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Arab News
21-06-2025
- Business
- Arab News
An African credit rating agency? Easier said than done
Africa's sovereign debt crisis is not merely a story of fiscal mismanagement or external shocks. It is amplified by a systemic anomaly: The continent pays more to borrow than its peers with comparable economic indicators. This penalty, often termed the 'African premium,' costs the region an estimated $24 billion annually in excess interest payments, and has deprived it of more than $46 billion in potential lending. With 20 low-income African nations in or near debt distress, and 94 percent of rated African sovereigns downgraded over the past decade, the search for solutions appears to be culminating in the establishment of an African Credit Rating Agency, or AfCRA for short. For now, the move is being framed as both a corrective measure and a symbol of financial sovereignty. Yet while politically sound, it faces profound operational and philosophical challenges. Even if the ambition to establish the agency is framed as a bold act of sovereignty, the terrain it seeks to conquer is littered with the wreckage of similar aspirations in richer, better-equipped regions. Granted, the financial logic behind the move is well-established: Africa's sovereign debt is routinely mispriced, with subjective and often opaque assessments by the 'Big Three' credit rating agencies — Moody's, Fitch and S&P — inflating risk perception and pushing average borrowing costs ever higher. As a result, total annual lending losses and excess interest payments exceed annual official development aid to the continent. That Africa is being 'penalized' beyond its macroeconomic fundamentals is no longer a niche theory among a few experts, policymakers or scholars at poorly attended conferences, it is a measurable economic hemorrhage. But attempting to correct this through AfCRA introduces a dilemma. Can a continent hobbled by thin capital markets, erratic fiscal transparency, and a fragmented political economy build a ratings agency that would be perceived as credible by the very investors it seeks to court? The evidence so far is not encouraging. Europe, despite its institutional depth and capital abundance, has failed to create a viable alternative to the Big Three, even after sinking more than €300 million ($346 million) into various experiments, all of which ended in regulatory quagmires or strategic surrender. The most successful nonaligned agencies, such as Scope in Europe or Morningstar DBRS in Canada, only survived by serving niche markets and accepting that they could not displace the incumbents. Africa's task is even tougher. Most of the continent's 21 Eurobond issuers are repeat borrowers, yet their ratings have on average worsened since their inaugural issuances. This contradicts the usual pattern in emerging markets, where familiarity tends to reduce pricing premiums. Even the most prominent issuers — Egypt, Nigeria and South Africa — have faced frequent downgrades, often based on models that lack local granularity or fail to consider governance heterogeneity. Furthermore, agencies frequently do not send analysts to the countries they rate; Fitch has no office at all on the continent, and both S&P and Moody's operate out of a single office in Johannesburg, covering dozens of vastly different economies. Meanwhile, unsolicited ratings, those issued without government request or input, are both more common in Africa and more damaging. Moody's leads the way in such unsolicited assessments, despite objections by African governments to their inherent opacity. It is not surprising, therefore, to see a resurgent push for an independent agency, given the cost of delays. Between 2021 and 2024, for instance, the average coupon on African Eurobonds nearly doubled to just under 11 percent, even as fundamentals remained stable. The continent pays more to borrow than its peers with comparable economic indicators. Hafed Al-Ghwell Moreover, the absence of localized assessment left 22 African countries unrated, starving them of institutional capital. When Botswana and Mauritius secured investment-grade ratings, they accessed financing at 300-400 basis points below regional peers. At a continental level, each one-notch upgrade in a rating could unlock more than $15 billion in much-needed capital. The cost of waiting is clear and unambiguous. Yet, the creation of AfCRA cannot be reduced to a matter of injustice alone. The economics of operating a credit rating agency are ruthless. Even the most optimistic forecasts suggest that the launch of a credible African agency would require $400–500 million in capital, an amount that dwarfs the annual budget of the African Union itself. A very familiar, and suffocating, dependency loop swiftly kicks in; the AU's own programs remain more than 60 percent funded by the EU and other external partners, and if these same entities are now expected to bankroll an 'African-owned' ratings apparatus, the concept begins to cannibalize its own purpose. Beyond the matter of funding, AfCRA would also find itself confronted by the same structural hurdles that felled its European predecessors. Regulatory legitimacy, for one thing, cannot be assumed. In many global markets only ratings from the Big Three are recognized, particularly among institutional investors bound by prudent regulation. Even with improvements in rating models, the acceptance of new agencies into the portfolios of pension funds or sovereign wealth funds hinges on an arduous and opaque process of validation by regulators located far outside Africa. Without international regulatory recognition, AfCRA risks becoming an advisory service masquerading as an agency; technically useful but irrelevant where it matters. Even if credibility can somehow be established, the pipeline of rating activity might not justify the operating costs. Government debt issuance in Africa remains sporadic and constrained. Moreover, much of the domestic debt, particularly in Francophone Africa, is already absorbed by regional banks under arrangements that do not require third-party ratings. Corporate appetite for ratings is growing but still shallow. GCR Ratings, once Africa's most promising homegrown agency, did not consider government bond ratings a serious business line, and it has since been acquired by Moody's, effectively reversing the localization effort. And then there is the governance risk. Africa's existing national and regional agencies have not been free from scandal. Recent cases, such as West African agency DataPro's withdrawal from a local firm because of a fraudulent rating that was exposed by a US research organization, highlight the fact that domestic proximity does not immunize against error or, worse, complicity. Creating an agency without a ferociously independent mandate, transparent methodology, and hard, legal accountability would not reduce bias, it would simply substitute one form of distortion for another. Ultimately, the issue is not whether Africa deserves better ratings; it certainly does. However, establishing an agency without first fixing the deficits in data integrity, fiscal reporting, macroeconomic coherence, and regulatory independence might produce only a costly mirror image of the very system it seeks to escape. A credible alternative cannot be built on grievance alone, but it could be a catalyst for data reform, methodological innovation, and investor dialogue, which might finally ensure that finance costs reflect Africa's true risk and not perceived ghosts from the past. However, such an undertaking must emerge as a result of discipline, innovation and, above all, proof of its usefulness to markets. Otherwise, AfCRA runs the risk of being filed away in the continent's growing archive of initiatives that were politically resonant but financially futile.
Russia Today
10-06-2025
- Business
- Russia Today
Africa to launch new credit rating agency
Africa is preparing to launch its first homegrown credit rating agency by the end of September, Bloomberg reported on Monday. The African Credit Rating Agency (AfCRA), supported by the African Union's African Peer Review Mechanism (APRM), plans to publish its first sovereign rating by late 2025 or early 2026. According to Misheck Mutize, the lead expert on credit-rating companies at the APRM, a shortlist for the chief executive position has been finalized, with an appointment anticipated in the third quarter. The creation of AfCRA follows longstanding criticism from African governments regarding what they perceive as biased and non-transparent evaluations by the dominant global rating agencies, Fitch Ratings, Moody's Ratings, and S&P Global Ratings. Officials across the continent have accused the firms of systematically underestimating African economies, thereby increasing borrowing costs. The APRM recently questioned Fitch's decision to downgrade Afreximbank, labeling the move as 'flawed.' Countries such as Ghana and Zambia, both of which have defaulted on their debt obligations in recent years, have emerged as outspoken critics of the current global ratings framework. Despite its pan-African mission, AfCRA will not be a state-owned enterprise. Mutize clarified that this decision is intended to safeguard the agency's independence. Ownership will primarily lie with African private-sector stakeholders, although specific participants have yet to be disclosed. Mauritius-based MCB Capital Markets has been appointed as transaction adviser. Initially, AfCRA will concentrate on providing local-currency credit ratings. Mutize, however, dismissed speculation that the agency is being set 'to give favorable ratings to Africa.' The APRM was established in 2003 by the New Partnership for Africa's Development (NEPAD) and currently has 44 member-states. It is a voluntary self-monitoring tool for AU countries to assess governance performance and to ensure adherence to the union's values in political, economic, and corporate governance.
Zawya
10-02-2025
- Business
- Zawya
Africa to establish its credit rating agency
ADDIS ABABA: The African Union (AU) will set up the Africa Credit Rating Agency (AfCRA) next week during a meeting of heads of state and government on the margins of the 37th AU Ordinary Summit here, Ethiopian News Agency (ENA) reported. As the continent continues its march towards economic integration and resilience, the establishment of Africa Credit Rating Agency (AfCRA) represents a pivotal step in asserting Africa's position on global financial governance. In this regard, Heads of State and Government are set to convene for a Presidential Dialogue on the establishment of an Africa Credit Rating Agency on 14 February 2025. Facilitated by the African Peer Review Mechanism (APRM), the event will also bring together policymakers, financial experts, and development partners to deliberate on the operationalisation of a dedicated credit rating agency for the continent. According to ENA, The event to be held on the margins of the 37th AU Ordinary Summit at the African Union Headquarters, underscores Africa's commitment to enhancing the continent's financial sovereignty and addressing long-standing challenges associated with the three international credit rating agencies. The establishment of an Africa Credit Rating Agency aims to provide fair, transparent and development-focused credit ratings that reflect the realities and potential of African economies. The Africa Credit Rating Agency (AfCRA) is a continental initiative aimed at providing independent, credible, and African-owned credit ratings for sovereigns, sub-sovereign and corporates. Its primary objective is to enhance transparency, reduce reliance on the three international credit rating agencies, and address the specific needs of African countries, institutions and contexts. AfCRA was established to address concerns over perceived biases, inaccuracies, and high costs associated with international credit rating agencies when assessing African countries. It will provide an opportunity for the continent to have a credit rating system that reflects Africa's unique socio-economic realities and fosters a fairer representation of its creditworthiness. AfCRA will reduce the cost of credit ratings for African countries and businesses, increase their access to capital markets, and ensure a fairer representation of their creditworthiness. It will also provide a platform for promoting African projects and investments, driving economic growth and regional financial stability.
Zawya
07-02-2025
- Business
- Zawya
African leaders convene on establishment of homegrown solution, the Africa Credit Rating Agency
As the continent continues its march towards economic integration and resilience, the establishment of Africa Credit Rating Agency (AfCRA) represents a pivotal step in asserting Africa's position on global financial governance. In this regard, Heads of State and Government are set to convene for a Presidential Dialogue on the Establishment of an Africa Credit Rating Agency on 14 February 2025. Facilitated by the African Peer Review Mechanism (APRM), the event will also bring together policymakers, financial experts, and development partners to deliberate on the operationalisation of a dedicated credit rating agency for the continent. The event to be held on the margins of the 37th AU Ordinary Summit at 0800hrs EAT at the African Union Headquarters, underscores Africa's commitment to enhancing the continent's financial sovereignty and addressing long-standing challenges associated with the three international credit rating agencies. The establishment of an Africa Credit Rating Agency aims to provide fair, transparent and development-focused credit ratings that reflect the realities and potential of African economies. Key objectives of the meeting include: Reaffirming the political will and collective commitment towards AfCRA's establishment. Discussing the progress of the ongoing technical work. Outlining the role of AfCRA in supporting Africa's financial stability and growth. Exploring avenues for collaborative partnerships with development partners and international financial institutions. Here are 10 things you need to know about the Africa Credit Rating Agency. What is the Africa Credit Rating Agency (AFCRA)? The Africa Credit Rating Agency (AfCRA) is a continental initiative aimed at providing independent, credible, and African-owned credit ratings for sovereigns, sub-sovereign and corporates. Its primary objective is to enhance transparency, reduce reliance on the three international credit rating agencies, and address the specific needs of African countries, institutions and contexts. Why was AFCRA established? AfCRA was established to address concerns over perceived biases, inaccuracies, and high costs associated with international credit rating agencies when assessing African countries. It will provide an opportunity for the continent to have a credit rating system that reflects Africa's unique socio-economic realities and fosters a fairer representation of its creditworthiness. How does AfCRA differ from traditional credit rating agencies? Unlike traditional credit rating agencies, AfCRA focuses exclusively on African economies, incorporating region-specific data and socio-economic indicators. It will operate with a mandate to strengthen African financial markets while promoting transparency, fairness and inclusivity. AfCRA will also emphasize development-driven credit assessment frameworks tailored to the continent's diverse contexts. What is the role of the African Peer Review Mechanism (APRM) in AfCRA? The APRM will continue to play a crucial role as a supporter and strategic partner in AfCRA's development and operations. It will provide governance insights, institutional frameworks, and technical expertise that inform the rating agency's methodologies. The APRM will also ensure that AfCRA aligns with broader African Union objectives of sustainable development and integration. How will AfCRA ensure credibility and independence? AfCRA will be governed by a robust institutional framework with strict policies to prevent conflicts of interest. It will employ highly skilled professionals and adopt transparent methodologies that are in line with international best practices while reflecting African realities. Oversight mechanisms and partnerships with respected institutions will further bolster its credibility. Will AfCRA compete with international credit rating agencies? AfCRA's objective is not to compete with or replace the three international credit rating agencies, but rather to complement them by providing an alternative perspective. It will focus on filling gaps in data and analysis, addressing regional nuances, and promoting African financial integration. This will allow for a diversified view of creditworthiness and fosters collaboration for mutual benefit. How will AfCRA benefit African countries and businesses? AfCRA will reduce the cost of credit ratings for African countries and businesses, increase their access to capital markets, and ensure a fairer representation of their creditworthiness. It will also provide a platform for promoting African projects and investments, driving economic growth and regional financial stability. How will AfCRA address concerns about bias and transparency? AfCRA will be committed to maintaining the highest standards of objectivity, impartiality, and transparency. Its methodology will integrate both quantitative and qualitative factors, ensuring an accurate and fair assessment of creditworthiness. AfCRA will also engage stakeholders, including governments, private sectors, and civil society, to build trust and accountability. When will AFCRA begin its operations? AfCRA is set to officially launch in June 2025 as part of the African Union's broader agenda for financial integration and independence. The establishment process is currently underway, including stakeholder consultations and capacity-building initiatives. How can stakeholders engage with AfCRA? Stakeholders, including governments, financial institutions, and businesses, can engage with AfCRA through consultations, partnerships, and the submission of data for ratings. The agency will also be open to collaboration with global institutions to exchange expertise and foster best practices in credit assessment. Distributed by APO Group on behalf of African Union (AU).
