- The African Union has launched its credit rating agency
- The agency aims to address the biases by global firms, which the AU said rely on flawed models and outdated assumptions to paint an unfair picture of African economies
- It said the homegrown rating agency will unlock an additional $15.5 billion in funding for Africa
The African Union (AU) has launched its 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 the 38th African Union Summit held in Addis Ababa, Ethiopia, on Friday, February 14.
Ruto noted that global credit rating agencies rely on flawed models and outdated assumptions to paint an unfair picture of African economies and hampered growth.
“Global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa.
“They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high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.
“These prejudice assessments come at an enormous cost, not just to Africa but to the world. They deter investment, distort global trade, and derail progress towards the Sustainable Development Goals.
“By misjudging Africa, these agencies deny opportunities to investors and economies and deprive nations of prosperity,” Ruto said.
According to a study by the Africa Peer Review Mechanism and the United Nations Development Programme, biased grading has cost Africa $75 billion in lost opportunities.
Vision for the credit rating agency
Ruto added that the continent’s credit rating agency must reflect the realities and potential of its economy, saying it is imperative.
“It is time for Africa to use the right scale, one that reflects its true weight.”
“We must be bold and call this for what it is: A financial straitjacket imposed on Africa. A system that punishes our economies while rewarding others, even when the fundamentals are comparable if not better.
“An African credit rating agency is not just an alternative, it is an imperative. This agency must be globally credible and backed by rigorous, credible data, and driven by high reporting standards from our own governments. But more importantly, it must reflect Africa’s reality correctly,” Ruto stated.
Homegrown rating agency will unlock additional $15.5 billion in funding
The Kenyan President further noted that improving Africa’s rating has the potential of unlocking $15.5 billion in additional funding for the continent.
He said the funding could help replace a portion of official development assistance or be invested in Africa’s infrastructure needs.
Ruto stressed that despite Africa’s abundant natural wealth and large diaspora remittances, global credit rating agencies have downgraded 94 per cent of African countries in the last decade, with only two countries currently ranked as investment grade.
He said, “This alone would outstrip Official Development Assistance by 12 per cent and meet 80 per cent of Africa’s infrastructure needs.
“This opportunity is within our grasp and we must seize it.”
The journey to launching an African credit rating agency
The AU has previously criticised global rating agencies’ characterisation of African economies, especially the ‘Big Three,’ Moody’s, Fitch, and S&P.
The union pointed out in January that Moody’s Ratings’ fluctuating assessment of Kenya’s outlook was flawed.
For years, the union nursed the idea of creating a homegrown credit rating agency. In September 2023, it officially announced plans to move forward with the project.
It stated 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 was taking a notch higher in 2022 when former President of Senegal and then chair of the AU, Macky Sall, called for a new system to “end the injustices” faced by African countries.
Nigeria, other African countries plan continental credit rating agency to counter Western bias
Meanwhile, TheRadar earlier reported that Nigeria, alongside several African nations, moved forward with plans to establish a continental credit rating agency aimed at counterbalancing the perceived bias of Western credit rating agencies towards the continent.
The announcement was made on Tuesday, December 17, during the launch of the Debt Management Forum for Africa and the inaugural Policy Dialogue on Making Debt Work for Africa: Policies, Practices and Options, organised by the African Development Bank (AfDB) in Abuja.
