Dubai Telegraph - Africa launches own credit agency in bid for cheaper borrowing

The Africa Credit Ratings Agency (AfCRA), backed by the African Union after nearly a decade of talks, will judge the creditworthiness of countries, businesses and institutions.

The Indian Ocean island of Mauritius was chosen as the agency's home, partly due to its established financial services industry.

It aims to offer an alternative viewpoint to the "big three" global credit ratings -- Fitch, Moody's and S&P -- which have been accused in the past of unfairly playing down African economies.

The African Peer Review Mechanism, the institution behind AfCRA, says 23 countries on the continent are not rated at all by the traditional agencies.

They can also overlook Africa's huge informal sectors, which do not easily show up in official data, analysts say.

"Africa is not asking for favourable ratings," Nigeria's President Bola Tinubu wrote on X last month, welcoming AfCRA.

"We are asking for fair ratings, grounded in our fundamentals and in the reforms our economies are actually carrying out."

- Real-world effects -

Low credit ratings have real-world effects as investors charge more interest to lend money.

On average, it cost Africa nine dollars for every $100 borrowed in international markets in 2024, compared to about $4.70 for emerging markets in Asia and $6.50 in Latin America, according to estimates by the Organisation for Economic Co-operation and Development, a club of mostly rich nations.

AfCRA is not just a response to "Africa's unhappiness with the incumbent players", Hannah Wanjie Ryder, chief executive of consultancy Development Reimagined, told a recent seminar organised by the Chatham House think tank.

"The theory of change is they would actually be able to look with clearer eyes," she said.

- First test -

It remains to be seen whether AfCRA will be able to persuade investors that its ratings can be trusted over those of the leading agencies.

AfCRA's founders say there will be no government interference.

Analysts say the first test is whether the agency will downgrade an African government. If not, investors risk seeing it as the continent marking its own homework.

"African borrowers have long paid a high-risk premium and standard models can miss the informal economy, domestic savings and reforms," said Jacob Oreki, a management consultant at Kenya's Strathmore University Foundation.

"But a rating agency is judged on independence and accuracy, not where it sits. If it will not downgrade an African sovereign, markets will treat it as advocacy," he told AFP.

Investors will base their decisions on the rating, he added, if "it is credible, not because it is African".

J.Chacko--DT