THE TWO PLANES OF JUDGEMENT: Why the African Credit Rating Agency's real test is not only methodological
EXECUTIVE SUMMARY
The African Credit Rating Agency (AfCRA), now moving through its establishment phase under the African Union and the African Peer Review Mechanism, has been framed almost entirely around one question: are African sovereigns underrated by the Big Three. That question is an extremely important question. Nehls and Schmidt, writing for the Konrad-Adenauer-Stiftung, put real numbers behind it, identifying a bias of roughly half a notch to a full notch once methodology and weighting are examined closely. But the question sits on only one plane of the credit rating enterprise, what I have termed the analytical plane, where models, data and disclosure live. It is not the plane on which AfCRA’s fate will be decided.
A second plane governs the conditions under which a credit judgement can be produced at all: committee structure, insulation of analysts, conflict exclusion, and an organisation’s capacity to absorb the political and commercial cost of an unwelcome rating. That plane has two components, rarely separated in the debate but distinct in practice: the internal architecture a credit rating agency builds for itself, and the external ecology, the legal and supervisory environment, within which that architecture is allowed to hold. Credit rating agencies, regulatory bodies, national legislators, and sometimes even the courts regulate this plane in granular detail, not because methodology is unimportant, but because a correct model, applied by an institution that cannot withstand pressure, produces nothing that lasts. As an example, The European Securities and Markets Authority (ESMA) extends the same logic into organisational architecture, treating governance as the precondition for credible analysis rather than an afterthought to it.
A credit rating is more than a piece of information. As for a sovereign credit rating in particular, it is an exercise of delegated authority over a state’s access to capital, and the governance structures built around it exist to protect the legitimacy of that authority when it is exercised against someone powerful. This essay argues that AfCRA’s central challenge is not whether it can build a better model of African creditworthiness. It is whether it can build an institution capable of downgrading a shareholder government, or an AU member with real political weight, and surviving what follows. The precedent of Scope Ratings in Europe, examined in the KAS report and in earlier work on the firm, suggests that governance intentions alone have not been sufficient elsewhere. AfCRA has said the right things about independence and transparency. Whether it builds the committee architecture to make independence operational, and whether the legal and regulatory environment around it can be built to provide the necessary cover, under forms of political and ownership pressure that may differ sharply from those faced by established credit rating agencies, is the question this essay puts on the table.
