countries are now borrowing on global capital markets. UNDP Africa, in partnership with AfriCatalyst, launched the Africa Credit Ratings Initiative in 2024, which includes three key components: the Africa Credit Ratings Resource Platform with data, methodologies, and research; a Concilium of advisors, providing technical support on credit ratings; and a community of practice linking professionals and practitioners working on credit ratings.

About UNDP Africa

United Nations Development Programme (UNDP) works in about 170 countries and territories, helping to eradicate poverty, reduce inequalities and exclusion, and build resilience so countries can sustain progress. UNDP's Regional Bureau for Africa (RBA) supports Africa’s people, its governments and institutions as they seek to consolidate and accelerate development gains to overcome the lingering effects of the global pandemic, and effectively address the challenges that remain, including: jobless growth, persistent inequalities, weak governance, climate change and persistent violent conflict.

About AfriCatalyst

AfriCatalyst is an independent, global development advisory firm working to promote initiative, evidence-based solutions to Africa’s development challenges. Relying on our pool of experts with rich careers in global development affairs, we strive to build partnerships with local and global actors to achieve our goal of transforming the continent.

Development Context of Sovereign Credit Ratings

As more African countries borrow on international capital markets, sovereign credit ratings have become a necessary step in assessing their creditworthiness. However, the process of producing and reviewing a rating for any country is complex and fraught with challenges. This requires African countries to be well-prepared and clearly understand the process and its challenges.

The Credit Rating Effect on Development

Sovereign Credit Ratings affect development in three key ways. First, ratings affect risk perception and thus determine interest rates countries have to pay. A higher rating leads to lower interest rates. Second, lower-rated countries also receive less lending due to their high risk perception. And finally, while ratings are not strictly required for Foreign Direct Investment (FDI), they often serve as a signal to investors about the country’s perceived risk, and thus encourage or discourage FDI flows.

The African Experience with Sovereign Ratings

In 1994, only South Africa had a sovereign credit rating. UNDP partnered with Standard and Poor’s in 2003 to help more countries get rated and thus gain access to global capital markets. Today 33 African countries have one or two credit ratings, but only two are investment-grade. UNDP’s current project aims to help countries improve the quality of their ratings through increased knowledge and technical assistance.

Understanding Credit Ratings: The Basics

Credit ratings are consistently promoted as being complex calculations based on secret and convoluted processes. However, there are a variety of basic elements which provide a solid and broad understanding of what the ratings are, how they are devised, why they are devised, and how they are used.

Rating Processes

The credit rating agencies, by and large, share the same processes. These include steps such as preparation, initiation, building relationships, analyst application, rating committee, review, publication and monitoring.

Methodologies

The methodologies of different credit ratings agencies vary in terms of details. However, there are commonalities across agencies as they look at macroeconomic, fiscal, structural, institutional related variables in order to assess borrowers’ creditworthiness.

Data Sources

Data and its usage are the lifeblood of the credit rating system and the relationship between the Sovereign Issuer and the Investor. In order for the investor to understand the risk that accompanies their investment in the sovereign, a variety of information and subsequent metrics are needed.

Reports & Papers

Collection of Official Reports and Academic Papers

Scenario Builder

This tool present a data driven index aggregating the main indicators used to assses countries' creditworthiness. It is not a credit rating and does not constitute financial advice, but rather an education tool to help users understand what data goes into sovereign risk assessments.

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Credit Ratings

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