By Lot Ndamanomhata
Africa has launched its own credit rating agency. The Africa Credit Rating Agency (AfCRA), headquartered in Mauritius, will rate governments, companies, financial institutions and other entities across the continent.
The African Union says it will be independent and private-sector driven, with African governments barred from owning shares.
It is not meant to replace Moody’s, S&P Global and Fitch, but to offer an additional assessment that takes fuller account of African data and economic realities.
The launch matters because credit ratings are not neutral labels. They shape what a country pays to borrow, who is willing to lend, and how much of a national budget goes to creditors rather than to schools, clinics and roads.
For a continent that has long argued it is judged more harshly than its fundamentals justify, a homegrown rater is both a financial experiment and a political statement.
A history of expensive and unequal borrowing
Africa’s debt story did not begin with today’s headlines. In the 1970s, cheap petrodollar lending flooded developing economies.
When global interest rates spiked and commodity prices collapsed in the early 1980s, many African states found themselves unable to service their debts.
The response was a generation of IMF and World Bank structural adjustment programmes, which Easterly (2001) links to the “lost decades” of stagnating incomes across much of the developing world.
Scholars such as Ndikumana and Boyce (2011) go further, arguing that a significant share of Africa’s external borrowing was matched by capital flight, leaving citizens with the debt while the proceeds ended up in private offshore accounts.
The Heavily Indebted Poor Countries (HIPC) initiative and the Multilateral Debt Relief Initiative of the 2000s cancelled large amounts of debt, but the underlying structure of dependence on external, foreign-currency borrowing remained.
The 2010s brought a new wave. Attracted by low global interest rates, many African governments issued Eurobonds for the first time, while China became a major bilateral and project lender.
Research on Chinese lending contracts (Gelpern et al., 2021) shows that terms can be opaque and sometimes include unusual clauses, though Bräutigam (2020) cautions that the popular “debt-trap diplomacy” narrative is overstated and that Chinese loans account for a minority of Africa’s debt compared with private and multilateral creditors. Then came the shocks: the COVID-19 pandemic, the energy and food price spike after Russia’s invasion of Ukraine, and the sharpest global monetary tightening in decades.
Zambia (2020), Ghana (2022) and Ethiopia (2023) fell into default, and many others saw yields climb to levels that effectively shut them out of international markets. The G20 Common Framework, designed to coordinate restructurings, has been criticised for being slow.
The “Africa premium” and the ratings debate
The core complaint behind AfCRA is that African countries pay an “Africa premium”: higher borrowing costs than their economic indicators alone would warrant.
Fofack (2021), in a widely cited Brookings working paper, argued that the major agencies’ ratings of African sovereigns have been more pessimistic than the underlying fundamentals justify, and that this bias raises borrowing costs and can itself deepen debt distress.
A related literature finds evidence of home bias in sovereign ratings, with agencies tending to rate their home country more favourably (Fuchs and Gehring, 2017). Africa’s own policymakers also point out that the continent has almost no seat at the table: only a few of the largest economies are rated by all three big agencies, and the analysts who rate Africa are typically based far from it.
The counter-argument is that ratings largely reflect real vulnerabilities. Classic research (Cantor and Packer, 1996) shows that factors such as income per capita, inflation, external debt, fiscal balance and past default history explain most of the variation in sovereign ratings, and many African states do carry high debt-service burdens relative to revenue.
UNCTAD (2023) has documented how many African countries now spend more on interest than on health or education. A fair reading is that both things can be true: genuine fiscal fragility exists, and ratings may also be amplified by limited information, herd behaviour and procyclical downgrades that hit hardest in a crisis.
What difference could AfCRA make?
1. Better data and local knowledge. A rater based on the continent can draw on local analysts, language skills and informal-sector realities, such as remittance flows, domestic debt markets and regional trade, that remote models may underweight.
2. More competition in a concentrated industry. The global ratings market is dominated by three firms. The economics literature on ratings (White, 2010; Bolton, Freixas and Shapiro, 2012) highlights that concentration, conflicts of interest and “ratings shopping” are structural weaknesses. An additional voice could add useful competition, particularly for the many African companies and banks that are unrated or only rated by small regional agencies.
3. Deeper domestic and regional capital markets. Ratings are the entry ticket to bond markets. If AfCRA can credibly rate mid-sized corporates, municipalities, banks and infrastructure projects, it could help pension funds and insurers, which hold large pools of African savings, invest locally in local currency, reducing dependence on dollar borrowing and the currency risk that has hurt so many budgets.
4. A bargaining and signalling tool. Even if investors do not adopt its ratings wholesale, a credible second opinion gives governments evidence to challenge what they consider unjustified downgrades.
Will borrowing become cheaper?
In the short term, probably not much. Borrowing costs are set by global investors, and investors price risk using ratings they already trust, which are also embedded in regulation, benchmark indices and the investment mandates of pension funds and asset managers.
A new agency has no track record, and track record is the currency of the ratings business. Rating firms build credibility over decades by showing that their grades predict defaults.
Until AfCRA has a history of accurate, consistent calls, a favourable AfCRA rating alone is unlikely to move bond yields.
The larger risk is the opposite perception: that an African-owned rater will be seen as a cheerleader. This is why the African Union’s decision to bar governments from owning shares is important, and why governance, transparent methodology, analyst independence and disclosure of how ratings perform over time will matter more than the launch itself.
If investors suspect that ratings are inflated, they may simply ignore them or, worse, penalise the issuers who use them.
Over the medium term, there are plausible routes to lower costs. If AfCRA’s ratings are shown to be accurate and less prone to sudden, crisis-amplifying downgrades, global agencies may sharpen their own methods, as competition often prompts.
If the agency helps deepen local-currency markets, the cost savings may come not from a lower dollar yield but from avoiding dollar debt in the first place.
Could lending and financial institutions change?
AfCRA is one piece of a wider push for African financial sovereignty. Related efforts include the proposed African Financial Stability Mechanism, discussions about an African Monetary Fund, the Pan-African Payment and Settlement System that reduces reliance on dollar-based settlement, and growing use of African Development Bank guarantees to lower risk for private investors. Taken together, these could shift lending in several ways:
- More risk-sharing instruments. Guarantees, debt-for-climate or debt-for-nature swaps, and climate-resilient debt clauses that pause repayments after disasters are becoming more common, and better local risk assessment makes them easier to price.
- Greater transparency expectations. Ratings that explain African realities may push both borrowers and lenders toward better debt reporting, including the disclosure of collateralised and bilateral loans.
- Stronger regional institutions. African development banks, regional exchanges and pension funds may increasingly lean on regional ratings, reducing the dominance of external gatekeepers.
- Pressure on global reform. AfCRA adds weight to calls to reform the global financial architecture, including the Common Framework and how debt sustainability is assessed.
The credibility test
The central challenge is simple to state and hard to meet convincing investors that AfCRA is independent and credible. Success will depend on a few things: transparent, publicly available methodologies; analysts insulated from the pressure of the entities they rate; a clear policy on conflicts of interest, particularly if issuers pay for ratings; early focus on areas where it adds the most value, such as unrated corporates and local-currency instruments; and a published record of rating performance. Governments will also need to resist the temptation to lobby for favourable grades.
Conclusion
An African credit rating agency will not, on its own, make African borrowing cheap or undo decades of costly debt. Costs ultimately track fundamentals such as revenue mobilisation, inflation, growth, governance and commodity dependence, as well as global interest rates.
But AfCRA can still matter. It can broaden the information base on which Africa is judged, add competition to a concentrated industry, help rate the many African borrowers that nobody currently rates, and anchor a gradual shift toward local-currency finance and stronger regional institutions.
Whether it becomes a lasting pillar of African finance or an expensive symbol will depend less on who owns it and more on whether, over the coming years, its ratings prove right.
*Lot Ndamanomhata is from Ekoka. This article reflects his views and writes entirely in his personal capacity.
