Quest for fair credit: African credit rating agency

As the African Union prepares to launch the African Credit Rating Agency (AfCRA) in the second quarter of 2026, headquartered in Mauritius, the initiative represents an ambitious attempt to recalibrate how global markets measure African economic risk. For decades, many African policymakers have argued that the continent’s economic potential is systematically misread by the dominant global rating firms, S&P Global Ratings, Moody’s Investors Service, and Fitch Ratings, whose assessments heavily influence borrowing costs.

The frustration is understandable. A widely cited United Nations Development Programme study estimates that what it describes as an “African risk premium” costs the continent roughly $74.5 billion each year in excess borrowing costs and missed financing opportunities. Political reactions have occasionally been sharp. In 2023, Ghana publicly rejected its Fitch downgrade, arguing the assessment failed to reflect ongoing fiscal reforms.

At first glance, AfCRA promises a corrective lens: a credit rating methodology informed by African economic structures, institutional realities, and development trajectories. The logic is appealing. Africa understands Africa better. Yet the central question is not whether Africa can establish its own credit rating agency. It is whether global capital markets and the multilateral institutions that shape them will treat their ratings as credible.

Credit ratings are not merely opinions; they are embedded in financial regulation, investment mandates, and risk models across global finance. Banks, pension funds, and insurance companies frequently rely on ratings from the “Big Three” because regulatory frameworks in major financial centres from New York to London explicitly recognise them for capital adequacy calculations. Until AfCRA earns similar regulatory recognition, its immediate impact on borrowing costs may be limited.

This is not a uniquely African challenge. China created its own agency, Dagong Global Credit Rating, partly in response to similar concerns about Western financial dominance. The Arab world has also debated establishing regional rating institutions. Africa itself already hosts several domestic rating agencies, such as Nigeria’s Agusto & Co., Francophone Africa’s Bloomfield Investment Corporation, and South Africa’s Sovereign Africa Ratings.

Indeed, the global agencies have increasingly moved to consolidate these emerging competitors. In 2022, Moody’s Corporation acquired a majority stake in Global Credit Ratings, the largest rating agency on the continent. Such acquisitions reinforce the entrenched oligopoly structure of the global credit rating industry.

Still, the argument that African risk is systematically mispriced is contested. Research by Moody’s Investors Service itself shows that default rates among African sovereign borrowers broadly align with those of countries holding similar ratings elsewhere in the world. Higher borrowing costs may reflect structural realities: lower fiscal transparency, weaker regulatory institutions, large informal economies, and governance indicators that correlate with sovereign credit risk.

AfCRA hopes to address this dynamic by offering more “context-intelligent” assessments. One potential niche lies in rating borrowers that global agencies largely ignore. Nearly 40 percent of African governments and more than 90 percent of African corporations remain unrated in international markets. Filling this informational gap could help deepen the continent’s domestic bond markets.

But ratings alone do not determine capital flows. Investors ultimately follow balance sheets. This is where the deeper structural challenge emerges. Africa’s financial architecture lacks the scale of multilateral institutions that underpin credit systems in advanced economies.

Africa’s Multilateral Financial Institutions (AMFIs), including the African Development Bank, African Export‑Import Bank, Africa Finance Corporation, the West African Development Bank, and the Trade and Development Bank, collectively hold balance sheets of roughly $70 billion. Yet they account for less than 3 per cent of external financing raised by African governments. The World Bank, the International Monetary Fund and private creditors hold more than 40 percent of African sovereign external debt.

This imbalance highlights a fundamental truth: a credit rating ecosystem is only as influential as the financial institutions capable of acting on it. An African rating agency without strong African multilateral lenders risks becoming symbolic rather than transformative.

In the United States and Europe, credit ratings are embedded within deep domestic financial systems. Institutions such as the European Investment Bank and the European Stability Mechanism provide counter-cyclical financing that reinforces the credibility of regional financial markets. Africa lacks a comparable scale.

Even the highly respected African Development Bank, despite its AAA rating, cannot alone anchor a continent-wide alternative ratings regime. The implication is clear: AfCRA’s success will depend less on the sophistication of its methodology than on the strength of the institutions surrounding it.

If Africa wants its own credit rating voice to matter, it must simultaneously strengthen its financial architecture. Increasing paid-in capital for African multilateral financial institutions, expanding partnerships with global institutional investors, and deepening local-currency bond markets would significantly enhance the continent’s financial leverage.

Regional regulatory adoption could also help build credibility. Just as Chinese rating agencies initially gained traction through domestic regulatory mandates, African financial regulators could require AfCRA ratings for certain infrastructure projects or intra-African financing under the African Continental Free Trade Area framework.

Ultimately, the continent’s estimated $221 billion annual infrastructure financing gap cannot be closed by better ratings alone. It requires financial institutions with the balance sheets and the credibility to match them.

 

Mayowa Oyatogun is a strategy & business planning specialist based in the United Kingdom.