Brics ratings agency in the works
The Black Business Council wants to fast-track the establishment of a Brics (Brazil, Russia, India, China, South Africa) ratings agency, to reduce pressure on South Africa from Western agencies.
The council has expressed unhappiness with the large agencies — Moody’s, Standard & Poor’s and Fitch — after they said last year South Africa could be downgraded to junk status. The agencies cited political volatility as a concern but the council says they treated South Africa unfairly and were unable to act impartially.
Talk of an alternative ratings agency for developing economies emerged last year after a Brics summit in the west Indian province of Goa.
Encouraged by the establishment of the Brics-supported New Development Bank, Brics member states decided to explore the possibility of a Brics ratings agency to “bridge the gap in the global financial architecture”.
But after the initial commitment, there was a lull. Now the council wants to accelerate these plans, using its representation on the Brics financial services working group to spearhead the initiative.
“We know what we want and we are saying this thing must move with urgency,” the council’s secretary general, George Sebulela, told the Mail & Guardian this week.
The organisation planned to present a model for an alternative ratings agency but a date and time for a meeting was yet to be arranged, he said. “We haven’t had any comment so far in terms of the financial services working group, but we have already requested a time and place for us to do a full presentation.”
The council is an umbrella body that represents 41 businesses associations and lobbies government on their behalf.
During an SABC interview last month President Jacob Zuma said he did not believe ratings agencies had been unduly harsh on South Africa and believed they only paid increased attention to the country because of government’s vocal stance on many issues.
But the council held a different view and expressed its unhappiness with agencies such as Moody’s, which was recently fined $864-million for its involvement in manufacturing ratings that contributed to the 2008 world economic meltdown.
“The income generation and fees that these people are making is mainly driven by those who are debt allocators, the guys who mainly dictate on what agencies should do,” Sebulela said.
Countries pay fees to ratings agencies for independent investment gradings.
Adrian Saville, the chief investment officer at Citadel, said the concerns about the big-three ratings agencies were warranted.
“There are concerns that they are all run out of a Washington consensus. And that, in spite having got some things wrong, there seems to be limited accountability. So there are a number of reasons to be concerned and anxious.”
Sebulela said the proposed institution would be independent and would use criteria more appropriate to emerging economies. The New Development Bank has been identified as a possible key shareholder to give the agency credibility.
The council believes the alternative ratings agency would “simplify decision-making processes for emerging-market countries and ensure better allocation of funds”.
“If you look at results of what these agencies would say, they would say if you look at Eskom, it is not sustainable. I don’t know what sustainability is [to them]. Have you experienced load-shedding recently? No.” Sebulela said.
Analysts are concerned that the Brics ratings agency may be subject to political influence, which could see lenient ratings given to poor performing state-owned enterprises. Independent economist Thabi Leoka said the timing behind calls to fast-track the establishment of a Brics ratings agency was questionable.
“Another stumbling block is intention and the timing of it is suspicious. You didn’t highlight the inadequacy of the rating agencies during good times. Why are you mentioning it now?” Leoka said.
The council itself has not been clear about the threat of political influence and has faced criticism from some of its own, such as the Black Management Forum and the Black Business Council in the Built Environment. The organisations lambasted the mother body for involving itself in ANC matters.
There have also been reports of an attempt by the Gupta family to gain backdoor entry into the council by offering a large cash injection to bribe its way in. But the attempt was snubbed, with Sebulela saying the council was “not open to capture and was not a mouthpiece for anyone”.
Sebulela dismissed claims that political interference would threaten the success of the Brics agency. “When we have such an agency it will still be independent but will use reasonable methods to evaluate.”
Saville said fears of political influence were not unusual and the threat existed even for established agencies.
“So you can make an argument that the agency will be established to push an agenda but if that is the case they will quickly be caught out.”
Sebulela said the agency’s terms of reference were still being debated and a clearer timeline for its establishment would be given once the governance and management structures had been decided on.