The geographical and income differences in the determinants of African sovereign credit ratings

Ilse Botha and Marinda Pretorius

African Journal of Economic and Management Studies, 2020, vol. 11, issue 4, 609-624

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: Sovereign credit ratings; Panel-ordered response model; Categorical variables; Determinants; Africa; Development; C330; C350; F340 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ajemsp:ajems-08-2018-0228

DOI: 10.1108/AJEMS-08-2018-0228

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