Fitch Ratings recently cautioned that the rapid spread of the mpox virus in sub-Saharan Africa could exacerbate the fiscal challenges faced by many countries in the region. The Africa Centres for Disease Control and Prevention and the World Health Organisation have declared the outbreak a health emergency, with an epidemic in the Democratic Republic of Congo spreading to nearby countries.
Seven African nations rated by Fitch – Cameroon, Côte d’Ivoire, Kenya, Nigeria, Rwanda, South Africa, and Uganda – have reported mpox cases. Fitch warned investors that mpox cases may be under-reported and that the outbreak could escalate, increasing fiscal pressures on governments.
However, questions arise about whether this warning is warranted or overly alarmist. Based on my decade-long research into rating agencies, there is evidence of biases in the way African sovereign risks are assessed. Fitch’s statement might reflect a tendency of rating agencies to view African developments more negatively than those in Western nations.
Multiple studies suggest that rating agencies often overstate certain risk factors in Africa. A comparative analysis of 30 countries across different regions highlights inconsistencies in the application of economic indicators. This concern has led the African Union to move toward establishing an African Credit Rating Agency.
While some analysts defend the objectivity of rating agencies, claiming no bias against African nations, rating agencies insist their methodologies are impartial. A Reuters report recently noted that no studies have conclusively shown statistical bias against Africa. However, this raises the question of how bias is being assessed, as it can manifest both quantitatively and qualitatively.
I argue that credit ratings for African countries are biased in subjective ways, with one key factor being the location of rating analysts. Most rating analysts are based in Europe, Asia, or the U.S., and both Standard & Poor’s and Moody’s have just one office each in South Africa. Fitch Ratings closed its only Africa office in 2015, leaving a small number of analysts responsible for covering a large number of African sovereigns and corporates.
These analysts typically visit the countries they rate for just two weeks per year, which is insufficient for a thorough understanding of local risks. As a result, their assessments often rely on pessimistic assumptions, virtual discussions, and publicly available information, without the benefit of on-the-ground insights. This approach leads to the omission of critical data, particularly regarding factors like policy effectiveness, institutional quality, and political dynamics.
Research has shown that analysts tend to give higher ratings to countries they are more familiar with or physically closer to, further supporting the idea that distance and unfamiliarity contribute to the conservatism and errors frequently seen in African ratings.