The United Nations has raised concerns over the financial impact of inaccurate and poorly contextualised credit ratings on African countries, estimating that the continent loses about $74.5 billion every year through higher borrowing costs and missed financing opportunities.
The UN said Africa’s actual record of sovereign debt defaults is considerably better than the risk levels often suggested by international credit ratings. However, African countries continue to face some of the world’s highest costs of borrowing, making it more expensive for governments to finance important development projects.
The issue has become particularly important as many African nations struggle with debt-servicing costs while needing more funding for infrastructure, healthcare, education, energy and industrial development.
In response to these concerns, the Africa Credit Rating Agency (AfCRA) was officially launched in Port Louis, Mauritius, on October 7. The agency is designed to provide independent, Africa-focused assessments of governments, businesses and other institutions.
The African Union says AfCRA will not replace international rating agencies such as Moody’s, S&P and Fitch. Instead, it will provide an additional perspective based on African data, expertise and economic realities.
The new agency is expected to help close information gaps and provide investors with a more detailed understanding of African economies. Its supporters hope that better assessments will eventually improve investor confidence and reduce the cost of capital for African countries.
Nigeria has also raised concerns about the high interest rates it pays compared with some countries outside Africa. Nigerian officials have argued that the continent’s economic realities are not always adequately reflected in international credit assessments.
The UN and African Union say the success of AfCRA will depend heavily on its independence, transparency, professional standards and ability to produce credible ratings that investors can trust.
