The African Union (AU) has launched the Africa Credit Rating Agency (AfCRA), the continent’s first credit rating agency, as African countries seek alternatives to established global ratings firms amid mounting debt pressures.

The agency was unveiled on Wednesday in Port Louis, the capital of Mauritius, where it will be headquartered. African leaders endorsed its creation in 2018.

Denys Denya, executive vice president of Afreximbank, one of the agency’s backers, said AfCRA would provide investors with additional information and context to assess African investment risks.

“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 repeatedly accused S&P, Moody’s and Fitch of unfairly assessing lending risks across the continent and downgrading countries too quickly during crises, including conflicts and pandemics.

The agencies reject the allegations, saying they apply the same methodologies worldwide. A 2024 Reuters investigation into Africa’s debt crisis found no evidence of systemic bias in the sovereign ratings assigned to African countries by the three major firms.

Credibility will be crucial

Financial experts say AfCRA’s success will depend on its credibility, particularly during periods of market instability.

Dennis Shen, a lecturer in finance at the International School of Management in Berlin and former sovereign analyst at Scope Ratings, said investors would expect the agency to establish a reliable track record.

“A new rating agency begins with a promise while investors ultimately require a track record,” Shen said.

“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.”

Former Nigerian Vice President Yemi Osinbajo said AfCRA could provide a counterweight to existing ratings agencies but must meet global standards.

“It can’t just be a chauvinistic or nationalistic agency,” he said.

Focus on borrowing costs

AfCRA will independently rate sovereign borrowers, financial institutions and private companies. According to the AU, it will be funded through shareholder capital and its operations. The bloc did not disclose details about its shareholders.

The agency aims to improve African countries’ access to capital markets by offering investors balanced, context-specific assessments of economies across the continent.

The AU said African economies have average credit ratings ranging from B to B-minus, compared with BB for other emerging regions. It argued that this gap can limit investor participation and increase borrowing costs.

“The stakes are significant,” the AU said, noting that Africa’s annual external debt service climbed from $61 billion in 2010 to $163 billion in 2024.

In some countries, interest payments have exceeded annual budgets for essential services, including health and education.

The AU also said 23 African economies lack ratings from S&P, Moody’s and Fitch. AfCRA is expected to expand coverage and give investors additional information when evaluating opportunities across the continent.

Source: Reuters (reuters.com)