AFRICAN governments and businesses now have a new institution seeking to change how the continent’s creditworthiness is assessed after the African Union (AU) launched the African Credit Rating Agency (AfCRA) in Mauritius.
The agency is expected to provide credit assessments that take greater account of African economic conditions, as concerns persist that conventional international ratings can contribute to higher borrowing costs for governments and companies on the continent.
The launch, coordinated by the African Peer Review Mechanism (APRM), marks the operationalisation of an initiative approved by the African Union in 2017.
AfCRA’s emergence comes at a time when African countries are under pressure to find cheaper sources of capital as debt-service costs consume a significant portion of government revenues.
New agency challenges existing rating system
The African Union has positioned AfCRA as a complement to, rather than simply a replacement for, international agencies such as Fitch Ratings, Moody’s Ratings and S&P Global Ratings.
Its supporters argue that credit ratings should reflect not only macroeconomic indicators but also the specific structures, institutions and economic realities of African countries.
Chief Executive Officer of APRM, Ms Marie-Antoinette Rose Quatre, said Africa could no longer depend entirely on external institutions to explain its economic conditions to the global market.
She said AfCRA was designed to provide independent and credible assessments based on a deeper understanding of African economies.
The agency will assess sovereign, sub-sovereign and corporate borrowers, expanding the potential pool of rated issuers across the continent.
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Large African market remains largely unrated
The scale of the potential market is significant. According to APRM, Africa’s capital market is worth about $4 trillion, but instruments representing less than 5 percent of that value currently have credit ratings.
AfCRA therefore sees room to expand credit information available to investors, particularly for borrowers that have historically remained outside the international rating system.
The agency is also expected to focus strongly on local-currency debt.
That could become important as African countries seek to deepen domestic capital markets and reduce their dependence on foreign-currency borrowing, which exposes governments and companies to exchange-rate risks.
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Africa says ratings affect cost of capital
Ugandan Finance Minister of State, Mr Amos Lugoloobi, representing President Yoweri Museveni, said the continent’s economic potential has not translated into sufficient access to affordable financing.
He argued that high borrowing costs remain a major constraint on African development and called for more accurate assessments of the risks facing African economies.
The debate has intensified in countries that have experienced sovereign downgrades and rising debt-service burdens.
Ghana and Zambia, among others, have previously raised concerns about the consequences of credit-rating decisions for their ability to access international capital.
The APRM has also challenged some assessments of African financial institutions, arguing that international rating methodologies may not always capture the peculiarities of the continent’s institutions.
Global rating agencies, however, maintain that their methodologies are transparent and applied consistently across markets.
Independence will determine credibility
Despite being created from an AU initiative, AfCRA is not designed to be owned by African governments.
Its independence is expected to be central to its credibility because investors will need assurance that governments cannot influence ratings for political reasons.
Afreximbank Senior Executive Vice-President, Mr Denys Denya, said the agency must maintain its independence while developing an African benchmark for credit assessment.
He argued that multinational African companies and banks should not automatically inherit the credit limitations of their home countries when their operations and financial strength extend across several markets.
Tinubu among supporters
Nigeria’s President Bola Tinubu has also backed the push for an African-owned rating agency. Tinubu has argued that an ‘Africa premium’ causes the continent to pay more for capital because investors often perceive African economies as riskier than available economic data may suggest.
The new agency will now have to prove that an Africa-focused approach can win the confidence of international investors.
“Its ratings will ultimately be judged not by the political support behind its creation but by the quality of its analysis, independence, transparency and ability to influence the pricing of African debt,” said an amerging markets analyst, Dr Ike Ibeabuchi.
“If it succeeds, AfCRA could give African governments and businesses a stronger voice in determining how the continent’s economic risks are understood and potentially how much they pay to borrow.”
