Fixing the African risk premium: How AfCRA can unlock fair financing

Earlier this year, the African Union (AU) approved the creation of a regional credit agency – the Africa Credit Rating Agency (AfCRA) – at its 37th Ordinary Summit. The agency is to be headquartered in Mauritius and launched in 2026.

AfCRA’s mandate to evaluate the sovereign and corporate creditworthiness of African countries is a conscious effort to shape the assessment of African economies in global financial markets.

For decades, agencies outside of the continent have mediated Africa’s access to international capital. AfCRA aims to provide more nuanced pricing for African risk. Such a feat remains challenging but the opportunities could more than pay off by altering the perception and cost of borrowing across the continent.

African governments have long paid higher borrowing costs than in other emerging markets. This “African premium” reflects the disparity between perceived and actual risk, as even countries with sound fiscal management and stable growth profiles frequently face elevated interest rates on sovereign bonds.

Now, more than half of African nations are either in or at high risk of falling into debt distress. Average debt-to-GDP (gross domestic product) ratios have nearly doubled since 2010, reaching around 60% in 2024.

Currency depreciation and rising interest rates globally exacerbate the problem, making refinancing more costly and straining national budgets.

What’s more, the “big three” credit rating agencies i.e. Moody’s, S&P Global Ratings and Fitch, control about 95% of the global market share. Their assessments are applied worldwide but lack accurate local data. One United Nations Development Programme study found that African countries pay between 100 and 260 basis points more in bond spreads compared to similarly rated peers elsewhere.

This “perception premium” translates into billions of dollars each year, which could otherwise support infrastructure, education and health systems. This cycle feeds on itself: higher perceived risk inflates costs, which reduces investment and growth, reinforcing negative perceptions.

The objective of AfCRA is to level the playing field by producing credit assessments that reflect African economic, social and political realities. The AU envisions it as an independent, commercially viable entity supported by public, private and multilateral stakeholders, designed to prevent political interference while ensuring accountability to member states.

The agency’s immediate challenge will be to develop a transparent methodology, supported by credible data and qualified local analysts to complement international rating agencies. If successful, AfCRA could reshape how investors view African credit through three major pathways:

Other regional credit rating systems have already emerged. For instance, India established the Credit Rating Information Services of India Limited (CRISIL), which played a pivotal role in expanding its corporate bond market.

By offering granular, locally relevant ratings, CRISIL spurred domestic participation in long-term financing and improved market liquidity.

In Brazil, the Agência Brasileira de Rating focuses on integrating local context into credit assessments. International agencies still rate Brazil for global issuance but domestic agencies now play a crucial role in regulating internal markets and giving smaller issuers credible assessments.

When AfCRA launches, global financial conditions are likely to remain tight, with higher interest rates and increased refinancing needs across Africa. In this context, better information could be pivotal.

A credible AfCRA would help distinguish countries with sound fundamentals, such as diversified exports, strong remittance inflows or fiscal reform, from those facing deeper solvency risks.

More accurate assessments could lower borrowing costs and expand market access for stronger performers.

AfCRA can also support regional integration by aligning credit standards across African markets, complementing the AfCFTA and helping to build cross-border bond indices. Regular, data-driven ratings would strengthen transparency and fiscal accountability.

Investors will need to reassess long-held assumptions about African risk. Greater differentiation could reveal previously undervalued opportunities, especially in economies with strong governance, significant energy transition potential and growing consumer markets.

Early engagement in AfCRA’s methodology development and pilot ratings could give investors a competitive edge as African debt markets deepen.

Credibility will also depend on government cooperation. Policymakers can strengthen trust by focusing on three areas:

Maintaining the private-public sector balance in practice – to support AfCRA’s independence – will also be essential to building market confidence.

AfCRA will not resolve debt vulnerabilities on its own. Commodity dependence, fiscal constraints and external shocks will continue to shape credit risk. Early perceptions will matter as any hint of political influence could undermine confidence. Therefore, strong governance, transparency and consistent methodology will be essential.

That said, the potential benefits are substantial. Within its first years, a successful AfCRA could help:

These shifts would also support the continent’s broader development agenda by creating fairer access to capital.

AfCRA is ultimately about shaping Africa’s financial narrative with African data and expertise. Trust will take time but independent, transparent ratings can become a form of capital by lowering costs, attracting investment and empowering governments.
If executed well, AfCRA could become a cornerstone of Africa’s financial architecture by 2026, advancing fairer access to capital and reinforcing economic sovereignty.