"Africa’s Rating Agency Will Need to Establish Credibility"

" Africa's Rating Agency Will Need to Establish Credibility \r\n\r\n On the sidelines of the 38th AU Summit in Addis, African leaders greenlit the African Credit Rating Agency (AfCRA), set for launch in June 2025, to deliver fair, transparent credit ratings that reflect Africa's true economic landscape. \r\n\r\n Bonface Orucho, bird story agency \r\n\r\nThe recent endorsement by African heads of state to create an African credit rating agency marks a crucial move that will reshape how the continent engages with global capital. However, it will need to establish credibility amongst investors when applying a \"new lens\", to be effective, according to economists.\r\n\r\nSet for launch in June, the agency seeks to challenge outdated perceptions of financial risk. Experts believe the agency will strengthen Africa\u2019s economic sovereignty.\r\n\r\nAccording to Nomahlubi Jakuja, a South African economist, an African credit rating agency is \u201cmeant to create certainty for the investor that the borrowers (African countries) are creditworthy.\u201d\r\n\r\n\u201cIt will have to establish credibility among investors to be effective. This involves understanding the profiles of current investors in Africa and determining whether they would find a local institution more reliable than traditional agencies with long-standing reputations,\u201d she explained to bird.\r\n\r\nFor decades, global credit agencies like Moody\u2019s, Standard & Poor\u2019s and Fitch have shaped Africa\u2019s economic outlook with ratings that many argue misrepresent the continent\u2019s true economic landscape.\r\n\r\nResultant assessments have driven up borrowing costs, hindering African nations' ability to fund essential infrastructure and development projects.\r\n\r\nA 2024 report jointly by Africa No Filter and Africa Practice, for instance, revealed that biased media coverage in Africa costs countries in Nigeria, Kenya, Egypt, and South Africa US$4.2 billion each year in extra debt servicing costs.\r\n\r\n\u201cThis amount could fund the education of over 12 million children, provide immunizations for more than 73 million children, or ensure clean drinking water for two-thirds of Nigeria\u2019s population,\u201d the researchers explain in the report.\r\n\r\nA 2023 report by the Regional Bureau for Africa found that risk misperception has cost the continent more than US$24 billion in excess interest and more than US$46 billion in forgone lending.\r\n\r\n \r\n\r\nBesides, sovereign downgrades have been a recurring issue for many countries in the continent over the past decade, making it difficult to secure development finance from global lenders and multilateral institutions.\r\n\r\nJanuary 2025 updates for Moody's, for instance, have affected many African countries that are still considered to have low credit ratings. Most of these currently hold a \"Caa1\" rating. Despite some countries like Kenya seeing a positive outlook change, indicating potential improvement in debt affordability and liquidity risks easing, a \"Caa1\" rating still elevates its credit risks.\r\n\r\nAccording to the Regional Bureau for Africa, \u201cMoody\u2019s, Fitch and S&P continue to make significant errors in their ratings, yet they continue to influence global financing decisions and flow of capital.\u201d\r\n\r\nThe African Credit Rating Agency (AfCRA) aims to function as an alternative to the existing rating institutions and provide more balanced and context-aware assessments of African economies.\r\n\r\nIn an interview, Kenneth Ekesa of the African Economic and Social Research Institute argues that existing rating agencies use methodologies that fail to account for Africa\u2019s economic resilience, informal sector contributions, and intra-African trade potential under initiatives such as the African Continental Free Trade Area (AfCFTA).\r\n\r\nAfCRA will be positioned to fill these gaps by incorporating localized economic indicators and regional financial realities.\r\n\r\n\u201cThe issue has never been Africa\u2019s actual economic performance, but rather the lens through which it is viewed,\u201d said Ekesa. \u201cBy controlling our own narrative, we can attract more favorable financing terms and unlock growth.\u201d\r\n\r\nThe creation of AfCRA is expected to address these challenges by providing a more accurate and context-specific assessment of African economies, thereby reducing the financial burden on African nations and promoting sustainable development.\r\n\r\nApart from AfCRA, the establishment of other alternative credit rating agencies, such as the Africa Credit Ratings Initiative jointly by UNDP Africa in partnership with AfriCatalyst in 2024, highlights the growing need for homegrown credit rating agencies that leverage country-specific data and context to develop ratings.\r\n\r\nThe AU has in the past outlined a roadmap for AfCRA\u2019s establishment, which includes forming a governance structure, ensuring operational independence, and securing credibility among investors and international financial institutions.\r\n\r\nA 2023 report by the UN Development Programme estimated that African nations could save up to US$75bn in excess interest payments and forgone lending if the agencies based scores on a more \u201cobjective\u201d credit model.\r\n\r\n bird story agency "

"Africa’s Rating Agency Will Need to Establish Credibility"

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