Improve credit ratings to attract funding — Expert advises African countries

African countries must focus on improving their credit ratings and investor confidence to attract more foreign funding, the Executive Director for African Subsidiaries at Access Bank Plc, Seyi Kumapayi, has said.

He explained that while alternative funding sources offered some solutions to plug financial gaps, real progress would require stronger sovereign ratings and a shift from how investors view the risks of investing in Africa.

Consequently, he said governments needed to improve the liquidity of local financial markets, make budget processes more transparent and strengthen public institutions.

These steps, he said, are key to improving access to foreign capital and driving long-term growth in Africa.

Mr Kumapayi was speaking at a breakfast seminar last Friday in Accra on the theme: “The Impact of Credit Ratings on the Debt Capital Market in Ghana.”

Following its expansion into the Ghanaian market earlier in the year, the seminar, hosted by Agusto and Company Limited, brought together bankers, market players and regulators to discuss the need to deepen and broaden the funding options available to financial institutions and real sector companies to boost liquidity in the system, while sustainably promoting growth and development.

“Appetite for African Debt and Funding will largely be determined by the trajectory of the global environment. Should inflation continue to decrease in the U.S. and elsewhere and the Federal Reserve moves to lower interest rates, financing conditions for emerging markets could improve, providing an opportunity for banks to
diversify their funding sources and tap the foreign markets for funding,” he said.

Mr Kumapayi said, “Alternative funding sources also present promise for banks looking for innovative solutions to funding gaps.

However, sustained improvement in Africa’s access to funding, particularly from foreign markets will require improvement of sovereign ratings from credit rating agencies and a change in risk perception from potential investors on investing in African countries and banks.”

Raising funds locally

The Managing Director of Agusto & Co, Yinka Adelekan, called on African countries to focus on raising funds locally to drive economic growth.

“There’s a lot of funding internally, in terms of pension money that can be invested in corporate debt insurances and we believe that that’s the way to go.

So that companies in Africa are insulated to an extent from Fixed Capital Investment (FCI) risk, from going to get offshore loans, which is quite critical and because of the depreciation that has occurred in many countries, we believe that they should focus internally and raise the money domestically,” she stated.

Relevant credit ratings culture

For his part, the Managing Director for Dumakwae Limited a construction company, Dr Kwesi Eduafo Yankey, said credit ratings have been known to provide much-needed transparency and access to long-term and affordable financing all of which were critical to sustainable economic growth and development.

“Specifically, credit ratings provide an essential measure of relative credit risk, facilitating the efficient issuance and purchase of bonds and other debt instruments.

It is, therefore, in our interest to advocate and develop a transparent and contextually relevant credit ratings culture,” he said.