By Enyichukwu Enemanna
The African Union on Wednesday launched the continent’s first credit rating agency , seeking to provide an alternative to the “big three” global ratings agencies as several African economies face heavy weight of debt burden.
The Africa Credit Rating Agency (AfCRA), a creation of which African leaders endorsed in 2018 was launched at a ceremony attended by African officials in Port Louis, the capital of Mauritius, which will serve as the host country.
The new agency will help investors to assess Africa’s investment risk better by offering investors more information and context, Denys Denya said, executive vice president of Afreximbank, one of the supporters of the agency.
“When lenders don’t see clearly, they charge for the fog. Africa continues to pay for the fog that is generated by western centric examinations,” he said at the launching ceremony.
African leaders have long accused Western ratings agencies including S&P, Moody’s and Fitch of failing to fairly assess the risk of lending to African countries and of moving too quickly to downgrade them during crises such as conflicts and pandemics.
The rating agencies deny any wrongdoing, saying they apply the same methodologies globally.
Rating experts said the success of the initiative will hinge on the perceived credibility of the new agency, especially in times of crisis.
“A new rating agency begins with a promise while investors ultimately require a track record,” Dennis Shen, a lecturer in finance at the International School of Management in Berlin and former sovereign analyst at Scope Ratings said.
“The hardest test, however, will come when markets are under stress, because a rating agency’s credibility is tested most severely when its conclusions are uncomfortable rather than when it is highly convenient.”
AfCRA may provide a counterweight to established rating agencies, but it must meet global standards, Nigeria’s former Vice President Yemi Osinbajo said.
“It can’t just be a chauvinistic or nationalistic agency,” he said.
AfCRA, which will rate sovereign borrowers, financial institutions and private companies, will operate independently and be funded through shareholder capital and its operations, the AU said.
AfCRA is also expected to boost coverage, with 23 economies on the continent lacking a rating from the three big agencies, the AU said.
