African Union launches continent’s first credit rating agency

On Wednesday, the African Union (AU) inaugurated the continent's inaugural credit rating agency, known as the Africa Credit Rating Agency (AfCRA). This move aims to offer an alternative to the dominant "big three" global ratings agencies, which many African economies have struggled with due to their debt burdens. AfCRA, established in 2018 and endorsed by African leaders, debuted at a ceremony attended by African officials in Port Louis, the capital of Mauritius.

The agency's primary objective is to facilitate better evaluation of investment risks in Africa by providing investors with additional information and context. Denys Denya, executive vice president of Afreximbank, one of the agency's supporters, highlighted the existing ambiguity in assessing African debt risks, emphasizing that the new agency can help mitigate the "fog" created by Western-centric examinations.

African leaders have historically criticized Western rating agencies like S&P, Moody’s, and Fitch for unfairly assessing risk and hastily downgrading countries during crises. However, these agencies deny any bias, asserting that they apply consistent methodologies globally. The success of AfCRA will largely depend on its perceived credibility, particularly during challenging times, as noted by Dennis Shen, a finance lecturer and former sovereign analyst.

AfCRA will rate sovereign borrowers, financial institutions, and private companies, operating independently and funded by shareholder capital and operations. Former Nigerian Vice President Yemi Osinbajo stressed that the agency cannot be chauvinistic or nationalist. By operating independently and providing more balanced assessments, AfCRA aims to improve access to capital markets and reduce borrowing costs for African countries.

Currently, African economies average a credit rating of B to B-minus, compared to BB for other emerging regions, a gap that limits investor participation and increases borrowing expenses. The AU highlighted the increased urgency of this issue, citing a surge in the continent's annual external debt service from $61 billion in 2010 to $163 billion in 2024, with interest payments surpassing key social sector budgets in many nations.