The United Nations has said that inaccurate and context-poor sovereign credit ratings cost African countries about $74.5 billion every year through excessive borrowing costs and lost financing. The disclosure came shortly before the formal launch of the Africa Credit Rating Agency in Port Louis, Mauritius.

The new agency, known as AfCRA, is expected to provide independent, Africa-focused assessments of sovereigns, sub-sovereigns, companies and institutions. The UN described the current situation as a major development penalty on a continent whose actual default experience is lower than prevailing risk perceptions suggest.

“Africa’s actual default rate is far lower than what its credit ratings imply, yet the continent pays the highest cost of capital in the world,” the UN stated. It said the inaccurate ratings that fail to reflect African economic realities amount to a tax on the continent’s development paid for no good reason.

The issue has particular relevance for Nigeria, which has repeatedly raised concerns at the United Nations over the high risk premium attached to African sovereign borrowing. At an ECOSOC meeting in March, Nigeria compared its borrowing costs with those of a highly indebted European economy, noting that its debt-to-GDP ratio was lower, it had never defaulted, and its foreign reserves were stronger, yet its recent dollar bonds carried yields of 8.6 to 9.1 per cent compared with about 3.9 to 4.0 per cent for the European country.

AfCRA is intended to help close information and methodology gaps through more transparent assessments rooted in African data and economic context. The African Union said the agency would complement existing international rating agencies, operate independently, be private-sector driven and self-funded, with governments barred from owning shares to protect its credibility.