The African Development Bank (AfDB) is to launch an initiative aimed at helping African countries improve their sovereign credit ratings by strengthening economic data, transparency and market information.
AfDB President, Sidi Ould Tah, disclosed this on October 1 while speaking at the S&P Global Ratings emerging markets conference in London, as the African Union-backed Africa Credit Rating Agency (AfCRA) prepares to launch in Mauritius.
Tah said the initiative would be implemented through the African Legal Support Facility and would help governments prepare for credit assessments by improving the quality and availability of information provided to rating agencies.
He said inadequate data and opacity in some African markets contributed to perceptions of higher risk, which subsequently increased the cost of borrowing for governments.
“What is missed in Africa is the data and the infrastructure…the opacity in some markets creates this notion of high risk, which leads to high cost of borrowing,” Tah said.
He noted that only three of Africa’s 54 countries currently have investment-grade sovereign ratings, underscoring the difficulty many African governments face in accessing international capital at lower costs.
The AfDB initiative comes amid growing concerns among African governments over the continent’s borrowing costs and the methodologies used to assess sovereign credit risk.
The bank’s approach, however, differs from the proposed AfCRA framework. While the AfDB plans to help governments improve the data and transparency available to existing international rating agencies, supporters of AfCRA argue that African economies require a rating framework that better reflects their local economic conditions.
The African Peer Review Mechanism, an African Union-backed institution, is spearheading the establishment of AfCRA, which is scheduled to launch in Port Louis, Mauritius, on October 7 following a two-day conference on credit ratings.
AfCRA is expected to operate as an independent, privately owned and self-funded agency, with plans to rate sovereigns, sub-sovereigns and companies. Its proponents have said the objective is to provide more precise assessments of credit risk rather than automatically assign higher ratings to African borrowers.
Misheck Mutize, the African Peer Review Mechanism’s lead expert on rating agencies, said the agency would not have government shareholding and would issue downgrades where economic conditions warranted them.
The push for an African-owned rating agency has also received support from Nigerian President Bola Tinubu, who has argued that African countries face an “Africa premium” — a gap between perceived and actual risk that contributes to higher capital costs.
However, international rating agencies such as Moody’s, S&P Global Ratings and Fitch Ratings have maintained that their methodologies are applied consistently across countries and are designed to assess credit risk.
A 2023 study by the United Nations Development Programme estimated that subjectivity in sovereign credit ratings could cost African countries up to $74.5 billion through higher interest payments and lending opportunities that were not secured.
Beyond credit ratings, the AfDB is also seeking to strengthen domestic financing and capital markets across the continent. Tah said the bank had engaged pension funds, banks and other stakeholders to identify obstacles limiting the development of deeper local capital markets.
The effort is intended to increase African countries’ ability to mobilise domestic funding and reduce their reliance on expensive external borrowing.
Meanwhile, the African credit-rating industry is undergoing changes, with S&P moving to acquire Nigeria’s Agusto & Co., while Moody’s has acquired three regional rating agencies.
Mutize has argued that such acquisitions reinforce concerns that international agencies may not always capture local economic conditions adequately.
The AfDB initiative and the planned AfCRA launch therefore represent two parallel approaches to addressing Africa’s long-standing concerns over credit ratings and borrowing costs — improving the information available to existing agencies while creating an additional African-based source of credit assessments.
