Africa to Unveil Own Credit Rating Agency, Challenging Global Dominance

A new era in global finance is set to dawn for Africa with the imminent launch of its own continental credit rating agency. By the end of September, the African Credit Rating Agency (AfCRA) is poised to begin operations, a monumental step designed to directly challenge the long-standing dominance of established global firms like Fitch Ratings, Moody’s Ratings, and S&P Global Ratings. This bold initiative aims to provide financial assessments that more accurately reflect the continent’s diverse and dynamic economic realities, moving beyond what many African leaders describe as biased and opaque methodologies.

Backed by the African Union’s African Peer Review Mechanism (APRM), AfCRA anticipates issuing its first sovereign credit report by late 2025 or early 2026. This launch is the culmination of years of growing dissatisfaction and concerted efforts by African governments and financial institutions to reclaim their narrative in the global financial arena. Misheck Mutize, the APRM’s lead expert on credit-rating agencies, confirmed that a shortlist of candidates for the crucial chief executive role has already been finalised, with an appointment expected in the third quarter of this year, signaling the advanced stage of preparations for this groundbreaking institution.

The Genesis of a Continental Voice: Why Africa Demanded Its Own Rating

The call for an African-led credit rating agency is not a new phenomenon; it stems from deep-seated criticisms that have simmered for years within African political and economic circles. African governments have consistently accused global ratings giants of unfair and opaque assessments. These criticisms are multifaceted and touch upon fundamental issues of methodology, bias, and impact:

• Perceived Bias and Subjectivity: A major complaint is that global agencies exhibit a demonstrable bias against African countries. Studies have presented evidence that credit rating analysts, often based outside the continent, may harbor preconceived opinions that unduly influence their ratings. This can lead to a pessimistic approach, exaggerating perceived credit risk even when macroeconomic fundamentals suggest otherwise. African leaders have frequently contested ratings assigned to them, arguing that these assessments often contradict positive macroeconomic developments within their countries.
• Asymmetry in Rating Actions: There is a widespread perception that international CRAs are quick to downgrade African countries, especially during periods of global or regional stress, but are remarkably slow to upgrade them even when significant improvements occur. This asymmetry can trap countries in a cycle of negative outlooks, making it harder to attract investment and recover.
• Lack of Consultation and Transparency: Critics argue that global agencies often fail to adequately consult with African stakeholders, including governments and local financial institutions, before issuing their assessments. This lack of engagement leads to ratings that may not fully account for unique local contexts, governance structures, and the nuances of African financial institutions. For instance, the APRM recently questioned Fitch’s downgrading of the African Export-Import Bank (Afreximbank), asserting that the decision was flawed and reflected a “misunderstanding of the governance architecture of African financial institutions.” Fitch’s classification of loans to Ghana, South Sudan, and Zambia as non-performing, despite their treaty obligations to Afreximbank as shareholders, highlighted a disconnect in understanding intra-African development finance.
• Influence on Domestic Policy and Sovereignty: Some African leaders contend that the methodologies and prescriptive recommendations of international CRAs often incline towards austerity measures, effectively dictating economic policy. Governments that pursue different, potentially more expansionary, policies risk sovereign downgrades. This, in the view of many, undermines the economic freedom and sovereignty of African states, hindering their ability to craft long-term economic strategies tailored to their specific developmental needs and to adequately provide essential public goods and services like healthcare and education.
• Erosion of Debt Relief Benefits: The issue became even more apparent during the COVID-19 pandemic. Several African countries missed opportunities to participate in the G20 Debt Service Suspension Initiative for fear of being downgraded. When countries like Cameroon, Côte d’Ivoire, Ethiopia, and Senegal did participate, some international CRAs downgraded them, eroding the benefits of debt relief by increasing future borrowing costs. The United Nations has also criticized rating agencies for worsening debt sustainability in poor countries.

These accumulated grievances underscored the urgent need for an alternative voice—one that is “context-intelligent,” objective, transparent, and grounded in an understanding of Africa’s unique developmental trajectory.

The Tangible Impact of Ratings: High Borrowing Costs and Economic Strain

The impact of credit ratings on a nation’s economy, particularly for developing countries, is profound and far-reaching. A sovereign credit rating serves as an indicator of a country’s ability and willingness to meet its financial obligations. When a global credit rating agency assigns a low rating or a negative outlook, it sends a signal to international investors that the country poses a higher risk. This directly translates into significantly higher borrowing costs.

For African countries, the consequences can be particularly severe. As outlined by UNU-CPR Senior Fellow Dr. Daniel Cash, lower sovereign ratings lead to higher yields on government bonds, which can “crowd out private investment by driving up local interest rates.” This means that when an African government seeks to borrow money on international capital markets, it often has to offer much higher interest rates to compensate investors for the perceived increased risk. Studies show that African countries sometimes pay loan interest rates roughly 500% higher when borrowing from global capital markets compared to multilateral development banks.

This elevated cost of borrowing has a devastating ripple effect across national economies:

• Diversion of Resources: Higher debt servicing costs consume a disproportionately large share of national budgets. Instead of investing in critical sectors like healthcare, education, infrastructure, and social welfare programs, governments are forced to allocate scarce resources to interest payments. The African Development Bank (AfDB) noted that debt service costs in Africa could reach $89 billion in 2025, diverting resources away from vital investments. This creates a difficult “trade-off: interest payments over education, over health, over climate resilience,” as eloquently put by a G20 panel member.
• Reduced Development Potential: By limiting the fiscal space for public investment, high borrowing costs impede a country’s ability to achieve its Sustainable Development Goals (SDGs). Essential projects that could drive economic growth, create jobs, and improve living standards are often delayed or cancelled.
• Loss of Investor Confidence: Negative ratings can trigger a loss of confidence among foreign investors, leading to capital flight and reduced foreign direct investment (FDI). This further constrains economic growth and makes it harder to finance development projects.
• Examples from the Ground: Ghana and Zambia, two countries that have defaulted on their debts in recent years, have been among the most vocal critics of the global ratings industry. Their experiences highlight how negative assessments can exacerbate financial distress. In the case of Afreximbank’s recent downgrade by Fitch, the APRM vehemently argued that Fitch’s classification of sovereign exposures to Ghana, South Sudan, and Zambia as non-performing loans was legally incongruent and reflected a fundamental misunderstanding of how African multilateral financial institutions operate and are backed by treaties with member states. This incident underscored the urgent need for a more nuanced and accurate assessment framework.

The cumulative effect is a cycle where perceived higher risk leads to higher costs, which in turn limits development, reinforcing the perception of risk. AfCRA seeks to break this cycle by offering a more equitable and context-aware assessment.

Building Trust and Independence: AfCRA’s Unique Model

A critical aspect of AfCRA’s design, and a direct response to the criticisms leveled against global agencies, is its deliberate choice not to be state-owned. As Misheck Mutize of the APRM affirmed, this is a conscious decision “meant to ensure independence and avoid conflicts of interest.” The credibility of any credit rating agency hinges on its impartiality and the perception that its ratings are free from political influence or undue pressure from governments or issuers.

Instead of state ownership, AfCRA’s ownership will primarily consist of African private-sector entities. While the specific names of these entities are currently undisclosed as negotiations are ongoing, this model is designed to foster financial autonomy and ensure that the agency’s assessments are based purely on rigorous financial analysis and market realities, rather than political agendas. This private sector backing aligns with global best practices for independent credit rating agencies, which rely on their reputation for objectivity to maintain market trust.

The African Peer Review Mechanism (APRM), the African Union’s flagship good governance initiative, plays a crucial backing role. The APRM’s primary purpose is to foster good governance by promoting the adoption of policies, standards, and practices that lead to political stability, high economic growth, sustainable development, and accelerated continental integration. Its core guiding principles emphasize that every review exercise must be “technically competent, credible and free of political manipulation.” By backing AfCRA, the APRM lends its credibility and commitment to transparency and accountability, signaling that the new agency will adhere to the highest standards of professional integrity. This institutional backing provides a crucial layer of oversight and confidence, distinguishing AfCRA from purely commercial ventures and aligning it with Africa’s broader developmental goals.

The choice of MCB Capital Markets, part of Mauritius’s largest banking group, as the transaction adviser, further highlights the commitment to a professional and robust launch. Mauritius is a well-regarded financial hub in Africa, and its involvement suggests adherence to international financial standards.

A Foundation for Growth: Focusing on Local Currency Debt

AfCRA’s initial strategic focus on local-currency debt ratings is a profoundly significant decision with far-reaching implications for Africa’s financial landscape. This approach is rooted in a clear understanding of the unique vulnerabilities and opportunities within African economies.

Traditionally, many African nations have relied heavily on borrowing in foreign currencies, primarily the US dollar or Euro, from international markets. While this provides access to a larger pool of capital, it comes with a substantial inherent risk: currency risk. When a local currency depreciates against the foreign currency in which the debt is denominated, the cost of servicing and repaying that debt effectively increases, even if the underlying economic performance remains stable. This currency mismatch can create immense pressure on government budgets and contribute to debt crises, as seen in various emerging markets globally. As research from Positive Money points out, sovereign local currency debt generally carries lower credit risk than foreign currency debt because it eliminates these currency mismatches.

By focusing on local-currency debt, AfCRA aims to:

• Strengthen Domestic Capital Markets: Accurate and credible ratings for local currency debt will provide greater transparency and confidence for domestic investors, including local pension funds, insurance companies, and banks. This encourages them to invest more in their own government bonds, deepening the domestic capital market. A robust domestic market reduces reliance on fickle foreign capital flows, which can quickly exit a country during times of global economic uncertainty.
• Reduce Currency Risk: By facilitating greater local currency borrowing, AfCRA can help African governments reduce their exposure to volatile foreign exchange rate fluctuations. This provides greater fiscal space and stability for long-term planning and investment in development priorities.
• Lower Borrowing Costs Over Time: As domestic markets deepen and confidence in local currency instruments grows, borrowing costs in local currency can potentially decrease. This would free up more resources for essential public services.
• Align with Local Realities: Rating local currency debt requires a deeper understanding of domestic economic fundamentals, inflation dynamics, and the capacity of local institutions. AfCRA, with its continent-specific focus, is better positioned to conduct these nuanced assessments than agencies primarily focused on global markets.

Misheck Mutize firmly emphasised that AfCRA will not be lenient in its assessments. “It is important to debunk the assumption that AfCRA is being established to give favourable ratings to Africa—no,” he stated. This reassurance is crucial for building trust and credibility, especially in a market where suspicion of bias has been a key driver for the agency’s creation. The goal is not to artificially inflate ratings but to provide fair, accurate, and context-intelligent assessments that reflect genuine creditworthiness, thereby unlocking the true potential of African economies.

Africa’s Broader Economic Ambitions: Self-Reliance and Development

The establishment of AfCRA is not an isolated event; it is a critical piece in Africa’s larger strategic puzzle to strengthen its own financial architecture and achieve greater economic self-reliance. For years, African leaders have pushed for reforms to the global financial system, arguing that it often disadvantages developing economies. Initiatives like the Alliance of African Multilateral Financial Institutions (AAMFIs), launched in February 2024, aim to promote collaboration and coordination among African-owned and managed multilateral financial institutions to support the continent’s economic development and integration objectives. These institutions advocate for greater recognition of their Preferred Creditor Status (PCS), which is vital for reducing borrowing costs and deepening capital markets.

The continent’s ambitious Agenda 2063 envisions “The Africa We Want” – a prosperous and integrated Africa, driven by its own citizens and playing a dynamic role in the global arena. Achieving this requires robust financial institutions that can effectively mobilise domestic resources, attract sustainable investment, and manage financial risks. AfCRA contributes to this vision by:

• Enhancing Market Transparency: By providing accurate and independent ratings, AfCRA increases transparency in African financial markets, making them more attractive to both domestic and international investors.
• Promoting Good Governance: The very act of undergoing a credit rating process, especially from an agency focused on African realities, can encourage greater financial discipline and good governance among rated entities.
• Fostering Regional Integration: A common, credible African rating agency can facilitate cross-border investment within Africa, strengthening regional capital markets and economic blocs.
• Informing Policy Decisions: Accurate ratings provide valuable insights for African policymakers, helping them make informed decisions about debt management, fiscal policy, and economic development strategies.

This drive for financial self-determination is underpinned by a recognition that Africa possesses immense potential. It is home to a rapidly growing population, abundant natural resources, and an increasingly dynamic entrepreneurial spirit. However, this potential has often been hampered by external perceptions and a global financial architecture that has not always served its best interests. AfCRA represents a tangible step towards rebalancing this power dynamic and ensuring that Africa’s economic story is told and understood through an African lens.

The Path Ahead: Challenges and Opportunities for AfCRA

The journey for AfCRA will undoubtedly come with its own set of challenges, typical for any new entity entering a market dominated by established players.

Challenges:

• Gaining Credibility and Market Acceptance: Despite its noble mission and credible backing, AfCRA will need to meticulously build its reputation for analytical rigor, consistency, and impartiality to gain widespread acceptance from international investors, who are accustomed to relying on the “Big Three” agencies. This will require sustained strong performance and transparent methodologies.
• Competition with Established Giants: Fitch, Moody’s, and S&P Global have decades of experience, vast resources, and entrenched relationships with investors worldwide. AfCRA will need to carve out its niche and demonstrate a clear value proposition that differentiates it from these global behemoths.
• Talent Acquisition and Retention: Building a team of highly skilled and experienced credit analysts, economists, and financial professionals who deeply understand both global finance and African specificities will be crucial. Attracting and retaining this talent in a competitive market will be an ongoing challenge.
• Regulatory Environment: Navigating the diverse regulatory landscapes across African nations and ensuring compliance with international standards for credit rating agencies will be complex.
• Maintaining Independence under Pressure: While non-state ownership is a safeguard, the agency may still face subtle or overt pressures from various stakeholders. Upholding its stated commitment to objectivity will be paramount.

Opportunities:

• Addressing a Market Gap: By focusing on the unique nuances of African economies and providing ratings that are more relevant to local contexts, AfCRA can fill a critical gap that global agencies have arguably overlooked.
• Fostering Regional Integration: A common and credible rating agency can serve as a catalyst for greater financial integration across Africa, encouraging cross-border investment and trade.
• Driving Sustainable Development: By promoting more accurate risk assessments, AfCRA can help lower borrowing costs for African nations, freeing up resources for vital investments in infrastructure, education, health, and climate resilience, directly contributing to the continent’s sustainable development agenda.
• Advocacy for Fairer Global Finance: AfCRA’s existence and success will serve as a powerful voice advocating for a more equitable global financial architecture, pushing for reforms that benefit emerging and developing economies worldwide.

Humanizing the Narrative: Real-World Impact on African Lives

Beyond the boardrooms and financial markets, the establishment of AfCRA holds immense promise for the everyday lives of Africans. When a country’s credit rating is unfairly low, it’s not just an abstract financial figure; it directly impacts people. High borrowing costs mean less money for schools, hospitals, and clean water projects. It means fewer jobs, higher taxes, or reduced social safety nets. It means that governments, faced with a “crushing trade-off,” prioritize debt payments over essential human development.

For example, when a country like Zambia or Ghana struggles with debt and faces downgrades, the ripple effects are felt by every citizen. Critical resources are diverted away from building new clinics or stocking existing ones with essential medicines. Educational reforms may be delayed, impacting the futures of millions of children. Infrastructure projects, vital for economic activity and job creation, might be shelved. This leads to persistent poverty, limited opportunities, and a reduced quality of life.

AfCRA, through its commitment to accurate and fair assessments, aims to help unlock these resources. By potentially lowering borrowing costs and attracting more confident investment, it can free up national budgets to directly fund the services and infrastructure that improve human well-being. More accurate ratings can lead to more stable economies, which in turn means more jobs, better public services, and greater resilience against future shocks. For a young entrepreneur seeking capital, for a mother relying on public healthcare, or for a student aspiring to a better education, a fair and credible credit rating can translate into real, tangible improvements in their daily realities, fostering hope and enabling progress.

Conclusion: A Cautious but Critical Reawakening

The impending launch of the African Credit Rating Agency by the end of September represents a critical inflection point in Africa’s long quest for economic self-determination. Backed by the APRM and founded on principles of independence and accuracy, AfCRA is poised to redefine how the world views and invests in African economies.

While the challenges of establishing a new, credible rating agency in a market dominated by entrenched players are immense, AfCRA’s strategic focus on local currency debt, its non-state ownership, and its clear commitment to fairness provide a strong foundation. Its success will not only benefit individual African nations by potentially lowering borrowing costs and deepening domestic markets but will also strengthen the continent’s collective financial architecture. As Africa continues its determined march towards sustainable development and greater prosperity, AfCRA stands as a beacon of its ambition – a testament to its capacity to innovate, lead, and shape its own financial future. This is more than just a new financial institution; it’s a statement of self-belief and a critical step towards a more equitable global financial system.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

10th June, 2025