Doha, October 08 (QNA) - The African Union (AU) has launched the continent's first credit rating agency, seeking to provide an alternative to the world's three major rating agencies amid mounting debt burdens weighing on many African economies.

The agency, headquartered in Mauritius, which serves as a regional financial hub, plans to expand its presence across the African continent.

The African Credit Rating Agency (AfCRA), in which African governments hold no equity stakes, is described as an independent, private-sector-driven entity financed through its operating resources and contributed capital. This structure is intended to strengthen its independence and limit conflicts of interest and political interference in the rating process.

The first-of-its-kind African initiative aims to strengthen the continent's financial infrastructure and provide credit assessments based more closely on African data, expertise and economic realities. It also seeks to expand access for African countries, companies and institutions to scientifically grounded credit ratings that better reflect the continent's economic conditions.

The launch of the agency, which took nearly a decade to prepare, comes as African economies continue to face pressure from rising borrowing costs and debt-servicing burdens, while countries across the continent seek to deepen domestic capital markets and improve their ability to attract investment and financing on more sustainable terms.

The African Union has previously stressed that the new agency is not intended to eliminate or replace existing international credit rating agencies, but rather to complement their work by offering a perspective more closely informed by African data, expertise and realities, helping to address information gaps and improve understanding of credit risks across the continent.

The African Union Commission indicated that AfCRA would provide independent, evidence-based assessments of sovereign entities, companies and institutions, and could also rate entities outside the continent when necessary. The aim is to strengthen transparency and accountability in African financial markets, expand the information available to investors, and support more informed and systematic investment decisions.

The Commission also noted that African economies have an average credit rating of B or B-, compared with BB for other emerging regions, a gap that could discourage investors from committing capital to the continent and increase borrowing costs.

The agency's launch marks the culmination of an institutional process that began several years ago, with the African Union approving its establishment in 2018, followed by continued efforts to develop the institutional framework, governance structures and methodologies necessary for its operations.

According to the African Union, ministers responsible for finance, monetary affairs, economic planning and integration adopted a declaration in Nairobi in July 2023 supporting the agency. During 2024 and 2025, institutional frameworks and operating methodologies were developed in cooperation with the African Peer Review Mechanism.

The significance of the initiative is particularly evident in the limited credit rating coverage across the continent. According to African Union economic data, only 32 of Africa's 55 countries currently hold ratings issued by the three major international agencies (Moody's, Standard & Poor's and Fitch) while 23 countries lack such ratings.

Expanding this coverage would provide investors with additional information about African economies and entities that currently receive insufficient attention from international rating agencies. It could also help local institutions and companies access capital markets, particularly amid growing demand for long-term financing for infrastructure, energy and manufacturing projects.

The new agency's scope of operations is expected to include sovereign ratings, subnational government ratings, and ratings of companies, financial institutions, and public and private entities, paving the way for a broader database of credit information on African economies.

In this context, according to the African Union, external debt servicing across the continent rose from approximately USD 61 billion in 2010 to USD 163 billion in 2024. In several countries, interest payments now rival or exceed public expenditure on essential social sectors, narrowing the fiscal space available to governments to finance development and public services.

These developments indicate that improving access to financing depends not only on the size of debt burdens, but also on borrowing costs, which are directly influenced by credit risk assessments and investor confidence.

Against this backdrop, the African Union believes the new agency could help strengthen investor confidence and market transparency by providing a more detailed picture of the risks and opportunities within African economies, potentially improving access to new sources of financing for governments and the private sector.

The establishment of the African Credit Rating Agency comes amid a longstanding debate over the extent to which the methodologies used by international credit rating agencies fully reflect the distinctive characteristics of African economies. 

African officials have frequently criticized what they perceive as an overestimation of the risks associated with certain African economies, arguing that some models fail to adequately account for factors such as the informal economy, institutional characteristics, resilience to shocks and differences among African economies.

However, the debate also includes a contrasting perspective to the African position. International credit rating agencies deny the existence of systematic bias against Africa, maintaining that they apply their methodologies consistently across countries and markets. Investigations conducted by news agencies have also found no evidence of systematic bias in the sovereign ratings assigned to African countries by the three major international rating agencies.

Accordingly, the challenge facing the new African agency lies not only in issuing alternative ratings, but also in establishing a high level of credibility, independence and acceptance among investors and international markets.

The significance of the new agency extends beyond sovereign debt ratings to a broader objective of developing African capital markets and strengthening their ability to mobilise domestic resources and channel them towards productive investment.

The United Nations Economic Commission for Africa held the second Annual Africa Credit Ratings Conference in Mauritius on Oct. 5-6. The conference brought together policymakers, regulators, investors, development finance institutions and credit rating agencies.

Discussions focused on the role credit ratings can play in guiding investment decisions, influencing the cost of capital, deepening African financial markets and mobilising domestic resources for sustainable development.

In the same context, the agency's launch forms part of a broader African Union strategy to strengthen the continent's ability to influence the institutions and structures that determine the terms of its access to global financing.

The initiative also seeks to provide more detailed assessments of local bonds and debt instruments, as well as companies and institutions that typically receive insufficient coverage from international rating agencies. This could help broaden the investor base and increase the volume of investable assets across the continent.

African stakeholders believe that a credit rating institution with local expertise could establish the most comprehensive database on African economies and strengthen dialogue among governments, investors and financial institutions, particularly if the agency succeeds in maintaining its independence and applying professional standards comparable with those used internationally.

In this regard, the African Union stresses that the newly established agency is not intended to serve as an isolated alternative to the international financial system, but rather as a means of introducing greater diversity and information into the global credit rating framework. This would help narrow information gaps and improve understanding of the risks associated with investing in Africa.

Despite the significance of the initiative, the success of the African Credit Rating Agency will remain dependent on its ability to build trust among investors and markets, and demonstrate that its assessments are based on independent professional standards, free from political pressure or any desire to assign more favourable ratings to African countries.

According to economists, if the African agency succeeds in meeting this challenge, it could become more than just another credit rating institution. It could develop into an important instrument for strengthening the continent's financial infrastructure, supporting the mobilisation of domestic savings, facilitating financing for infrastructure, energy and manufacturing projects, and promoting the integration of African economies into global capital markets.

The launch of the African Credit Rating Agency therefore opens a new chapter in the continent's efforts to reshape its relationship with global finance by strengthening its capacity to produce information on its economic risks, expanding credit rating coverage and improving access to capital, while upholding the fundamental requirement of independence and credibility in the eyes of markets and investors. (QNA)