Song Chen says most of Africa’s $4 trillion capital market is unrated
In an opinion column published by China Daily, Song Chen, founder and executive director of the Africa-China Centre for Policy & Advisory, argues that much of Africa’s approximately $4 trillion capital market remains unrated, with less than 5 percent of African capital-market instruments by value holding a credit rating.
The Hidden Scale of Africa’s Unrated Economy
The debate over sovereign credit ratings has long dominated financial discussions across the continent. Sovereign ratings dictate government borrowing costs, influence foreign investor risk perceptions, and govern financing terms for state-owned banks and major corporations. However, this narrow focus misses a foundational market reality. According to data cited from the Africa Credit Rating Agency (AfCRA), the continent’s capital market totals roughly $4 trillion, yet an overwhelming majority of investable assets lack any formal external assessment.
An unrated status does not automatically mean a business, municipal government, or infrastructure project is financially unsound. Rather, it highlights a structural deficiency in the financial framework. Without formal credit assessments, viable municipal utilities, regional transport networks, and mid-sized enterprises struggle to communicate their risk profiles to institutional investors in a standardized, easily comparable format. Consequently, external financiers often face excessive uncertainty and simply bypass functional opportunities.
Credit Rating Coverage Lacks Reach Beyond Three Nations
Beyond central governments, the reach of credit rating agencies drops off sharply. External sub-sovereign coverage is currently restricted to just three nations: South Africa, Nigeria, and Kenya. Municipalities, regional authorities, and commercial infrastructure ventures throughout the rest of the continent operate entirely outside the formal ratings ecosystem.
This information gap presents specific hurdles for international partners, including Chinese financial institutions operating under the Forum on China-Africa Cooperation framework. As bilateral economic engagement shifts increasingly toward market-based investments, public-private partnerships, and complex supply-chain cooperation, dependable entity-level credit data becomes essential. Structured ratings help external investors accurately price risk across diverse African markets rather than relying on generalized regional assumptions.
The Test of Market Credibility for AfCRA
Establishing a continental credit rating agency like AfCRA represents an ambitious step toward building local-currency capital markets and boosting analytical capacity within Africa. Yet, broader coverage alone cannot solve the underlying credit gap. The long-term viability of any rating agency depends entirely on whether institutional investors, regulators, and issuers trust its analytical rigor.
Operational independence, rigorous management of conflicts of interest, transparent methodologies, and comparable rating scales are mandatory for market acceptance. True institutional credibility will not be measured by whether local borrowers receive favorable evaluations, but whether the market accepts the validity of difficult analytical outcomes during periods of economic stress.