Africa launches rating agency to strengthen financial system

The African Union launched the Africa Credit Rating Agency on Wednesday in Port Louis, Mauritius, seeking to strengthen the continent's financial architecture and provide investors with independent assessments that better reflect African economic conditions.

AfCRA will assess sovereign and sub-sovereign borrowers, financial institutions and private companies. The AU said the agency will complement existing international credit rating agencies by providing an additional, independent and Africa-focused perspective on credit risk.

African leaders have for years called for reforms to the global credit rating system, arguing that assessments of African economies can sometimes fail to adequately account for local economic conditions and resilience during crises.

AU Commission Chairman Mahmoud Ali Youssouf described the launch as a milestone in Africa's efforts to strengthen its financial architecture, advance economic sovereignty and ensure that African economies are assessed with greater depth, context and independence.

"Credit ratings directly affect the cost and availability of capital," he said, adding that assessments that do not sufficiently reflect African data, realities and context can result in higher borrowing costs.

Such costs can constrain countries' ability to finance infrastructure, health, education, energy and industrialization, he said, at a time when many African countries face significant debt-servicing pressures.

AfCRA's credibility would depend on independence, professionalism, transparency and adherence to internationally recognized standards, Youssouf said.

"Its ratings must be evidence-based and free from political considerations and conflicts of interest," he said, while calling on African countries to strengthen macroeconomic management, fiscal responsibility, transparency and debt sustainability.

AfCRA is not intended to replace existing international rating agencies, shield borrowers from scrutiny or guarantee favorable ratings, Youssouf said. Instead, it is expected to address information gaps by bringing African data, expertise and economic realities more fully into the assessment process.

The launch comes amid longstanding calls from African policymakers for a broader assessment of the risks and opportunities associated with the continent's economies.

Ahunna Eziakonwa, United Nations under-secretary-general and special adviser on Africa, said the way risk is assessed affects the cost of capital and countries' ability to finance development.

"For too long, Africa has paid a price that it did not set," Eziakonwa said, describing AfCRA as an opportunity to bring greater African ownership, expertise and understanding of local markets into credit assessments.

She called the agency an opportunity for Africa to present its economic realities from an African perspective, saying it would bring together African ownership, expertise and a deeper understanding of local markets.

Expanding access

Stephen Karingi, director of the Macroeconomics, Finance and Governance Division at the UN Economic Commission for Africa, said limited Africa-specific credit information can make it harder for investors to distinguish between countries, companies and projects with different risk profiles.

"AfCRA can help address this by expanding access to credible, comparable and Africa-specific credit data and analysis, giving investors a clearer picture of risk," he said.

Paul Frimpong, founder and executive director of the Africa-China Centre for Policy & Advisory, said AfCRA's significance extends beyond the debate over whether African sovereigns receive fair credit ratings.

A larger challenge is the limited coverage of Africa's investable economy, he said, with many companies, municipalities, utilities and investment vehicles lacking independent credit assessments that allow investors to evaluate and compare risks.

"Africa's ratings challenge is not only about the ratings countries receive. It is also about how much of the continent's investable economy receives no rating at all," he said.

Marie-Antoinette Rose Quatre, CEO of the African Peer Review Mechanism, said the AU Assembly endorsed the establishment of AfCRA in 2018, after which the mechanism supported efforts to develop the agency's technical, operational and institutional framework.

Credibility would be AfCRA's greatest asset, she said, adding that its ratings must be evidence-based, transparent, technically rigorous and independent.

She called on African governments and institutions to provide accurate and timely information, while encouraging investors, financial institutions and the media to scrutinize AfCRA's work rigorously.

The AU said only 32 African countries are currently rated by the three major international credit rating agencies. AfCRA is expected to broaden coverage and help more African borrowers access capital markets.

"Africa must become a leading participant in shaping the evolving global economic and financial order," Youssouf said.

sharon@chinadailyafrica.com