African countries are moving to challenge the credit assessments used by international investors with the launch of the Africa Credit Ratings Agency, AfCRA, on Wednesday.
Backed by the African Union after nearly a decade of discussions, the agency will assess the creditworthiness of African countries, companies and institutions, offering an alternative to major global rating agencies such as Fitch, Moody’s and S&P.
The initiative is aimed at addressing concerns that conventional ratings do not adequately reflect African economies and contribute to higher borrowing costs for governments on the continent.
The African Peer Review Mechanism, which is behind AfCRA, said 23 African countries were not currently rated by the major international agencies.
Analysts have also argued that conventional rating models can overlook large informal sectors and other economic activities that are difficult to capture in official data.
Nigeria’s President Bola Tinubu had welcomed the initiative, saying Africa was seeking fair rather than favourable ratings.
“We are asking for fair ratings, grounded in our fundamentals and in the reforms our economies are actually carrying out,” Tinubu said.
The financial implications of credit ratings are significant because lower ratings generally translate into higher interest rates for countries seeking funds in international markets.
Estimates by the Organisation for Economic Co-operation and Development showed that African borrowers paid an average of about $9 in interest for every $100 borrowed on international markets in 2024. This compared with about $4.70 for emerging markets in Asia and $6.50 in Latin America.
Mauritius was selected as the headquarters of AfCRA, partly because of its established financial services industry.
Chief Executive Officer of Development Reimagined, Hannah Wanjie Ryder, said the agency could provide a different assessment of African economies if it maintained analytical independence.
“The theory of change is they would actually be able to look with clearer eyes,” Ryder said at a recent seminar organised by Chatham House.
However, the new agency faces an early test of its credibility, with analysts saying investors will want evidence that it can issue unfavourable ratings against African governments when justified.
Management consultant Jacob Oreki of Kenya’s Strathmore University Foundation said the agency would be judged by its independence and accuracy rather than its African ownership.
“If it will not downgrade an African sovereign, markets will treat it as advocacy,” Oreki said.
He added that investors would rely on AfCRA’s assessments only if they considered them credible, rather than simply because the ratings came from an African institution.
AfCRA’s founders have said the agency will operate without government interference, as it seeks to establish itself as a credible alternative in Africa’s financial markets.
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