African Union launches Africa Credit Rating Agency in Mauritius

The African Union launched an African credit rating agency in Mauritius on Wednesday, RFI reported. Reuters described the body, the Africa Credit Rating Agency (AfCRA), as the continent's first credit rating agency and said it was launched at a ceremony in Port Louis, the Mauritian capital, where it will be headquartered. African leaders endorsed its creation in 2018, according to Reuters.

The agency aims to offer an alternative to the three global firms that dominate sovereign credit ratings by drawing on African expertise and perspectives, according to RFI.

Scope and funding

According to the AU, as reported by Reuters, AfCRA will rate sovereign borrowers, financial institutions and private companies. It will operate independently and be financed through shareholder capital and its own operations. The AU did not identify the shareholders, Reuters reported.

The AU said the agency should improve African countries' access to capital markets and give investors assessments that better reflect conditions in individual economies. It also said AfCRA should widen coverage, noting that 23 African economies have no rating from the three major agencies, Reuters reported.

Borrowing costs

According to the AU, as reported by Reuters, African economies carry average ratings of B to B-minus, compared with BB for other emerging regions. The AU said this gap can deter some investors and push up borrowing costs.

The AU said the continent's annual external debt service rose to $163 billion in 2024 from $61 billion in 2010, Reuters reported. Reuters noted that interest payments in many countries now exceed annual spending on sectors such as health and education, and that years of rising government borrowing have left some countries in debt distress.

Denys Denya, executive vice president of Afreximbank, one of the agency's backers, told the launch ceremony that AfCRA would help investors judge risk in Africa by providing more information and context, according to Reuters. "When lenders don't see clearly, they charge for the fog," he said.

Criticism of global agencies

African leaders have long said that S&P, Moody's and Fitch fail to assess African lending risk fairly and downgrade countries too quickly during crises such as conflicts and pandemics, Reuters reported. The agencies reject this and say they apply the same methodologies worldwide. A 2024 Reuters investigation into Africa's debt crisis found no evidence of systemic bias in the sovereign ratings the three agencies assigned to the region.

Credibility test

Rating experts told Reuters that the agency's success will depend on whether it is seen as credible, particularly during crises. "A new rating agency begins with a promise while investors ultimately require a track record," said Dennis Shen, a finance lecturer 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 act as a counterweight to the established agencies but must meet global standards, Reuters reported. "It can't just be a chauvinistic or nationalistic agency," he said.

This is a developing story and will be updated.

Picture: RFI – Africa