Africa’s own credit rating agency wants its first sovereign ratings out by the end of March 2027, and it’s already in talks with 15 African governments, interim CEO Sifiso Falala tells Reuters. The African Credit Rating Agency (AfCRA) launched in Mauritius last month with Central Bank of Egypt (CBE) Governor Hassan Abdalla in the room, and its staff will start by researching countries including Togo, Kenya, Seychelles, Burundi, and Mauritius. Cheaper capital will take longer: African Union Commission Chairperson Mahmoud Ali Youssouf said it will need broader financing reforms, and a former BNP Paribas senior economist tells us he thinks better data and a transparent methodology could earn AfCRA a place in the market once it proves its independence.

How it will work

AfCRA plans to issue solicited ratings, which means governments pay for the assessment and give the agency access to officials and financial data. It’ll also rate African multilateral lenders such as the Cairo-headquartered African Export-Import Bank (Afreximbank), plus private financial institutions, and Falala said it will rely less on data from the IMF and other international financial institutions.

A rate for the unrated: AfCRA is also going after the issuers nobody covers. Some 22 African countries have no rating from any of the big three, and more than 90% of the continent’s municipalities and corporates are unrated, according to an African Peer Review Mechanism (APRM) research note (pdf). Covering them would help AfCRA build a footprint in local-currency debt.

Who’s behind it: AfCRA is privately owned by Plus 94 Research, a South African research firm that Falala co-founded, and governments are barred from holding stakes. The agency plans to raise USD 15 mn through a share sale that would give African investors a two-thirds stake, and it has also completed the purchase of 51% of Sovereign Africa Ratings, a South African ratings firm that Falala founded and still runs.

The genesis of AfCRA

African leaders have long argued that S&P, Moody’s, and Fitch overstate lending risks on the continent and downgrade countries too quickly in times of stress, a charge the agencies reject, saying they apply the same methodologies everywhere. The political push started with an African Union Assembly resolution in January 2017 and gained urgency during the pandemic, when international agencies downgraded countries or put them on review, including Ivory Coast, Ethiopia, and Senegal for taking part in the G20’s debt-relief initiative, according to the APRM note.

The USD 74.5 bn price tag: A 2023 United Nations Development Programme (UNDP) report (pdf) puts a number on that grievance. It estimates that rating methodologies that fail to capture local conditions, such as data limitations and large informal markets, cost African countries some USD 74.5 bn in excess interest and forgone financing across domestic-currency bonds and Eurobonds. The report says that’s nearly 12% more than all net official development assistance to Africa in 2020. That said, Reuters’ own 2024 investigation into Africa’s debt crisis found no evidence of systemic bias in the three firms’ sovereign ratings. Whatever the cause, the bill keeps growing: Africa’s debt has risen to about USD 1.9 tn, Falala said, and the African Union estimates the continent’s external debt-service bill climbed to USD 163 bn in 2024 from USD 61 bn in 2010.

Afreximbank has already walked away. The bank ended its rating relationship with Fitch Ratings in January, saying the agency’s assessment “no longer reflects a good understanding of the Bank’s Establishment Agreement, its mission, and its mandate.” Days later, Fitch cut the bank to junk and withdrew its ratings.

Credibility comes first

AfCRA “is new and untested,” Mohamed Abdelmeguid, a former BNP Paribas senior economist, tells EnterpriseAM. It still has to show operational independence, a track record of predicting credit recovery and distress, and a willingness to make politically sensitive calls when issuers push back, he says. Until it does, assessments by Moody’s, S&P, and Fitch “will continue to dominate,” and “we shouldn’t expect risk premia to be influenced by AfCRA ratings at this stage.” Showing deeper local knowledge alongside a transparent, comprehensive methodology would help build its reputation, he adds.

Still, he sees two openings. The first is coverage: AfCRA could rate governments the big three don’t cover, easing their access to markets with potential spillover benefits for borrowing costs, as long as the assessment is credible and transparent. The second is better data: detailed public figures, including off-balance-sheet liabilities and quasi-sovereign debt “can be difficult to come by” for issuers in Africa and MENA, he says. Reliable, current numbers, along with a breakdown of a country’s liquid external assets, would give investors a clearer view of how much it can actually repay.

What’s in it for Egypt

Egypt has been involved from early on. The CBE has been a member of the APRM’s ad hoc committee on credit ratings since it was set up in 2019 and has proposed a model for AfCRA at the committee’s meetings and at UN Economic Commission for Africa events. In October 2024, the CBE hosted the committee’s ninth meeting in Cairo, which set out to draft a roadmap for establishing the agency. In remarks delivered on his behalf there, Abdalla said African countries can strengthen their creditworthiness by “committing to transparency and building up the capacities for data collection and timely submission to international credit agencies.”

Abdalla pressed the continental case again at the Alamein Africa Forum last month, where he proposed directing 10% of African banking liquidity and 5% of international reserves into investments on the continent. He argued that African capital often leaves for developed markets only to return as expensive foreign credit. The CBE has also signed at least 15 MoUs with African central banks covering training and governance.

A rating alone won’t erase Egypt’s risk premium, though. “There will always be a MENA risk premium that reflects long-standing geopolitical risks,” Abdelmeguid says. He says that explains why Egypt was rated below Argentina in 2014-2016, even though Argentina ran into repayment difficulties a few years later and Egypt didn’t. That, he argues, makes the premium “a perception issue that may not necessarily be linked to the rating.”

An Egypt rating that differed from the big three’s would trigger “a market debate in the first instance, not a repricing of Egypt credit risk,” he says, since investors would need AfCRA to make a convincing case first. Banks and non-bank lenders may also keep their own lists of approved rating providers, and he thinks it’s too early for AfCRA to make those lists, especially at institutions outside the region. And since Egypt’s ratings are several notches below investment grade, a one-notch disagreement in either direction would likely leave it in high yield, he says.

Then there’s the regulatory gate. Before AfCRA’s ratings can count in Egypt, the regulator has to recognize it as an accredited rating agency in its guidelines and in banking law and set rules for recognition, Tamer Fattouh, a financial institutions risk and country risk expert, tells EnterpriseAM. Only then can the discussion turn to implementation and validation, he says.

What’s next: German think tank SWP argues that whether AfCRA lowers borrowing costs will depend on its credibility with international investors. By our read, its first test is whether it will make calls the governments paying for its ratings don’t like, which is the same test the big three face on their solicited ratings. Its clearest early value is in what the big three leave uncovered: 22 unrated sovereigns, a largely unrated local-currency market, plus the better data that comes with rating them.