The launch of the Africa Credit Rating Agency (AfCRA) has been greeted with mixed reactions. Proponents say the Mauritius-based institution provides a timely alternative to biased assessments by international credit ratings agencies. Sceptics, however, caution that AfCRA must first prove its independence and analytical rigour. Until it demonstrates that its ratings are objective and not influenced by political pressure, investors are unlikely to place full confidence in its assessments.
Moody's, S&P and Fitch - the so-called 'Big Three' global credit ratings agencies - have long been criticised by African leaders for relying on models that overstate the default risk of African borrowers, driving up the cost of capital in a continent with massive financing needs. Concerns have also been raised about limited contextual understanding and the speed at which these agencies move to downgrade African economies whenever crisis strikes.
"There is increasing dissatisfaction with the influence, approach, and methodology of the three international credit rating agencies in assessing credit worthiness. The situation became more challenging during the Covid-19 pandemic, when more than 25 African countries suffered negative credit rating actions," said Berenger Ramphoul, Mauritius' minister of foreign affairs, regional integration, and international trade, during the launch ceremony of AfCRA in Balaclava, northern Mauritius.
AfCRA promises to assess and price African risk more accurately by using context-specific methodologies that better reflect African realities. It will rate African sovereigns, sub-sovereigns, and corporates. It may also rate non-African entities, subject to management approval.
Originally published by African Business.