Africa’s new continental credit rating agency, AfCRA, arrives with a bold promise to challenge the dominance of Moody’s, S&P and Fitch, expand credit coverage and help reduce the continent’s high borrowing costs. But Kwame Owino, chief executive of the Institute of Economic Affairs, says its success will depend on whether it can change the behaviour of governments, investors and regulators, not simply offer a more sympathetic African narrative.
AfCRA, launched in Mauritius as an African Union-mandated initiative, is intended to provide independent, Africa-focused credit assessments and complement, rather than replace, the global rating agencies. Its supporters argue that it can help address thin coverage and the high cost of capital facing many African borrowers.
Ratings and fiscal discipline are connected
Owino rejects the idea that Africa’s borrowing costs can be neatly divided between “ratings” and “fiscal management.”
“The risk premium for countries in Africa represents both the fiscal management and ratings scores and that’s a factor in the ratings,” he says. “This means that they are not substitutes but are connected.”
In his view, ratings partly reflect risks that investors would price anyway: weak fiscal discipline, opaque debt, contingent liabilities and exchange-rate vulnerability. He is also sceptical of claims of a persistent anti-African bias in sovereign ratings.
“I am not persuaded by the view that there is or may be a persistent bias in rating of sovereign debt for African countries,” Owino says. “I think market perception of foreign exchange risks also affects the risk premium because of the risk of depreciation.”
For external creditors, the question is not only whether a government can repay, but whether it can access and transfer hard currency when debt falls due.
Disclosure remains the harder test
AfCRA is expected to encourage better debt disclosure, including reporting on guarantees, state-owned enterprise liabilities and off-balance-sheet borrowing. Owino doubts it can compel finance ministries to open their books.
“I hope it does, but I do not see any reason why finance ministers and Treasury departments that abhor disclosures, even when these violate their own laws, would yield just because of a continental agency,” he says.
He points to the limited success of disclosure conditions attached to IMF programmes.
“Lenders such as the IMF especially sometimes tie conditionalities to debt disclosures and are often unsuccessful,” he notes. “I do not think a continental risk evaluator would manage to enforce that disclosure.”
AfCRA’s influence, he suggests, will be indirect: it can make opacity costly through lower ratings and more rigorous analysis, but genuine transparency will depend on domestic institutions and political incentives.
Pension funds need more than a rating
AfCRA’s advocates hope a common African rating framework will encourage pension funds and insurers to invest more across the continent. Owino expects the impact to be limited.
“This would vary for every country,” he says. “For countries that limit the exposure that pension funds may be subjected to, it may be necessary for those regulations to be reformed to permit that investment outside borders to occur.”
Kenya offers a clear example. Pension funds remain heavily concentrated in government securities, a concentration Owino considers unhealthy, but one that fund managers find commercially rational.
“Domestic sovereign yields are often high enough in nominal terms that fund managers have little commercial incentive to take on foreign exchange risk by investing across borders, even within Africa,” he says.
The credibility test
AfCRA’s clearest opportunity lies in coverage. The African Peer Review Mechanism says 23 of Africa’s 55 states are unrated by the Big Three, while less than 5% of African financial instruments by value carry a rating. A continental agency could bring ratings to municipalities, corporates, infrastructure projects and green bonds that global agencies often overlook.
But Owino’s message is blunt: AfCRA will matter only if it improves information, disciplines opaque borrowers and earns investor trust. A new African rating agency cannot manufacture fiscal credibility, force disclosure or redirect pension capital on its own. Its real test is whether it becomes a credible alternative voice in credit markets or merely another institution telling Africa a more comfortable story.