By Stephen Eisenhammer
Does a sovereign credit rating from a glass tower in London or New York impact life in the country being rated? Apparently in Africa it does.
According to research by the rating agency Fitch, sovereign credit ratings significantly boost foreign direct investment (FDI) to Africa.
Credit ratings added 2 percent to Gross Domestic Product in sub-Saharan Africa each year from 1995 to 2011 through increased FDI when compared to countries in the region which do not have a rating, Fitch said in a note.
There are a number of possible factors behind this.
Firstly the rating works as a kind of advert to investors, showing that the country is open to foreign capital. It also helps investors to make a more informed decision as to where to put their money, as the ratings come with reputable data and risk analysis.
There’s also, Fitch said, a “positive effect” on economic policy in the rated countries as they attempt to implement reform in order to achieve an upgrade or at least avoid a downward revision.