{"id":130242,"date":"2019-01-23T06:47:43","date_gmt":"2019-01-23T04:47:43","guid":{"rendered":"http:\/\/www.myza.co.za\/african-countries-need-to-manage-the-rising-power-of-credit-rating-agencies-the-conversation\/"},"modified":"2019-01-23T06:47:43","modified_gmt":"2019-01-23T04:47:43","slug":"african-countries-need-to-manage-the-rising-power-of-credit-rating-agencies-the-conversation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/african-countries-need-to-manage-the-rising-power-of-credit-rating-agencies-the-conversation\/","title":{"rendered":"African countries need to manage the rising power of credit rating agencies | The Conversation"},"content":{"rendered":"

African countries need to manage the rising power of credit rating agencies<\/a>: <\/p>\n

shutterstock<\/span> <\/figcaption><\/figure>\n

The rising gap between developmental needs and available financial resources \u2013 including poor revenue collection \u2013 has pushed sub-Saharan African governments to consider different options to support their budgets. <\/p>\n

One route to raise capital has been the issuing of sovereign bonds on international financial markets. But to do this successfully, governments need a sovereign credit rating from at least one of the three dominant international credit rating agencies. These are Standard & Poor\u2019s (S&P), Moody\u2019s and Fitch. The number of African countries seeking a sovereign credit rating has increased from one in 1994 to 31 in 2018.<\/p>\n

There\u2019s been growing dissatisfaction with the three agencies. A number of rated countries on the continent, such as Nigeria, are unhappy, joining a chorus of dissatisfied voices around the world. Their unhappiness stems from the fact that, outside the US and the European Union (EU), the agencies don\u2019t subscribe to any international regime or governance body. This means that their misconduct remains largely unchecked.<\/p>\n

The international rating agencies have operated unregulated even though the need for them to be regulated has become apparent. <\/p>\n

The EU and US provide examples of how it can be done. After the 2008 crisis the EU introduced regulations and several directives to manage the agencies more tightly. In the US, the Dodd-Frank & Consumer Protection Act of 2010 expanded the regulatory power of the Securities and Exchanges Commission to enforce full disclosure about the rating agencies\u2019 methodologies. <\/p>\n

The only country in Africa that has comparable laws is South Africa \u2013although there is still very weak to no civil liability of rating agencies. These laws were passed partly to make it easier for European countries and the US to litigate against rating agencies in cases of misinformation, as well as controlling their influence.<\/p>\n

There are no laws elsewhere in Africa to hold the rating agencies\u2019 operations on the continent to account. And there\u2019s no central coordination of their activities within individual African countries. This is because no single institution is responsible for administering their regulations or managing them. Either the ministry of finance, or sometimes the central bank, works hand in hand with rating agencies and liaises on issues relating to a sovereign\u2019s rating profile.<\/p>\n

So what can African countries do? The problem is that, as the influence of international rating agencies continues to expand, individual African countries have limited power to act against them. One possibility is that the continent establishes collective and well defined ways to ensure they present a common front to the rating agencies. <\/p>\n

Countries that have complaints<\/h2>\n

In 2015, the Zambian government urged investors to ignore unsolicited credit downgrade from the rating agencies. It challenged the correctness of its rating, which it said hadn\u2019t been discussed with the country\u2019s representatives. <\/p>\n

In 2017, Namibia rejected Moody\u2019s decision to downgrade the country\u2019s credit rating to junk status. It said the downgrade was contrary to its generally stable economic outlook. <\/p>\n

The government of Nigeria also strongly disagreed with its downgrading. It questioned both the general rating premises as well as the agency\u2019s conclusions. The government believed the economy had successfully emerged from a recession and recorded important improvements across a broad range of sectors. <\/p>\n

In 2018, Tanzania criticised Moody\u2019s decision to assign a low credit rating with a negative outlook on the country\u2019s first international credit rating. Tanzania rejected the rating. It argued that it hadn\u2019t been thoroughly consulted.<\/p>\n

There are more general complaints too. Judging from the way in which African countries are rated, an argument could be made that rating agencies view the African continent as a homogeneous entity. They appear to consider all African economies as unstable. Only three \u2013 Mauritius, Morocco and South Africa \u2013 out of 31 rated countries have a rating just above \u201cjunk status\u201d. Only one \u2013 Botswana \u2013 has an A-class rating. Compared to other regions, 87% of African countries are rated \u201cjunk status\u201d. That\u2019s compared to approximately 19% in Western Europe, 27% in the Middle East, 38% in Central and Eastern Europe, 54% in Asia Pacific and 55% in Latin America and The Caribbean.<\/p>\n

The effect of this is that African countries have to issue sovereign bonds at high discounts, and are subject to higher interest rates. <\/p>\n

Another area of contention is that credit rating methodologies consistently over-emphasise political risk in the rating criteria. Political components constitute approximately 50% of the composite rating. Other components such as financial and economic components each contribute to the remaining 50%. While the qualitative factors are judged purely based on the ideology of the credit analysts, their perception towards the political institutions in Africa is generally negative.<\/p>\n

The data shows that the rating agencies have downgraded more countries than they have upgraded over the past 24 years. There have been 47 downgrades, compared to only 22 upgrades and 113 negative changes in outlooks; only nine positive changes have been recorded. <\/p>\n

Solutions and action plan<\/h2>\n

African countries should design a collective response mechanism to save the continent from rating abuse. This mechanism can also be used to bring the operations of agencies under control. The aim should be to avoid unfair and exploitative business practices.<\/p>\n

One option would be for the African Union to establish a continental regulatory authority. It could govern the cross-border activities of international rating agencies, administer a prudential standard framework and evaluate the accuracy and fairness of ratings assigned to particular countries.<\/p>\n

\"The <\/p>\n

Dr. Misheck Mutize does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.<\/span><\/em><\/p>\n

Source:<\/strong> The Conversation \u2013 Articles (AFRICA)<\/a><\/small>
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Read more on The Conversation<\/a>.<\/p>\n

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African countries need to manage the rising power of credit rating agencies: shutterstock The rising gap between developmental needs and available financial resources \u2013 including poor revenue collection \u2013 has pushed sub-Saharan African governments to consider different options to support their budgets. One route to raise capital has been the issuing of sovereign bonds on […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[4584],"tags":[3050,9771,8890,2345,4286,4475,3953,2368,2073,4455],"class_list":{"0":"post-130242","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-africa-news-2","7":"tag-african","8":"tag-agencies","9":"tag-conversation","10":"tag-countries","11":"tag-credit","12":"tag-manage","13":"tag-need","14":"tag-power","15":"tag-rating","16":"tag-rising","17":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/130242","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=130242"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/130242\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=130242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=130242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=130242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}