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Analysis · Finance · For Individual members

Will the African Union’s Credit Rating Agency solve continental financing woes?

Farai Mudzingwa · 15 December 2023 · 9 min read · Kenya, Nigeria, South Africa, Botswana, Namibia

The issue of development financing is a sore thumb for Africa & it’s 54 states. According to the UN, Africa needs an additional financing of US$124 billion annually to achieve Sustainable Development Goals’ targets. This situation has motivated the African Union (AU) to consider creating its own African Credit Rating Agency (ACRA) set to launch in 2024 addressing “unfair” credit ratings given to African states.

Why is the African Union disgruntled by the status-quo?

The African Union outlined a number of shortcomings ratings from the ‘big 3’ (Moody’s, Fitch and S&P Global) CRA’s currently have that are affecting development financing efforts on the continent. The credit ratings from these and other firms have a big impact as they have the ability to increase cost of servicing debts - which is a big issue as African countries are then left to choose between repaying high interest debts or feeding citizens. At least that’s what the AU is arguing. A domino effect of this flawed rating system is that these credit ratings, which AU claims to be “non-objective”, also reduce the investment that African countries receive as these states are perceived as high-risk.

ACRA will also look to address the lack of contextual understanding existing CRAs have displayed when it comes to operating on the continent. Recently, Kenya and Nigeria rejected their credit ratings citing a lack of understanding of the domestic environment by rating agencies. Nigeria’s argument was that it was “was already addressing the ratings agencies concerns” and a further downgraded rating from Moody’s was testament to the fact that agencies don’t comprehend African environments. Nigeria also indicated that the CRAs projections regarding debt-to-GDP were wrong as tax-to-GDP actually rose. 

Similarly, the Kenyan government argued against Moody’s credit rating downgrade on the basis of liquidity risks was inaccurate. Kenya said their position was improving and pointed to the IMFs endorsement as a sign that it was on the right path.