Provide credible ratings, eschew bias towards African economies – Ken Thompson tells Africa’s new rating agency
Chief Executive Officer (CEO) of Dalex Finance, Ken Thompson, has advised the Continent’s newly licensed credit rating agency (Sovereign Africa Ratings) to provide credible and reliable credit ratings to investors.
In addition to providing credible credit ratings, the Sovereign Africa Ratings (SAR), should eschew being bias towards African economies by giving favourable ratings to African sovereign debts.
Mr Thompson’s caution against SAR providing favourable ratings for African economies, comes on the back of calls for an African credit rating agency.
A popular view held by most African governments, is that, foreign rating agencies – Moody’s, Fitch and S&P – usually give unfavourable credit ratings that affects the creditworthiness of African economies and result in investors pulling out invested funds in African economies.
Over the past two decades, many countries on the continent have witnessed a deterioration in credit ratings.
The whole continent of Africa has been grappling with what the AU has described as unjustified negative rating actions at different times.
For instance, the record number of sovereign rating downgrades of African countries since the outbreak of COVID-19 on the continent in March 2020 has pushed countries such as Tanzania, Nigeria, Namibia and Mozambique to raise concerns on the non-consultative nature of foreign rating agencies.
According to Professor Eddy Maloka, Chief Executive of the African Peer Review Mechanism (APRM), such downgrades clearly do not reflect the average improvement of political, economic and social indicators in Africa.
Ghana’s Finance Minister, Ken Ofori Atta, has also said most of these downgrade decisions by foreign rating agencies, which most often are unjustified, have tremendous power to influence market expectations and investors’ portfolio allocations; and consistently undermine macroeconomic fundamentals of African countries.
“The most important thing is for SAR to have integrity, be professional and produce credible credit ratings, because foreign investors are savvy and if rating reports by SAR are not credible, they will not use them.
“Any rating agency that is bias will not be of value to any investor that wants to lend monies to the Continent, you can’t run a bias agency because people (investors) will rely on your analysis to take decisions.
“So if this rating agency is bias, it will fail as quickly as it started. Because, any business that is bias will fail but I suspect that the people that set it up are people of integrity and are know on the market. So whatever reports they produce will be compared with that of the other rating agencies (Moody’s, Fitch and S&P) and overtime when they are credible, they will be trusted,” he told norvanreports in an exclusive interview.
Speaking on the relevance of an African credit rating agency to the Continent, Mr Thompson quipped a new rating agency will help develop expertise of Africans in the field and lead to extensive research and findings on African economies than what is provided by foreign rating agencies.
“There is the need for it, because it helps Africans develop expertise in that field and also creates jobs as well. If it (SAR) is on the ground, they get to collect more research data and come out with more findings than the foreign rating agencies,” he noted.
To attract investors into certain industries – for instance aquaculture – that are in dire need of investments, Mr Thompson furthered that the new rating agency, should give credit ratings on industries with inadequate funding/investments from both governments and investors.
Sovereign Africa Ratings licensed to issue credit ratings on African countries
South Africa-based credit rating agency, Sovereign Africa Ratings, has been issued a license to operate as a credit rating agency to African countries.
The approval of Sovereign Africa Ratings as a credit rating agency was made pursuant to Section 5 of the Credit Rating Services Act, 2012 (CRS Act) by the Financial Sector Conduct Authority (FSCA).
“The FSCA has approved the license application of Sovereign Africa Ratings to operate as a credit rating agency from March 8, 2022.
“Sovereign Africa Ratings is authorised to issue sovereign ratings only,” said the FSCA in a statement.
According to FSCA, sovereign credit ratings mean a credit rating where:
(a) The entity rated is a state or a provincial or local authority of the state; or
(b) the issuer of the debt or financial obligation, debt security; or other financial instrument is a state, or a provincial or a local authority of the state; or
(c) a special purpose vehicle of a state or a provincial or a local authority of a state
