Establishing Credibility Key for Africa’s New Rating Agency

On the sidelines of the 38th AU Summit in Addis Ababa, African leaders greenlit the African Credit Rating Agency (AfCRA), set for launch in June 2025, to deliver fair, transparent credit ratings reflecting Africa’s economic landscape.

The recent endorsement by African heads of state to create an African credit rating agency marks a crucial move to reshape how the continent engages with global capital. However, according to economists, credibility amongst investors must be established when applying a “new lens” to be effective.

Set for launch in June, the agency seeks to challenge outdated perceptions of financial risk. Experts believe the agency will strengthen Africa’s economic sovereignty.

According to Nomahlubi Jakuja, a South African economist, an African credit rating agency is “meant to create certainty for the investor that the borrowers (African countries) are creditworthy.”

“It will have to establish credibility among investors to be effective. This involves understanding the profiles of current investors in Africa and determining whether they would find a local institution more reliable than traditional agencies with long-standing reputations,” she explained.

For decades, global credit agencies like Moody’s, Standard & Poor’s and Fitch have shaped Africa’s economic outlook with ratings that many argue misrepresent the continent’s actual economic landscape.

Resultant assessments have driven up borrowing costs, hindering African nations’ ability to fund essential infrastructure and development projects.

For instance, a 2024 report jointly by Africa No Filter and Africa Practice revealed that biased media coverage in Africa costs countries in Nigeria, Kenya, Egypt, and South Africa US$4.2 billion each year in extra debt servicing costs.

“This amount could fund the education of over 12 million children, provide immunizations for more than 73 million children, or ensure clean drinking water for two-thirds of Nigeria’s population,” the researchers explain in the report.

A 2023 report by the Regional Bureau for Africa found that risk misperception has cost the continent more than US$24 billion in excess interest and more than US$46 billion in forgone lending.

Besides, sovereign downgrades have been a recurring issue for many countries in the continent over the past decade, making it difficult to secure development finance from global lenders and multilateral institutions.

For instance, January 2025 updates for Moody’s have affected many African countries still considered to have low credit ratings. Most of these currently hold a “Caa1” rating. Despite some countries like Kenya seeing a positive outlook change, indicating potential improvement in debt affordability and liquidity risks easing, a “Caa1” rating still elevates its credit risks.

According to the Regional Bureau for Africa, “Moody’s, Fitch and S&P continue to make significant errors in their ratings, yet they continue to influence global financing decisions and flow of capital.”

The African Credit Rating Agency (AfCRA) aims to function as an alternative to the existing rating institutions and provide more balanced and context-aware assessments of African economies.

In an interview, Kenneth Ekesa of the African Economic and Social Research Institute argues that existing rating agencies use methodologies that fail to account for Africa’s economic resilience, informal sector contributions, and intra-African trade potential under initiatives such as the African Continental Free Trade Area (AfCFTA).

AfCRA will be positioned to fill these gaps by incorporating localized economic indicators and regional financial realities.

Credit: African Business

“The issue has never been Africa’s actual economic performance, but rather the lens through which it is viewed,” said Ekesa. “By controlling our own narrative, we can attract more favorable financing terms and unlock growth.”

The creation of AfCRA is expected to address these challenges by providing a more accurate and context-specific assessment of African economies, thereby reducing the financial burden on African nations and promoting sustainable development.

Apart from AfCRA, the establishment of other alternative credit rating agencies, such as the Africa Credit Ratings Initiative jointly by UNDP Africa in partnership with AfriCatalyst in 2024, highlights the growing need for homegrown credit rating agencies that leverage country-specific data and context to develop ratings.

The AU has outlined a roadmap for AfCRA’s establishment in the past, which includes forming a governance structure, ensuring operational independence, and securing credibility among investors and international financial institutions.

A 2023 report by the UN Development Programme estimated that African nations could save up to US$75bn in excess interest payments and forgone lending if the agencies based scores on a more “objective” credit model.

Credit: Boniface Orucho, Bird Story Agency

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}