New Africa credit rating agency seeks to lower borrowing costs

• The launch follows a process that began in 2017 and seeks to provide African countries with an additional assessment of their credit risk profile, amid years of high borrowing costs and debt distress.

A graphics showing money.

The Africa Credit Rating Agency (AFCRA) has officially been launched in Mauritius, ushering in a new approach to assessing and pricing African credit risk.

Speaking during the launch, AFCRA inaugural Chief Executive Officer Dr Sifiso Falala said the agency seeks to address what it considers distortions in the way Africa’s credit risk is assessed, arguing that existing methodologies do not always capture the continent’s economic realities.

The launch follows a process that began in 2017 and seeks to provide African countries with an additional assessment of their credit risk profile, amid years of high borrowing costs and debt distress.

Mauritius Foreign Affairs Minister Dhananjay Ramful said improved credit rating methodologies could significantly reduce borrowing costs across the continent.

“Improved rating methodology could shave 50 to 100 basis points off the borrowing cost, saving as much as 5 billion USD per year across the continent,” Ramful said.

African Union Commission Chairperson Mahmoud Ali Youssouf said the agency could help change perceptions of African economies and attract more investment.

“AFCRA will not only change the perception of our economies, but it will give a new impetus to investors looking for opportunities, and Africa is the land of opportunities,” Youssouf said.

The agency is also intended to strengthen Africa’s capacity to assess its own economies and financial markets.

United Nations Assistant Secretary-General and UN Special Adviser for Africa Ahunna Eziakonwa said the establishment of an Africa-based credit rating agency should not be viewed as an attempt to justify the continent’s position.

“What I hear in this room is something akin to an apology or an effort to explain ourselves and justify why we have created AFCRA. I want to urge us not to apologise or seek to explain. Africa will not be the first region to adopt its own agency,” Eziakonwa said.

AFCRA says it will not seek to replace global credit rating agencies but will provide an additional Africa-based perspective on the continent’s credit risk.

Falala said the agency would focus on independent, evidence-based research rather than issuing favourable ratings.

“As has been said many times, we are not here to give favourable ratings. We are researchers and we have a business that is here to do research that is actionable, the research that Africa needs,” Falala said.

The agency has urged African governments to cooperate by providing timely and accurate data to support its assessments.

Its launch in Mauritius now gives African countries an additional institution focused on assessing the continent’s creditworthiness, with its effectiveness expected to depend on the quality of its research, data and credibility among investors.