The African Union has launched the Africa Credit Rating Agency (AfCRA), a new institution intended to provide alternative assessments of credit risk across the continent and improve African countries’ access to international capital markets.

The agency was launched on Wednesday in Port Louis, Mauritius, where it will be headquartered. African leaders endorsed its creation in 2018.

AfCRA will assess sovereign borrowers, financial institutions and private companies, offering investors additional information and context when evaluating African investment risks. It will operate independently and be funded through shareholder capital and its own operations, although the AU has not disclosed details of its shareholders.

The initiative comes amid longstanding criticism from African leaders that major international rating agencies, including S&P Global Ratings, Moody’s and Fitch Ratings, underestimate the continent’s economic prospects and downgrade its countries too quickly during crises. The agencies have rejected claims of systematic bias, saying they apply consistent methodologies globally.

Denys Denya, executive vice president of Afreximbank, one of the agency’s backers, said Africa continues to bear the cost of what he described as Western-centric assessments of its economies.

The AU expects the agency to provide more balanced, context-specific credit assessments, potentially widening investor participation and helping reduce borrowing costs. African economies have average credit ratings of around B to B-minus, compared with BB for other emerging regions, according to the AU.

The continent’s debt burden has increased the urgency of efforts to improve financing conditions. Africa’s annual external debt service rose to $163 billion in 2024, up from $61 billion in 2010, the AU said. In some countries, interest payments have exceeded annual budgets for health and education.

AfCRA could also expand rating coverage, as 23 African economies lack ratings from the three major international agencies, according to the AU.

However, the new institution faces the challenge of establishing credibility among investors. Rating experts say its independence, transparency and performance during periods of financial stress will be critical to its acceptance.

“A new rating agency begins with a promise while investors ultimately require a track record,” said Dennis Shen, a lecturer in finance at the International School of Management in Berlin and a former sovereign analyst at Scope Ratings.

Former Nigerian Vice President Yemi Osinbajo said the agency must meet international standards rather than operate as a nationalist alternative to established rating firms.

AfCRA’s long-term influence will depend on whether investors trust its assessments and whether those assessments translate into improved financing terms for African governments and businesses.