By Judy Obae

African countries lose over $75B from high interest rates and missed investments

An African Credit Rating Agency (AfCRA) is being established to rebuild investor confidence

African nations face disproportionately high borrowing costs due to low credit ratings, which are often based on subjective assessments by global rating agencies. Only two countries, Botswana and Mauritius, hold investment-grade ratings, leaving the rest of the continent with limited access to affordable credit. For example, Kenya spends more than 60% of its revenue servicing debts, severely constraining its ability to invest in critical development areas like infrastructure, education, and healthcare.

Why This Matters: A recent UNDP report revealed that subjective credit ratings have cost African countries over $75 billion in excess interest and forgone lending. This financial loss surpasses the entire Official Development Assistance (ODA) to Africa and could have been redirected towards vital programs such as reducing malaria or achieving COVID-19 vaccination targets. This cycle of poor credit ratings and high borrowing costs keeps many African economies trapped in debt, stifling growth and development. Kenya is a prime example, grappling with high debt repayment burdens, exacerbated by challenges such as high living costs, climate change, and poverty. Despite receiving support from the IMF’s Extended Fund Facility and Extended Credit Facility, Kenya’s fiscal struggles highlight the larger issue of Africa’s dependence on external rating agencies that may not fully understand the continent’s unique economic dynamics.

To address these challenges, the African Peer Review Mechanism (APRM), in collaboration with UNECA and UNDP, is spearheading the establishment of the Africa Credit Rating Agency (AfCRA). AfCRA aims to offer unbiased, regionally-informed credit assessments, helping African countries access global capital markets with more favorable terms. By reducing reliance on external rating agencies, AfCRA seeks to enhance creditworthiness and attract sustainable investments that will support economic growth and development. The creation of AfCRA represents a critical step toward financial sovereignty for African nations. The African Union has called for the expedited operationalization of AfCRA, which will focus on building robust institutional frameworks, improving data transparency, and ensuring strong governance.

What’s Next: Once fully established, AfCRA is expected to offer more accurate credit ratings, reduce borrowing costs, and restore investor confidence in African markets. With key stakeholders, including financial institutions and private sector leaders, on board, AfCRA is poised to reshape Africa’s financial landscape, creating new opportunities for economic growth and investment across the continent.

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