Flawed credit ratings in Africa: are top 3 western agencies driven by data or bias?

The three major credit rating agencies – Moody's, S&P Global and Fitch – have often differed among themselves when rating African institutions and countries. Their opinions don't have to be aligned, but a huge gap in the ratings suggests inaccuracies in the analyses.

Wrong ratings have consequences. They drive up the cost of capital. Lower ratings indicate higher risk, and lead investors to demand higher interest rates to compensate for that risk. When a sovereign (country) is downgraded, its borrowing costs increase. It has to pay more interest on the same amount of debt, and has less chance of getting funding for development.

In the last three years there have been notable examples of rating agencies differing significantly in their decisions.

The first example is African Export-Import Bank. Between June 2025 and June 2026, the three major agencies reached materially different conclusions about the creditworthiness of the bank. The African Union has highlighted the flawed ratings.

The second example is Fitch Ratings' downgrade of the Nigerian industrial group Dangote Industries Limited on 6 August 2024. It cited risk linked to the construction of a refinery. A year later, the Dangote Oil Refinery proved to be a transformative project that rebalanced Nigeria's trade position. It reduced the country's imports and increased its domestic production. Fitch was wrong and its rating downgrades put the completion of the project at risk.

The African Finance Corporation shows a similar divide. S&P New York and its Chinese subsidiary gave widely differing assessments.

And finally, Moody's downgraded Kenya in July 2024 while S&P maintained its B-rating.

These examples highlight the same problem: the differences between rating agencies ostensibly looking at the same set of risk factors.

In my view these discrepancies present African countries with two opportunities:

• challenge the ratings

• diversify their ratings and funding relationships away from the western markets.

Lastly, the differences highlight the need for rating agencies to be more objective and base their ratings on factual data and fundamentals.

The differences

Fitch downgraded the African Export-Import Bank twice, from BBB to BBB- in June 2025 and subsequently to BB+ in January 2026 before withdrawing its rating. This means Fitch stopped assigning ratings to the bank after its contract was cancelled.

Both Moody's and S&P maintained investment-grade ratings, assigning Baa2 and BBB+, respectively. This is a three notch difference between Fitch and S&P on the same institution.

This rarely happens in other continents because the three international rating agencies assess largely similar risk factors in an entity's ability to repay its loans.

The question is whether Fitch's three-notch downgrades of Afreximbank were driven by facts about the bank or by analysts' own subjective misjudgements.

Asian agencies tend to recognise the policy importance of Afreximbank, which plays a strategic role in financing Africa's trade and development. As a result they recognise its preferred creditor status, that its member countries continue to repay the bank's loans even during periods of crises.

Fitch, however, argued that Afreximbank's role in Africa was diminishing and it was not a preferred creditor because the International Monetary Fund said so.

S&P Global Ratings aligned with China's Chengxin International Credit and Japan Credit Rating Agency.

When Fitch Ratings downgraded Dangote Industries it said the risk was refinancing linked to a new oil refinery. Fitch speculated that delays in meeting funding requirements would make financial restructuring or default more likely, and that could trigger further downgrades.

Faced with such a conservative and speculative outlook, Dangote Industries Limited decided to end its contract with Fitch Ratings. It said the rating no longer made commercial sense and the group would instead focus on securing ratings from African-based rating agencies.

A year later, the Dangote Oil Refinery has turned Nigeria into a regional exporter and bolstered its energy security.

Moody's downgraded Kenya on 8 July 2024 after the government withdrew planned tax hikes in response to protesters. S&P decided to wait for Kenya's August 2024 budget.

The Moody's downgrade resulted in a two-notch rating split on Kenya between Moody's and S&P. Within six months Moody's had reversed the downgrade with an outlook upgrade. Skipping from negative, past “stable”, to positive. It is highly unusual for a rating agency to revise its outlook within six months and to skip one notch.

It can be argued that the revision was an implicit admission by Moody's that its earlier ratings were incorrect.

Kenya incurred approximately US$150 million in additional interest costs on existing Eurobond debt as investors rushed to sell off their bonds.

Alternatives

The high cost of capital, driven by weak ratings from the international rating agencies, is pushing Africa to shift towards Asia for foreign funding sources.

Five African countries have already issued a combined US$5 billion in bonds from Japan, China, Hong Kong, Korea and the United Arab Emirates over the past two years. This shift has made Asian rating agencies more relevant as no country or institution would raise capital in Asia without a rating from local rating agencies. These are giving some African institutions stronger assessments than their western peers. Asian agencies are equally independent and credible.

When Fitch Ratings downgraded Afreximbank to speculative grade, Asian rating agencies saw it differently. Chengxin International Credit Ratings Co. kept a stable AAA rating on Afreximbank. Japan Credit Rating Agency rates the bank A- stable for its Samurai bond programme. They differ widely from Fitch on the same institution, with the same balance sheet and the same mandate.

What needs to change

The widening rating splits among the three international rating agencies present an opportunity for African sovereigns and their institutions.

First, rather than accepting rating assessments that prove to be analytically flawed, African sovereigns and their institutions must challenge these ratings. In my view this will help the rating agencies be more thorough. It will also bring flawed ratings to the attention of international investors.

Second, African entities need to diversify their ratings and funding relationships away from the western markets. Domestic rating agencies have demonstrated a more nuanced understanding of local realities.

Lastly, the rating agencies need to be more objective. Analysts' sentiments and frustrations should not find their way into the rating process.

Misheck Mutize is affiliated with affiliated with the African Union as a Lead Expert on Credit Ratings

By Misheck Mutize, Post Doctoral Researcher, Graduate School of Business (GSB), University of Cape Town

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