The African Union has launched the Africa Credit Rating Agency, AfCRA, in an effort to address concerns over unfair assessments of borrowing risk by existing rating agencies. The agency was formally inaugurated in Balaclava, Mauritius, almost a decade after the initiative was first proposed. AfCRA's mandate extends beyond national governments to companies, subnational borrowers, and public and private institutions. The agency aims to provide an additional assessment of sovereign and corporate repayment risk.
The launch of AfCRA is part of a broader effort to secure African financial sovereignty, according to AU Commission chair Mahmoud Ali Youssouf. He emphasized that the agency would not significantly lower financing costs in the near term, citing the need for more holistic reforms on global markets. The AU says Africa's annual external debt servicing rose to $163bn in 2024 from $61bn in 2010. The agency's technical establishment is supported by Plus94, a South African research and intelligence firm.
The AfCRA aims to broaden access to credit assessments and support the development of domestic financial markets, according to the UN Economic Commission for Africa. The agency will seek to reflect African economic conditions while meeting international standards. Youssouf credited the African peer review mechanism with conducting consultations and technical studies and preparing the institutional framework for the launch. He also acknowledged support from African financial institutions and international partners.
The launch of AfCRA follows years of criticism by African leaders of S&P Global Ratings, Moody's, and Fitch Ratings. The agencies reject allegations of bias and say they apply consistent methodologies globally. However, African governments contend that existing assessments impose a prejudice premium on their debt, raising borrowing costs and reducing the money available for development. The AU says 23 of its 55 member states have no rating from the three major agencies.
AfCRA's headquarters will be hosted in Mauritius, with regional subsidiaries planned. Youssouf said the island's economic and financial environment offered a foundation for the agency's development. The agency will pursue four major objectives: strengthening African capacity and expertise, helping better understand the potential of African economies, assessing objectively the risks related to African economies, and contributing to the work of financial institutions.
The AfCRA is expected to give investors an additional assessment of sovereign and corporate repayment risk. The agency's launch marks a significant step in strengthening Africa's financial architecture. Youssouf emphasized that the agency would work to support the development of domestic financial markets and promote financial sovereignty.
The African Union's efforts to establish a continental credit ratings agency have been years in the making. The agency's launch is seen as a key milestone in the AU's efforts to promote financial sovereignty and challenge the dominance of existing rating agencies. The AfCRA's success will depend on its ability to provide accurate and reliable assessments of borrowing risk.
Key points
- The Africa Credit Rating Agency aims to provide an alternative to existing rating agencies.
- The agency's launch is part of a broader effort to secure African financial sovereignty.
- The AfCRA's success will depend on its ability to provide accurate and reliable assessments of borrowing risk.
