The African Union is set to launch the continent's first credit rating agency, the Africa Credit Rating Agency (AfCRA), in Port Louis, Mauritius. This move aims to provide an alternative to the "big three" global ratings agencies, which have been criticized for their assessments of African countries. The launch is the culmination of a nearly decade-long project, with African leaders endorsing its creation in 2018.
The AfCRA will operate independently, rating sovereign borrowers, financial institutions, and private companies. The agency will be funded through shareholder capital and its operations, although details about the shareholders have not been disclosed. According to the AU, the agency will offer a perspective rooted in African data, expertise, and realities, complementing existing global credit rating agencies.
African leaders have long accused Western ratings agencies of failing to fairly assess the risk of lending to African countries. They argue that these agencies move too quickly to downgrade African countries during crises such as conflicts and pandemics. However, the global ratings agencies reject this criticism, stating that they apply the same methodologies globally. A 2024 Reuters investigation found no evidence of systemic bias in the sovereign ratings assigned to Africa by the three major global credit rating agencies.
The AfCRA aims to improve African countries' access to capital markets and provide investors with more balanced and context-specific assessments of economies across the continent. The agency will also rate non-African entities where appropriate. With 23 economies on the continent lacking a rating from the three big agencies, the AfCRA is expected to boost coverage and provide more comprehensive assessments.
The drive to improve borrowing terms for the continent has become more urgent in recent years. Many African countries have increased government borrowing, pushing some into debt distress. The continent's annual external debt service surged to $163bn in 2024, up from $61bn in 2010. In many countries, interest payments have exceeded the annual budgets for key social sectors such as health and education.
The AfCRA is expected to reduce the burden of debt on African countries by improving investor confidence and market transparency. By providing more accurate and context-specific ratings, the agency aims to help African countries access capital markets on more favorable terms. This, in turn, could lead to increased investment and economic growth on the continent.
The launch of the AfCRA marks a significant development in the African financial landscape. With its independent operation and focus on African data and expertise, the agency is poised to provide a unique perspective on the continent's economies. As the agency begins its operations, its impact on African countries' access to capital markets and debt burdens will be closely watched.
Key points
- The African Union is launching the Africa Credit Rating Agency to provide an alternative to global ratings agencies.
- The agency aims to improve African countries' access to capital markets and provide more balanced assessments of economies.
- The launch is expected to boost coverage, with 23 economies on the continent lacking a rating from the three big agencies.
