African Union launches continent's first credit rating agency

AfCRA will function as an alternative to the "big three" global agencies and will be based in Port Louis, Mauritius.

The African Union (AU) is preparing to launch the continent's first credit rating agency, an initiative that aims to offer an alternative to the "big three" global agencies — Moody's, Standard & Poor's and Fitch — at a time when the burden of debt continues to stifle many African economies.

The African Credit Rating Agency (AfCRA), whose creation was approved by African leaders in 2018, will be officially launched in Port Louis, the capital of Mauritius, where it will be headquartered, according to Reuters.

The new agency emerges as a response to recurring criticism from several African governments, which believe that the assessments of international agencies unfairly penalize the continent, assigning it excessively high risk premiums and making access to financing in international markets more expensive.

Over the years, African leaders and economists have argued that the "big three" apply criteria that do not take into account the structural specificities of African economies, resulting in lower credit ratings than those based on actual risk indicators.

The launch of AfCRA takes place in a particularly delicate context for African public finances. Several countries on the continent are facing unsustainable levels of debt, with debt servicing consuming a growing share of tax revenues and limiting budgetary space for investments in infrastructure, health and education.

The expectation is that a rating agency led by Africans, with greater knowledge of local realities, can produce more accurate and fair assessments, helping to reduce financing costs and facilitate access for African countries to capital markets.

The choice of Port Louis as the headquarters of AfCRA reinforces Mauritius' position as a financial center of the continent. The country, known for its political stability and developed financial sector, has sought to establish itself as a financial services platform for Africa.

The creation of the agency is part of a broader strategy by the African Union to strengthen the continent's economic sovereignty and reduce dependence on external institutions in strategic areas, such as sovereign risk assessment.