The African Union launched the continent’s first credit rating agency on Wednesday, seeking to provide an alternative to the “big three” global ratings agencies as debt burdens weigh on many African economies.
The Africa Credit Rating Agency (AfCRA) — the creation of which African leaders endorsed in 2018 — was launched at a ceremony attended by African officials in Port Louis, the capital of Mauritius, where it will be based.
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The new agency will help investors to assess Africa’s investment risk better by offering investors more information and context, said Denys Denya, executive vice president of Afreximbank, one of the backers of the agency.
“When lenders don’t see clearly, they charge for the fog. Africa continues to pay for the fog that is generated by western centric examinations,” he told the launch ceremony.
African leaders have long accused Western ratings agencies including S&P, Moody’s and Fitch of failing to fairly assess the risk of lending to African countries and of moving too quickly to downgrade them during crises such as conflicts and pandemics.
The agencies reject that criticism, saying they apply the same methodologies globally.
A 2024 Reuters investigation into Africa’s debt crisis found no evidence of systemic bias in the sovereign ratings assigned to the region by the three major global credit rating agencies.
CREDIBILITY TEST IN TIMES OF CRISIS
Rating experts said the success of the initiative will hinge on the perceived credibility of the new agency, especially in times of crisis.
“A new rating agency begins with a promise while investors ultimately require a track record,” said Dennis Shen, a lecturer in finance at the International School of Management in Berlin and former sovereign analyst at Scope Ratings.
“The hardest test, however, will come when markets are under stress, because a rating agency’s credibility is tested most severely when its conclusions are uncomfortable rather than when it is highly convenient.”
AfCRA may provide a counterweight to established rating agencies, but it must meet global standards, former Nigerian Vice President Yemi Osinbajo said.
“It can’t just be a chauvinistic or nationalistic agency,” he said.
BORROWING COSTS IN FOCUS
AfCRA, which will rate sovereign borrowers, financial institutions and private companies, will operate independently and be funded through shareholder capital and its operations, the AU said. It did not provide details about the shareholders.
The AU says the agency should help improve African countries’ access to capital markets and provide investors with more balanced and context-specific assessments of economies across the continent.
It noted that African economies are currently rated B to B-minus on average, compared with BB for other emerging regions, a gap the AU says can limit some investors’ participation and raise borrowing costs.
The drive to improve borrowing terms for the continent has become more urgent following years of increased government borrowing, pushing some countries into debt distress in recent years.
“The stakes are significant,” the AU said, adding that the continent’s annual external debt service surged to $163 billion in 2024, from $61 billion in 2010.
In many countries, interest payments have exceeded the annual budgets for key social sectors such as health and education.
AfCRA is also expected to boost coverage, with 23 economies on the continent lacking a rating from the three big agencies, the AU said.
