The African Union (AU) convened development finance institutions and policymakers in Mauritius on October 8 to examine ways of reducing Africa’s borrowing costs beyond the launch a day earlier of its new credit rating agency.

The roundtable in Port Louis, titled “Beyond AfCRA: Improving the Africa Risk Premium – The De-risking Africa Initiative” and chaired by AU Commission Chairperson Mahmoud Ali Youssouf, brought together the African Peer Review Mechanism (APRM), the UN Economic Commission for Africa (ECA), the African Development Bank (AfDB) and the African Export-Import Bank (Afreximbank), according to the AU. Discussions covered Africa’s risk premium, access to finance and reform of the continent’s financial architecture. No new financing mechanism or timetable was announced.

See IntelliNews: Credit where credit is due? Africa builds new financial channels to challenge the ‘Africa premium’

Africa’s external debt service reached $163bn in 2024, more than two and a half times the $61bn recorded in 2010, according to AU figures. Interest payments exceed public spending on health or education in most countries, the AU said.

Only 32 of the AU’s 55 member states carry ratings from S&P Global Ratings, Moody’s and Fitch Ratings, leaving 23, or about four in ten, unrated. African economies are rated B to B-minus on average, compared with BB for other emerging regions, the AU said, as reported by Reuters.

Youssouf cautioned at the launch of the Africa Credit Rating Agency (AfCRA) on October 7 that the agency would not lower borrowing costs quickly. “Let us not forget that a rating agency will certainly not significantly reduce the cost of capital in the near future,” he said, according to Business Day. “There is a need for more holistic reforms on global markets.”

Hanan Morsy, deputy executive secretary of the ECA, cited an estimate at the launch that persistent risk premiums cost African borrowers about $75bn annually in additional interest payments, according to the ECA. She said better ratings alone would not resolve the continent’s financing problems and that countries must strengthen their economic fundamentals. The estimate does not establish how much of Africa’s financing costs can be attributed to credit-rating practices rather than underlying economic risks.

Lerato Ntuli, an economist at South African asset manager Anchor Capital, said high debt, limited fiscal space and foreign-currency constraints drive the continent’s borrowing costs. “A different rating opinion does not alter these underlying realities,” Ntuli told IOL.

The three largest agencies reject claims that they assess African borrowers unfairly and say they apply the same methodologies globally. A 2024 Reuters investigation found no evidence of systemic bias in their sovereign ratings for the region. S&P Global declined to comment on the launch, while Moody’s and Fitch did not respond to requests for comment, Semafor reported.

AfCRA, based in Port Louis, is a private sector-driven, self-funded institution established under an AU mandate to rate sovereigns, sub-sovereign borrowers and companies. Its governance structure prohibits government shareholding, although the identities of its private shareholders have not been disclosed, Reuters reported.

The AU has appointed Sifiso Falala, a South African ratings executive who heads Sovereign Africa Ratings, as interim chief executive. AfCRA is expected to issue its first sovereign and corporate ratings within three months, according to Mauritius Broadcasting Corporation, although a detailed publication schedule has not been independently confirmed.

See IntelliNews: African Union names Sifiso Falala interim CEO of new Africa Credit Rating Agency

The APRM, the AU body that oversaw the agency’s creation, estimates that less than 5% of African financial instruments, measured by value, are rated within a market it values at roughly $4 trillion.

AfCRA enters a market already served by African-based agencies including Nigeria’s Agusto & Co, South Africa’s GCR Ratings, Côte d’Ivoire’s Bloomfield Investment Corporation and Egypt’s Middle East Rating & Investors Service (MERIS). The AU says it is intended to complement the international agencies rather than replace them.

Officials at the launch stressed that the agency’s independence would have to be demonstrated once it begins issuing ratings. “Independence must not be a slogan used at launch; it must be the discipline by which this institution lives,” Marie-Antoinette Rose-Quatre, chief executive of the APRM, said, according to the ECA. Denys Denya, senior executive vice president of Afreximbank, said its methodology must recognise the continent’s particular environment and institutional structures, IOL reported.

Ahunna Eziakonwa, the UN special adviser on Africa, said African pension funds, development banks and central banks must show confidence in the agency by using its ratings. “We cannot ask global capital to trust what African capital treats as optional,” she said.

Analysts said the agency’s first test would be whether it downgrades an African government. “If it will not downgrade an African sovereign, markets will treat it as advocacy,” Jacob Oreki, a management consultant at Kenya’s Strathmore University Foundation, told AFP.

“A new rating agency begins with a promise while investors ultimately require a track record,” Dennis Shen, a finance lecturer at the International School of Management in Berlin and a former sovereign analyst at Scope Ratings, told Reuters.

The AfDB is to start an initiative to help African governments prepare for credit ratings, its president, Sidi Ould Tah, has said.

See IntelliNews: AfDB to help African states prepare for credit ratings as continental agency launch nears

See IntelliNews: African Union-backed credit rating agency to launch in Mauritius amid dispute over perceived bias