Africa Launches Credit-Rating Agency to Challenge How Its Risk Is Assessed

Africa has launched a new credit-rating agency intended to provide an independent, Africa-focused assessment of sovereign and credit risk, as policymakers seek to address concerns over how the continent’s economies are evaluated in global financial markets.

The African Union officially launched the Africa Credit Rating Agency (AfCRA) in St Louis, Mauritius, on Wednesday, with AU Commission Chairperson Mahmoud Ali Youssouf and senior officials from Mauritius, Burundi, the United Nations and the African Export-Import Bank attending the ceremony.

Youssouf said the agency would form part of efforts to strengthen Africa’s financial architecture and give investors an additional source of analysis based on African data, expertise and economic conditions.

The initiative comes against a longstanding concern among African policymakers that international assessments of sovereign risk do not always capture the economic realities of African countries. Credit ratings can directly affect the cost and availability of capital, with higher perceived risk potentially increasing borrowing costs for governments.

That matters particularly for African economies facing heavy debt-servicing obligations and large financing needs for infrastructure, energy, healthcare, education and industrial development.

AfCRA is not intended to replace established international rating agencies or shield African governments from scrutiny. Youssouf said the agency would not seek to produce favourable ratings, but would instead provide independent and technically rigorous assessments that meet internationally recognised standards.

Its credibility will depend heavily on whether investors regard its analysis as independent from the governments and institutions it assesses. Youssouf said the agency must operate with transparency, professionalism and freedom from political influence and conflicts of interest.

The African Peer Review Mechanism (APRM), which has supported the establishment of AfCRA, said its work had included examining weaknesses and potential biases in assessments of African sovereign risk, developing the agency’s technical and institutional framework and establishing governance arrangements intended to protect its independence.

Marie-Antoinette Rose Quatre, chief executive of the APRM, said credibility would be the agency’s most important asset. She called on African governments to provide accurate and timely information and urged investors, financial institutions and the media to scrutinise AfCRA’s assessments.

The agency is being headquartered in Mauritius, which the AU Commission chairperson said offered an established international financial centre, regulatory framework and links to African and global markets.

Mauritius’s Minister of Financial Services and Economic Planning, Jyoti Jeetun, said AfCRA could help deepen African capital markets and mobilise investment for sectors including infrastructure, renewable energy, telecommunications, healthcare and agribusiness.

The launch follows an AU decision in 2017 to establish the agency, with the APRM subsequently tasked with helping turn the decision into an operational institution.

Source: FSX Business News