The geographical and income differences in the determinants of African sovereign credit ratings
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 13 May 2020
Issue publication date: 20 October 2020
Abstract
Purpose
The importance of obtaining a sovereign credit rating from an agency is still underrated in Africa. Literature on the determinants of sovereign credit ratings in Africa is scarce. The purpose of this research is to determine what the determinants are for sovereign credit ratings in Africa and whether these determinants differ between regions and income groups.
Design/methodology/approach
A sample of 19 African countries' determinants of sovereign credit ratings are compared between 2007 and 2014 using a panel-ordered probit approach.
Findings
The findings indicated that the determinants of sovereign credit ratings differ between African regions and income groups. The developmental indicators were the most significant determinants across all income groups and regions. The results affirm that the identified determinants in the literature are not as applicable to African sovereigns, and that developmental variables and different income groups and regions are important determinants to consider for sovereign credit ratings in Africa.
Originality/value
The results affirm that the identified determinants in the literature are not as applicable to African sovereigns, and that developmental variables and different income groups and regions are important determinants to consider for sovereign credit ratings in Africa. Rating agencies follow the same rating assignment process for developed and developing countries, which means investors will have to supplement the allocated credit rating with additional information. Africa can attract more investment if African countries obtain formal, accurate sovereign credit ratings, which take the characteristics of the continent into consideration.
Keywords
Citation
Botha, I. and Pretorius, M. (2020), "The geographical and income differences in the determinants of African sovereign credit ratings", African Journal of Economic and Management Studies, Vol. 11 No. 4, pp. 609-624. https://doi.org/10.1108/AJEMS-08-2018-0228
Publisher
:Emerald Publishing Limited
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