Africa is launching a new credit-rating institution intended to provide an alternative to the major global agencies that assess the creditworthiness of governments, companies and institutions.

The Africa Credit Ratings Agency, or AfCRA, is backed by the African Union and is being established after nearly a decade of talks. Mauritius was selected as its base, in part because of the island nation’s established financial services industry.

The agency is being created amid concerns that assessments from the leading global rating firms can contribute to higher borrowing costs for African countries. Fitch, Moody’s and S&P are widely regarded as the sector’s three dominant agencies and have previously faced accusations of unfairly assessing African economies.

Borrowing costs and coverage gaps

The African Peer Review Mechanism, identified as the institution behind AfCRA, says 23 African countries are not rated by traditional credit-rating agencies. The new body is intended to broaden coverage while offering a perspective focused more closely on local economic conditions.

Analysts cited in the source report say standard ratings may fail to capture parts of Africa’s informal economies because those activities are not easily reflected in official data. They also point to domestic savings and economic reforms as factors that may not receive sufficient weight in conventional models.

Estimates from the Organisation for Economic Co-operation and Development put Africa’s average borrowing cost in international markets at $9 per $100 in 2024. That compared with approximately $4.70 per $100 for emerging markets in Asia and $6.50 per $100 in Latin America.

Lower credit ratings can lead investors to demand higher interest rates when lending, making the cost of financing more burdensome for governments and other borrowers.

Independence will be closely watched

AfCRA’s founders say the agency will operate without government interference. However, whether investors accept its assessments over those issued by established international agencies remains uncertain.

Nigeria’s President Bola Tinubu welcomed the initiative in a post on X last month, writing: “Africa is not asking for favourable ratings. We are asking for fair ratings, grounded in our fundamentals and in the reforms our economies are actually carrying out.”

Hannah Wanjie Ryder, chief executive of Development Reimagined, said the initiative reflected “Africa’s unhappiness with the incumbent players”. Speaking at a seminar organised by Chatham House, she said AfCRA’s “theory of change” was that it could “look with clearer eyes” at African economies.

Jacob Oreki, a management consultant at Kenya’s Strathmore University Foundation, said the agency’s credibility would rest on its conduct rather than its location. “But a rating agency is judged on independence and accuracy, not where it sits. If it will not downgrade an African sovereign, markets will treat it as advocacy,” he said.

Analysts view AfCRA’s first decision to downgrade an African government as an early test. Its willingness to issue negative assessments, if warranted, could help determine whether investors regard it as an independent ratings institution or as an advocate for African borrowers.

Oreki said investors would rely on an AfCRA rating only if “it is credible, not because it is African”. It remains unclear whether the agency will ultimately reduce borrowing costs, but its launch gives African governments and borrowers another potential source of credit analysis.