by Busani Bafana (bulawayo)Tuesday, May 06, 2025Inter Press Service BULAWAYO, May 06 (IPS) - Many African countries are perceived as a credit and investment risk. As a result, they are paying higher borrowing costs than developed countries. African countries often fail to attract international investment and finance as a result of poor credit ratings by international agencies. Only Botswana and Mauritius, out of the 55 African countries, receive an investment grade rating. Lenders view the rest as having 'junk' status, indicating a high risk of loan default. As a result, lenders will demand a higher interest rate to compensate for the perceived increased risk of the borrower. But change is coming. The African Union has approved the launch of the Africa Credit Rating Agency (AfCRA) in July 2025. The credit rating agency is expected to respond to Africa’s social, economic, and political realities by offering vindicating, accurate, and fair ratings to African countries. Credit ratings are the hallmark of healthy financial markets. They influence the cost of capital, investment decisions, and economic growth. Yet African countries are disadvantaged by Moody’s, S&P, and Fitch—the leading global rating agencies whose assessments of Africa’s creditworthiness have been criticized for inaccuracy and bias. The AfCRA will provide ‘tailored, continent-sensitive credit assessments,’ enhance investment opportunities, and reduce dependency on external agencies by delivering ratings that reflect Africa’s unique economic landscape, according to the African Peer Review Mechanism (APRM), a specialized agency of the AU mandated to support member states in credit rating. Unfastening a financial straitjacket “An African credit rating agency is not just an alternative; it is an imperative,” said William Ruto, President of Kenya, during the official announcement of the launch of the Africa Credit Rating Agency at a High-Level Presidential Breakfast hosted by the Chair of the APRM Forum of Heads of State and Government at the African Union Commission (AUC) in Addis Ababa, Ethiopia. “Credit rating agencies have delivered 94% of all downgrades in the past decade while arbitrarily designating only two African nations as investment grade,” President Ruto lamented. “We must be bold and call this for what it is, a financial straitjacket imposed on Africa, a system that punishes our economies while rewarding others even when the fundamentals are comparable and in some cases even better.” President Ruto highlighted that as a result of poor credit rating assessments, Africa has lost up to $75 billion in investment opportunities. “The new African credit rating agency is a partial solution to Africa’s growing debt burden,” Sean Gossel, Professor at the Graduate School of Business at the University of Cape Town, South Africa, said in an interview. “On the one hand it will facilitate a more realistic pricing of debt, ensuring that African nations are more realistically assessed and thus rated by the international CRAs,” Gossel told IPS, noting that the agency could also fail to significantly affect the reasons why African nations have turned to debt to finance their economic development. Factors such as the ongoing economic effects of financing the COVID pandemic and the trade, food, and socio-economic disruptions associated with Russia’s invasion of Ukraine and Africa’s often reliance on its 'informal' economies naturally mean African states do not have sufficient taxation revenues to finance development, Gossel said. “The financial costs of the CRA’s ongoing mis-rating of African states are enormous,” said Gossel. “Not only do these procyclical and overly harsh ratings hinder Africa’s access to international credit, but Africa is also paying too much for capital.” According to the United Nations Development Programme (UNDP), if African countries were correctly rated, they could access an additional USD 31 billion in finance and save USD 14.2 billion in interest costs. “The key feature that determines success or failure of an alternative CRA is the degree to which it is autonomous and independent of political control and influence,” Gossel told IPS. “The new CRA is being formed under the auspices of the AU and its success is dependent on whether it can withstand these pressures.” Credit rating Africa for Africa Marie-Antoinette Rose Quatre, Chief Executive Officer of the APRM, said at the 9th Expert Meeting of Experts on Credit Ratings held in Egypt in November 2024 that reliable and fair credit ratings are critical to Africa’s economic growth and development. The expert meeting discussed the critical role and influence of credit rating agencies in Africa’s economic landscape. Credit ratings are part of the global financial architecture. The Economic Commission for Africa (ECA) has campaigned for its reform to unlock affordable financing for Africa, a region teeming with investment opportunities. Addressing the 46th Ordinary Session of the Executive Council of the African Union in Addis Ababa in February 2025, ECA Executive Secretary Claver Gatete bemoaned that Africa’s current global financial situation revealed the stark inequalities and injustice the continent faced despite its vast mineral and natural resources wealth. “The injustice extends to Africa’s credit ratings, which are dominated by external agencies that sometimes apply unfair and subjective assessments to African economies,” Gatete said. According to Gatete, external perceptions often distort the assessment of African countries' economies, as they lack control over the rating agencies. These views frequently overlook the continent’s actual creditworthiness and long-term growth potential, he noted. Africa’s total external debt is estimated at USD 1.1 trillion, and the continent spends roughly USD 163 billion annually servicing it, according to the ECA. UN Secretary-General António Guterres said in an address to a high-level meeting of the General Assembly on debt sustainability in April 2024 that no example of the international financial architecture’s failure was more glaring than its handling of debt, which he noted was crippling developing economies. Unlike traditional credit rating agencies, AfCRA is envisaged to focus exclusively on African economies, incorporating region-specific data and socio-economic indicators. It is mandated to strengthen African financial markets while promoting transparency, fairness, and inclusivity. AfCRA isn’t just another agency—it is Africa’s key to unlocking financial independence. By correcting flawed ratings, it is envisioned to open access to fair capital, boost investment, and accelerate development on the continent. IPS UN Bureau Report Follow @IPSNewsUNBureauFollow IPS News UN Bureau on Instagram © Inter Press Service (2025) — All Rights Reserved. Original source: Inter Press Service