The African Union (AU) has launched the Africa Credit Rating Agency (AfCRA), the continent's first credit rating agency, as it seeks to provide an alternative to the global "big three" ratings firms at a time when mounting debt burdens are weighing on many African economies.

The agency, whose creation was endorsed by African leaders in 2018, was officially launched in Port Louis, Mauritius, where it will be headquartered. According to the AU, AfCRA will provide independent, Africa-focused assessments rooted in the continent's own data, expertise, and economic realities, and is intended to complement rather than replace the existing global ratings agencies.

The launch marks one of the most significant steps yet in Africa's push for a greater say in how the continent's sovereign risk is assessed — an issue that has gained urgency as borrowing costs have climbed and debt pressures have mounted.

African leaders have long accused the major Western ratings agencies — including S&P Global, Moody's, and Fitch — of failing to adequately reflect the risks and potential of African economies, and of moving too quickly to downgrade countries during crises such as conflicts and pandemics. The agencies reject that criticism, saying they apply the same methodologies globally. A 2024 Reuters investigation into Africa's debt crisis found no evidence of systemic bias in the sovereign ratings assigned to the region by the three major agencies.

Rating experts said AfCRA's success will ultimately depend on its ability to establish credibility with investors, particularly during periods of financial stress.

"A new rating agency begins with a promise while investors ultimately require a track record," said Dennis Shen, a lecturer in finance at the International School of Management in Berlin and a former sovereign analyst at Scope Ratings. "The hardest test, however, will come when markets are under stress, because a rating agency's credibility is tested most severely when its conclusions are uncomfortable rather than when it is highly convenient."

Former Nigerian Vice President Yemi Osinbajo said AfCRA could provide a counterweight to the established ratings agencies, but stressed that it would need to meet global standards. "It can't just be a chauvinistic or nationalistic agency," he said.

AfCRA will rate sovereign borrowers, financial institutions, and private companies. The AU said the agency will operate independently and be funded through shareholder capital and its operations, although it did not provide details of its shareholders. The AU says the agency is intended to improve African countries' access to capital markets and to provide investors with more balanced and context-specific assessments of economies across the continent.

Credit ratings grade a borrower's perceived ability to repay debt and act as a key filter for international investors deciding where to lend. According to the AU, African economies are currently rated B to B-minus on average, compared with BB for other emerging regions — a gap it says can limit investor participation and increase borrowing costs.

The push to improve financing terms has become more urgent after years of rising government borrowing pushed several African countries into debt distress. The AU said Africa's annual external debt service reached $163 billion in 2024, up from $61 billion in 2010. In some countries, interest payments have exceeded annual budgets for key social sectors such as health and education.

AfCRA is also expected to expand ratings coverage across the continent, with 23 African economies currently lacking a rating from any of the three major global agencies, according to the AU.

The agency's establishment forms part of broader African efforts to reform the international financial architecture, strengthen domestic capital markets, and improve access to financing. AfCRA's first ratings assignments will offer the earliest indication of how its Africa-focused assessments compare with those of the incumbent firms.

Source: BitcoinKE