Africa’s Afcra to issue 2,000 new shares as it begins operations

what happened

Zawya reports that the Africa Credit Rating Agency (Afcra), launched in Mauritius this week, aims to reduce the cost of borrowing across the continent. The agency expects to remove the 2% Africa premium built into investor financing costs and ease long-running disputes with S&P, Moody’s and Fitch. African leaders have repeatedly accused the three West-based agencies of overstating the region’s risks and downgrading countries too quickly during crises.

Afcra will assess sovereign borrowers, financial institutions and private companies. The African Union said it will operate independently and rely on shareholder capital and operating revenue. Interim CEO Sifiso Falala identified credibility as the agency’s main challenge, saying its methods should be transparent and reproducible. Afcra is currently wholly owned by South African research company Class 94 Research, which is associated with Falala. It plans to issue 2,000 shares to approved buyers, although the list of buyers remains under review, and will acquire South African-based Sovereign Ratings in full from Class 94 Research.

African Union leaders endorsed the agency’s creation in 2018, with the project intended to improve the continent’s access to capital markets. The UNDP estimates that subjective international ratings have cost African countries $75 billion through excessive interest payments and missed lending. The APRM has challenged, among others, Moody’s downgrade of Botswana last month and Kenya’s downgrades in 2023 and 2024; it estimated that Kenya’s negative review cost $150 million. African economies average B to B- ratings, versus BB in other emerging regions, and just Morocco and Mauritius retain investment-grade status, compared with eight African states at the start of the 2000s. The AU says 23 African economies have no rating from the three largest agencies.

why it matters

Afcra could affect funding costs for African governments and companies, but market acceptance will depend on investors’ confidence in its independence and rating methodologies.

instruments