The African Union has announced the launch of its own rating agency, the African Credit Rating Agency (AfCRA), to address biases by global rating firms.
Kenya’s President, William Ruto, unveiled the new agency at an AU event held in Addis Ababa, Ethiopia on Friday.
“Global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa,” Ruto stated during the launch.
“They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs.”
A study by the Africa Peer Review Mechanism and the United Nations Development Programme highlights that biased grading has cost Africa a staggering $75 billion in lost opportunities.
Significance of the African Credit Rating Agency
According to Ruto, improving Africa’s rating by one notch could unlock $15.5 billion in additional funding for the continent, which could help replace a significant portion of official development assistance or be invested in Africa’s infrastructure needs.
Despite Africa’s abundant natural wealth, only two African nations are currently ranked as investment grade. “It is time for Africa to use the right scale, one that reflects its true weight,” Ruto added.
The African Union has previously criticized global rating agencies’ characterization of African economies. In January, the AU pointed out that Moody’s Ratings’ fluctuating assessment of Kenya’s outlook was flawed.
“As the continent continues its march towards economic integration and resilience, the establishment of the African Credit Rating Agency (AfCRA) represents a pivotal step in asserting Africa’s position on global financial governance,” Ethiopia’s ENA news agency reported.
The agency aims to provide fair, transparent, and development-focused credit ratings that reflect the realities and potential of African economies.
What you should now
- The idea of creating an African credit rating agency has been in the pipeline for years. In September 2023, the AU officially announced its plans to move forward with the project.
- This decision comes after repeated criticism of the “Big Three” rating agencies—Moody’s, Fitch, and S&P—accused of applying a “negative bias” when assessing African economies.
- Critics argue that these ratings often lead to higher borrowing costs for African countries and, in some cases, make it harder for them to access international financial markets.
The push for an African credit rating agency indeed gained momentum in 2022 when Senegal’s former president Macky Sall, who was then chair of the AU, called for a new system to “end the injustices” faced by African countries.