The African Union has officially launched the Africa Credit Rating Agency (AfCRA) this week, aiming to address long-standing concerns regarding the perceived high cost of borrowing for African sovereigns, corporations, and projects. Based in Mauritius, the new agency seeks to challenge prevailing perceptions of risk that many African entities contend have led to disproportionately expensive financing.

Despite representing approximately 3 percent of global output and trade, Africa attracts only about 1 percent of private global equity. This disparity highlights a significant gap between the continent’s extensive funding needs and the availability—and affordability—of capital.

However, establishing a new credit rating agency capable of shifting these perceptions is expected to be a complex task. Major global players, primarily the “big three” U.S.-based firms Moody’s, S&P Global Ratings, and Fitch Ratings, dominate about 95 percent of the global rating market. Prior attempts by China and European entities to introduce alternative agencies have achieved limited success, often due to the lengthy process required to build international credibility and trust.

Skepticism also surrounds the agency’s motivation, with some viewing it as a mechanism to produce more favorable ratings for African borrowers, potentially undermining its objectivity. The existence of an “Africa premium”—the idea that African governments pay more for loans than countries with similar risk profiles—remains disputed. While African governments assert they face unfairly high costs, others point to issues such as transparency, data quality, and policy unpredictability as contributing factors. Disentangling these causes is complicated by a feedback loop where lower ratings lead to higher borrowing costs, increasing the risk of default and justifying cautious lender behavior.

Beyond challenging existing ratings, AfCRA could play a role in deepening Africa’s capital markets by offering ratings for debt that falls outside the scope of the global giants. The continent holds an estimated $4 trillion in domestic capital, including pension funds, insurance, and sovereign wealth funds, but much of these funds are directed toward short-term government debt rather than riskier investments that could stimulate growth.

African governments have criticized the established rating agencies for relying heavily on “desktop exercises” and lacking on-the-ground insights. AfCRA aims to provide more nuanced, localized evaluations to fill this gap. To gain credibility, however, it must establish transparent, objective rating methodologies and avoid any implication of bias. The African Union has emphasized that AfCRA will not be government-owned—an important step to maintain independence—though the lack of disclosed shareholder information ahead of the launch has raised concerns about the agency’s financial backing and operational viability. It also remains unclear if AfCRA has sufficient resources to attract and retain experts capable of conducting comprehensive analyses beyond desk-based assessments.

Ultimately, while the creation of an African rating agency could contribute positively to the continent’s financial ecosystem, experts caution that it is only part of a much broader challenge. African governments have devoted considerable energy to critiquing the current global ratings framework. However, improving the investment climate through stable macroeconomic policies, transparent legal frameworks, dependable infrastructure, and fair judicial systems may prove more effective in attracting affordable capital. Establishing a rating agency, by contrast, is considered relatively straightforward compared to these difficult but essential reforms.