African Union Launches First Credit Rating Agency

The African Union has launched the continent’s first credit rating agency, seeking to provide an alternative to the three major global ratings agencies as debt burdens weigh on many African economies.

The Africa Credit Rating Agency (AfCRA), whose creation was endorsed by African leaders in 2018, was launched on Wednesday at a ceremony in Port Louis, the capital of Mauritius, where the agency will be based.

The new agency will provide investors with additional information and context to help them assess investment risks in Africa, Denys Denya, executive vice president of Afreximbank, one of the agency’s backers, said at the launch.

“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,” Denya said.

African leaders have long criticised Western ratings agencies, including S&P Global, Moody’s and Fitch, accusing them of failing to adequately reflect the risks of lending to African countries and of moving too quickly to downgrade them during crises such as conflicts and pandemics.

The agencies have rejected the criticism, saying they apply the same methodologies globally. A 2024 Reuters investigation found no evidence of systemic bias in sovereign ratings assigned to African countries by the three major agencies.

Rating experts said AfCRA’s credibility would depend on whether investors regard its assessments as independent and reliable, particularly during periods of financial or political stress.

“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 a former sovereign analyst at Scope Ratings.

Former Nigerian Vice President Yemi Osinbajo said AfCRA could provide a counterweight to established agencies but would need to meet global standards.

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

AfCRA will rate sovereign borrowers, financial institutions and private companies. The AU said it would operate independently and be funded through shareholder capital and its own operations, although it did not provide details of its shareholders.

The AU said the agency could improve African countries’ access to capital markets by providing more context-specific assessments of their economies.

It said African economies have an average credit rating of between B and B-minus, compared with BB for other emerging regions, a difference that can limit investor participation and increase borrowing costs.

The initiative comes as rising government borrowing has pushed some African countries into debt distress. The AU said the continent’s annual external debt service rose to $163 billion in 2024 from $61 billion in 2010.

In some countries, interest payments have exceeded annual spending on key social sectors such as health and education.

AfCRA is also expected to expand credit-rating coverage, with 23 African economies currently lacking a rating from the three major global agencies, according to the AU.

SOURCE: Reuters