African Union Launches Credit Rating Agency to Reassess Sovereign Risk

The African Union has launched its own credit rating agency, the Africa Credit Rating Agency, known as AfCRA, in an effort to address concerns about how African sovereign risk is assessed.

The initiative comes as African countries face some of the world’s highest borrowing costs. The United Nations says credit ratings can increase interest payments and restrict access to international capital.

The reported impact of what is often called the African risk premium has become a multibillion-dollar concern. Assessments of African economies are also said to be affected by insufficient local knowledge, prompting calls for countries to be evaluated using evidence rather than assumptions.

Focus on African economic conditions

Dr Misheck Mutize, the African Union’s advisor on credit rating agencies, played a key role in efforts to establish AfCRA. He has discussed the agency’s mandate and the importance of judging African economies on facts.

A sovereign credit rating helps investors assess whether a government can and will repay its debts. It also influences the cost at which countries borrow. A negative rating can result in more expensive debt or limit access to financing.

The source material does not specify AfCRA’s ownership, headquarters, operating structure, rating methodology or the countries and entities it will initially cover. It also does not provide a timetable for the agency to begin issuing ratings.

Broader economic context

The launch comes against a backdrop of efforts across Africa to strengthen economic data and institutions. National space budgets have risen to $800 million, compared with less than $300 million in 2018. Better satellite data is becoming important for urban planning and environmental monitoring as cities expand and climate conditions become less predictable.

Senegal has finalized plans to assemble future satellites domestically at the headquarters of its national space programme outside Dakar, following a partnership with France to build and launch its satellites.

Africa’s informal sector is another major part of the continent’s economic landscape. It employs more than 80% of Africa’s workers but contributes little to tax revenue and is described as barely regulated and protected.

AfCRA’s launch places the question of how African economies are measured at the centre of the African Union’s response to concerns over borrowing costs and international capital access.