The African Union (AU) has unveiled plans for a homegrown credit rating company, driven by members' widely held belief that global agencies are biased against the continent, impacting the ability of governments and companies access to secure credit at favourable terms.

Meeting in Addis Ababa for the 38th African Union Summit, assembled leaders said the creation of the African Credit Rating Agency (AfCRA) would help counter the bias that has long hampered the continent's economic growth. It is due to be officially launched in June as part of the AU’s wider programme of financial integration and independence.

“Global credit rating agencies have not only dealt us a bad hand, they have also deliberately failed Africa,” Kenyan President William Ruto said at the launch of the African Credit Rating Agency on February 14 in the Ethiopian capital.

“They rely on flawed models, outdated assumptions, and systemic bias, painting an unfair picture of our economies and leading to distorted ratings, exaggerated risks, and unjustifiably high borrowing costs,” he asserted.

Lamenting that despite the continent’s abundant natural wealth, fertile land, large diaspora remittances and vast carbon sinks, existing credit agencies have downgraded 94% of African countries in the last decade, with only two ranked as investment grade.

“It is time for Africa to use the right scale, one that reflects its true weight,” Ruto said. “An African credit rating agency is not just an alternative, it is an imperative. This agency must be globally credible and backed by rigorous, credible data and driven by high reporting standards from our own governments. But more importantly, it must reflect Africa’s reality correctly.”

A study by the Africa Peer Review Mechanism and the United Nations Development Programme (UNDP) cited by Ruto put the cost of biased grading at $75bn in lost opportunities. A rating improvement of just one notch would unlock $15.5bn in additional funding for the continent, he said.

“This [$15.5bn] alone would outstrip Official Development Assistance by 12% and meet 80% of Africa’s infrastructure needs. The opportunity is within our grasp, and we must seize it,” Ruto said.

Unlike traditional rating agencies such as Moody's, Fitch and Standard and Poor’s, AfCRA will focus exclusively on African economies, incorporating data and socio-economic indicators specific to each region of the continent.

African Business, reporting on the launch of the AfCRA, writes that by some estimates, risk misperception has cost the continent over $24bn in excess interest and more than $46bn in forgone lending.