Africa launches own credit agency in bid for cheaper borrowing

Africa plans to launch its own credit rating agency on Wednesday, aiming to lower borrowing costs for African nations by offering assessments that global institutions currently consider unfair. The Africa Credit Ratings Agency (AfCRA), backed by the African Union, will evaluate the creditworthiness of countries, businesses, and institutions.

Mauritius, with its already established financial services industry, has been selected as its home base. The agency intends to provide an alternative stance to the three major global credit rating agencies: Fitch, Moody's, and S&P, which have been criticized for potentially downplaying African economies.

At the official launch ceremony held at the InterContinental Mauritius Resort Balaclava Fort, the Minister of State for Planning, Amos Lugoloobi, represented President Museveni. The African Peer Review Mechanism, the institution behind AfCRA, highlights that 23 African countries currently have no ratings from traditional agencies. Analysts argue that these agencies overlook Africa's significant informal sectors, which are not easily reflected in official data.

Nigeria's President Bola Tinubu expressed support for AfCRA via X, stating that the agency seeks fair ratings based on actual economic reforms rather than biased assessments. The cost of borrowing for Africa averages nine dollars for every 100 borrowed in international markets in 2024, compared to around four dollars and seventy cents for emerging markets in Asia and six dollars and fifty cents in Latin America, according to the Organisation for Economic Co-operation and Development.

AfCRA is not merely a reaction to African dissatisfaction with existing agencies; according to Hannah Wanjie Ryder, CEO of Development Reimagined, the initiative aims to provide a more objective evaluation. The theory behind AfCRA is that it will offer a clearer view of African economies. However, it remains to be seen if investors will trust AfCRA's ratings over those of the leading agencies and if the agency will be able to downgrade African governments, which would be crucial for its credibility.