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Rating agency Fitch recently warned that the rapid spread of the mpox virus in sub-Saharan Africa could add to the fiscal pressures many countries in the region are already experiencing.

The Africa Centres for Disease Control and Prevention and the World Health Organisation have declared the latest outbreak of mpox in Africa a health emergency. An epidemic in the Democratic Republic of Congo has spread to neighbouring countries.

Seven countries rated by Fitch – Cameroon, Côte d’Ivoire, Kenya, Nigeria, Rwanda, South Africa and Uganda – have confirmed mpox cases.

Fitch cautioned investors about possible under-reporting of mpox cases and that the outbreak could accelerate, raising the prospect of increased pressure on government finances.

But is this alarm call necessary? Or is it exaggerated?

Based on my research into rating agencies over the past 10 years, there are clear biases in the way they determine African sovereign risk.

Fitch’s statement can be viewed as another case of a rating agency looking at events in Africa through a more negative prism than the one it uses for countries in the west.

Several studies have found evidence that there are biases with rating agencies overstating certain risk factors on the continent.

A comparative analysis of 30 countries in Africa and other regions highlights a lack of uniformity in the application of the economic indicators in ratings.

This lies behind the African Union’s decision to adopt a declaration on the establishment of an Africa Credit Rating Agency.

But some rating analysts have come to the defence of rating agencies, arguing that there is no bias against African countries.

For their part, rating agencies maintain that their methodologies are objective. And a recent article by news agency Reuters claims that there were no studies presenting evidence of statistical bias in ratings against Africa.

In my view these claims raise the question: what measure is being used to assess bias? This is important because bias can manifest in different ways – through decisions about what to measure (quantitative), or through more subtle forms of qualitative bias.

I argue in this article that credit ratings are biased against Africa in subjective ways. And that one of the key contributing factors is the location of rating analysts.

A thin presence

Most rating analysts are based in Europe, Asia and the US. Of the big three, Standard & Poor’s and Moody’s each have a single office in South Africa.

They have a total of five to 10 analysts covering about 25 sovereigns, corporates and sub-sovereigns. Fitch Ratings closed its only Africa office in 2015.

This raises questions about the workload of analysts and the accuracy of their ratings.

Rating analysts based abroad visit the countries they rate for a maximum of two weeks in a year.

This is insufficient time for analysts to adequately understand and evaluate risk factors. Inadequate consultations and short visits have led to analysts basing their assessments on pessimistic assumptions, desktop reviews, virtual discussions and publicly available information.

These processes have also omitted critical data that often is best obtained by being inside a country. Estimations of subjective risk factor in policy effectiveness, quality of institutions, political and geopolitical dynamics.

The conservatism of analysts, a lack of understanding of the context and ratings errors have been a recurring feature of African ratings.

Research shows that familiarity with a country, being closer to a country being rated and home bias (towards the home country of a rating analyst) result in analysts assigning better sovereign rating scores than they do to countries they are not familiar with or live very far from. – Business Insider Africa