Tinubu to Africa’s New Rating Agency: Address Cost of Borrowing, Earn Global Investors’ Confidence

• Says continent seeks fair, not favourable, credit ratings

By Alhassan Kpaki
President Bola Tinubu has welcomed the planned launch of the African Credit Rating Agency (AfCRA), declaring that African countries are not seeking preferential treatment from international investors but fair assessments that properly reflect their economic fundamentals, reforms, and actual risks.

Tinubu, in a statement he personally signed on Thursday, described the African Union-backed agency as an important step towards building financial institutions capable of understanding the peculiarities of African economies and helping to address the continent’s persistently high cost of borrowing.

The President, who has repeatedly canvassed the establishment of an African-owned credit rating institution, however, warned that AfCRA would have to establish its credibility with international investors through independence, professionalism, and rigorous assessments rather than merely offering more favourable ratings to African countries.

“Africa is not asking for favourable ratings. We are asking for fair ratings, grounded in our fundamentals and in the reforms our economies are actually carrying out,” Tinubu said.

“AfCRA must now earn the confidence of global capital. That confidence will rest on its independence and the rigour of its work.”

The African Union has announced that AfCRA will officially launch on October 7 in Mauritius, marking a significant milestone in a years-long effort to create a homegrown institution capable of assessing sovereign and corporate credit risks from a deeper understanding of African economic conditions.

The agency is expected to operate alongside, rather than replace, the three dominant international credit rating agencies — Fitch Ratings, Moody’s Ratings, and S&P Global Ratings.

Credit ratings play a major role in determining how investors assess the risks associated with lending to governments and companies. Poorer ratings can translate into higher interest rates, reduced access to international capital, and greater debt-servicing costs.

African governments have consequently complained for years about what has become known as the “Africa premium” — the additional borrowing costs African countries are believed to bear partly because of perceptions of higher risk attached to the continent.

Tinubu said Thursday that the launch represented progress on an issue he had personally championed internationally.

“In February, I made the case in the Financial Times for an African credit rating agency. In May, at the Africa CEO Forum in Kigali, I spoke again about the need for Africa to build financial institutions that understand our economies and can assess our risks properly.

“AfCRA is another step towards that goal,” the President said.

In his earlier intervention in the Financial Times, Tinubu had argued that African economies were paying disproportionately high borrowing costs partly because international assessments did not always sufficiently reflect the underlying realities of their economies.

He cited a 2023 United Nations Development Programme estimate that shortcomings associated with credit ratings were costing African countries about $75 billion annually through higher interest payments and foregone lending.

The President had also argued that commodity-dependent African economies could be especially vulnerable to rating downgrades during global market downturns, even where reserves, fiscal positions, and debt profiles remained relatively manageable.

AfCRA is expected to provide an additional perspective by incorporating greater knowledge of local economic conditions, policy reforms, institutional developments, and other factors that may not always be adequately captured in conventional assessments of African risk.

But Tinubu stressed that the solution should not be an African agency established simply to give African governments better scores.

Rather, he said its value would lie in producing credible and evidence-based assessments capable of standing up to global scrutiny while more accurately reflecting reforms and economic fundamentals across the continent.

The President’s position effectively places investor confidence at the centre of AfCRA’s challenge as it prepares to commence operations.

For the new institution to influence borrowing costs and investment decisions, its ratings would have to command the confidence of global fund managers, banks, development institutions and other providers of international capital.

Nigeria has itself experienced shifts in international perceptions of its creditworthiness following economic reforms, improvements in fiscal transparency and changes in key macroeconomic indicators, with international rating agencies recently taking more positive positions on the country’s outlook.

Tinubu said AfCRA could contribute to a broader African effort to ensure that such reforms and underlying economic strengths are adequately reflected when the continent’s sovereign and corporate risks are assessed.

For the President, however, the test begins after the ceremonial launch, when AfCRA will have to demonstrate that African ownership can coexist with the independence and analytical discipline required of a credible global rating institution.

“I look forward to October 7,” Tinubu said.