Africa needs capital to finance development. But does the way international ratings agencies assess African economies make that capital unnecessarily expensive?
On October 7, the Mauritius-based Africa Credit Rating Agency (AfCRA) was officially launched, an initiative that has been years in the making. It has been driven by the African Peer Review Mechanism (APRM), with strong political support from the African Union and several African heads of state, including Nigerian President Bola Tinubu. The AU endorsed the creation of AfCRA in 2018, while the APRM has played a central role in developing its institutional framework.
The AU initiated the APRM in 2003 and describes it as “a voluntary self-monitoring instrument established in 2003 by the African Union (AU) to promote good governance, political stability, and sustainable development across the continent.”
What is perceived to be the problem?
Ratings agencies exist to assess the ability of a business entity or government to repay what it has borrowed in full and on time. Their ratings inform fund managers whether or not it is prudent to lend money to a sovereign entity or a business, given the risks of default as assessed by the ratings agencies. “Ratings are opinions about the likelihood of default” is how one observer put it.
African critics argue that the major ratings agencies are predominantly US-based and that their assessments are biased against African economies. They are Fitch Ratings, Moody’s and S&P Global Ratings, commonly referred to as the “Big Three”. Their assessments influence access to capital markets and can disadvantage jurisdictions that receive low ratings.
The Big Three will argue that they use criteria that apply across the global financial marketplace. They look at elements such as government debt, fiscal discipline, GDP growth, inflation, per capita income, foreign exchange reserves, the stability of a country’s financial institutions, and a country’s or business’s default history.
However, Chatham House and other analysts have pointed to the role of investor risk perception and broader structural factors in determining the cost of borrowing for African countries. The IMF, for example, has found that Sub-Saharan African borrowers can face a risk premium even when ratings and some fundamental indicators are taken into account.
The criticisms
The most common complaint about the Big Three, in particular, is that they are too negative about sovereign jurisdictions on the African continent and have historically exaggerated the risks. This “perception bias” prompted calls, made in November 2025 ahead of the G20 Summit in South Africa, for the Big Three to be subjected to more stringent oversight and greater transparency about their methodologies. The agencies have rejected accusations of systematic anti-African bias.
The cut-off point between risky territory and relatively safe terrain is the dividing line between what is termed “investment grade” and “junk status”. Of the 32 African countries with ratings from one or more of the Big Three in 2025, only a small number were rated investment grade, while the overwhelming majority were rated below investment grade. UNDP-linked material identifies four rated entities — Botswana, Morocco, Mauritius and St Helena — as investment grade, although other assessments using different rating universes include South Africa among the investment-grade group.
The rest found it more difficult and more expensive to access credit.
Ratings influence how investors allocate capital and determine the cost of borrowing money. In broad terms, ratings of BBB- and above are considered investment grade, while BB+ and below are considered speculative or “junk”. African countries face, on average, borrowing costs approximately 1.5 percentage points higher than similarly rated countries in other regions, according to UNDP-linked research.
That is a big ask of nations short of cash but in need of major capital injections to fund their infrastructure, energy and healthcare systems, finance their industrialisation ambitions, build resilience to climate change, and develop the human resources needed to make all of this materialise.
The other criticism is that the three major ratings agencies apply a one-size-fits-all approach to African jurisdictions, failing to take into account factors such as the reform-mindedness of a government and failing to distinguish between how a capital market behaves in a mature economy and in a developing one.
Even the International Monetary Fund has acknowledged the existence of a risk-perception premium affecting Sub-Saharan African borrowers, although its research also points to structural factors such as institutional strength, financial development and political risk.
For instance, in January 2023, one of the Big Three, Moody’s, downgraded Nigeria’s rating, a decision the Nigerian government disputed, arguing that the ratings agency did not take into account the country’s domestic environment and the government’s efforts to stabilise and reform the post-COVID economy.
Some go even further and claim that the Big Three misrepresent and exaggerate the risks associated with lending money to African nations. That argument is complicated, however, by the case of Senegal, where a previously undisclosed debt burden exposed serious weaknesses in the country’s own fiscal reporting. S&P, for example, downgraded Senegal by three notches in 2025 following the discovery of underreported public debt and rising fiscal pressures.
Are these criticisms justified?
The Economist newspaper perhaps put it best in May 2023 when it wrote that, while there is no conclusive evidence of bias, it may still be the case that African critics have a point.
There is evidence on both sides of the argument. A quantitative study examining sovereign ratings found no statistical evidence of systematic anti-African bias after accounting for economic and fiscal factors. At the same time, other research has identified subjective elements in the ratings process and evidence that African borrowers can face higher spreads than similarly rated peers elsewhere.
On the one hand, governments do have agency, even when, as the Nigerian example shows, this may not be fully taken into account. When S&P decided to upgrade South Africa’s rating, bringing it closer to investment grade, it cited improvements in the country’s growth and fiscal trajectory.
So, there may be some inconsistency there. A valid criticism would be that advanced economies can sustain substantially higher debt ratios without facing the same immediate market consequences as many African borrowers. France, for example, ended 2025 with public debt at approximately 115.7% of GDP, yet retains deep capital markets and strong investor demand.
It is worth noting, however, that France has also faced growing market pressure and recent credit-rating downgrades. The comparison therefore needs to account not only for debt levels but also for factors such as market depth, currency, institutional strength, investor base and monetary arrangements.
In August 2026, Moody’s revised Nigeria’s outlook from “stable” to “positive”, citing stronger external buffers and better-than-expected economic growth, while maintaining the country’s B3 rating.
The common ground: data, data, data…
Where the critics and defenders of the Big Three find common ground is the demand for data. There is broad agreement that what is most urgently needed is strong, reliable, transparent and verifiable economic and financial data, readily available to potential lenders who need it.
In this view, it is not simply the perceived negative reputation of borrowers on the African continent but also the lack of information that can contribute to the higher cost of lending money. There is substantial evidence that data limitations and weak institutional capacity complicate the assessment of African sovereign risk.
Some of these issues are within a government’s remit to influence and even control. Dependency on commodities, the price of which is determined outside the African continent, is not something a government can control. When such intervention was attempted — famously, when Côte d’Ivoire in the late 1980s halted the sale of its cocoa in an effort to stop prices from sliding into dangerously low territory — it failed.
Climate change is another element beyond any African actor’s control. However, a lack of transparency and issues related to corruption are within any government’s remit to change, and these will influence ratings, although perhaps not as quickly or decisively as a government would desire.
But data are central, and the constraints are real. Too many jurisdictions struggle with low fiscal transparency, unreliable regulation and inconsistent enforcement, weak financial sectors, and issues related to poor governance, both in terms of political stability and the transparency and quality of bureaucracies.
Add to this the simple fact that in many countries up to three-quarters, if not more, of economic activity is informal, and credit risk assessments will never completely cover the full extent of economic activity in a given country.
To address the poor availability of data, help may be on the way from the African Development Bank, which is willing to step in and provide assistance to improve market information. The Bank announced in October 2026 that it would begin an initiative to help African countries better understand and prepare for sovereign credit ratings.
Will investors actually trust and use those ratings?
AfCRA is intended to be an independent, private-sector-driven ratings agency that could and should act as a complement to the Big Three, rather than as a challenge to their status and authority. The AU describes it as an institution intended to provide independent, credible and Africa-focused assessments of creditworthiness.
An attractive argument in its favour is the assessment made by University of Cape Town researcher and AU-affiliated lead expert on credit ratings Misheck Mutize that the African continent has “a remarkably large pool of domestic capital”, which he puts at $3.5 trillion.
African pension funds, sovereign wealth funds, banks and insurers sit on a colossal pool of capital that often goes into short-term, yield-generating treasury bills and bonds rather than into the long-term sustainable investments mentioned earlier — infrastructure, healthcare and so on.
An effective AfCRA should be able to create information and provide deep analysis that will help investors better understand risks, change perceptions of “risk” that make capital hesitant to enter the continent’s financial markets, and expand Africa’s credit ratings industry, which is currently very small.
Interestingly, two of the Big Three have been buying African credit-rating agencies in countries including Nigeria.
Seen in this light, the new AfCRA can also be seen as a crucial element in the construction of a new, unified African financial architecture, built on rising confidence in the continent’s ability to finance its own development by mobilising the resources it already has.
As Mutize puts it, the AfCRA could become “a pioneer of a stronger, deeper and more efficient African financing ecosystem.” This would put paid to the idea that the creation of an AfCRA would somehow result in Africa “grading its own homework”.
The big question here is whether there will be buy-in from those who sit on these African funds — a decision that is in the hands of those who manage the trillions of dollars supposedly lying idle or not doing the heavy developmental lifting required.
So, Africa’s high cost of capital may be partly a ratings problem, but it is also fundamentally an information, governance and credibility problem. AfCRA can help address the information gap, but only if investors trust its assessments.
