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Opinion - Good governance to maintain SAR integrity

2022-09-30  Josef Kefas Sheehama

Opinion - Good governance to maintain SAR integrity

It is beyond any doubt that the African Sovereign Africa Rating (SAR) agency implied a very important step forward towards African integration – not only when seen from an economic point of view but also politically.

The CEO of SAR, Sfiso Falala, says the three dominant rating agencies tend to serve international interests more than they do African interests. 

He says there is a need for an African alternative in the market. 

Professor of Political Studies at the University of Johannesburg Steven Friedman says there is a colonial dynamic that underpins the way rating agencies operate. 

He says the challenge for new entrants like Sovereign Africa Rating will be to overcome the scepticism around black people’s abilities to run countries with sophisticated market economies. 

Furthermore, colonial thinking is the idea that the big sovereign rating agencies are somehow repositories of big intellectual ability, of great analytical skills, that these are people who know how to rate economies, and that if you want to compete with them and be at their level, you have to do a great level of proving yourself to show that you are as smart as they are and that your methods are as sophisticated as theirs.

Africa is highly diverse in culture, tradition, religion and ways of life. 

Despite diversity being known as unity, Africa’s diversity has been a source of conflict for civil war. 

This condition has diverted the attention of governments from development to security. 

The SAR agency, if properly implemented, will improve trade. 

If managed well, countries across the region will be able to increase competition to the benefit of consumers. 

Africa is poorly represented and badly underestimated. 

To explain, it is important to recognise that S&P Global, Fitch Ratings and Moody’s International do not have access to more or better information than the market at large – and that their calls do not drive market movements. 

Rather, their decisions tend to lag rather than lead the markets – and in this way generally confirm what we already know. That is what we believe in our rating agency to change the continent with hard-hitting investigations, innovative analysis and deep dives into countries and sectors.

Furthermore, Africa could be quite suitable for a SAR agency if one looks at the nature of supply shocks the region faces. 

The African economy, comprising 54 economies, in 2021 is projected around US$2.7 trillion in nominal terms, according to Africa the Statistics Times. 

Africa’s growth has been shaped by commodity prices; the continent has a third of the planet’s mineral resources, 10% of the world’s oil reserves and produces nearly 70% of the global diamond trade. 

While this has been good for growth in the past, the dependency on S&P Global, Fitch Ratings and Moody’s International will continue hurting our markets. 

To my mind, the African independent rating agency will contribute positively to the necessary structural development process in the African markets.

Moreover, only good governance can maintain the integrity of SAR. 

The institutional framework should be capable of making structural adjustments and effectively implementing stabilisation policies whenever required to do so. 

In fact, effective economic governance primarily depends on the strength of its institutional framework, the flexibility, manoeuvrability and resilience to the changing political, economic and social environment as well as the ability and competence of the persons to take bold, practicable and rational decisions. 

Where the institutional framework is fragile and the decision makers are incompetent or indifferent, even the best rating agencies will be worthless. 

In Africa, it remains one of the challenges to create an environment conducive to preventing and combatting unethical conduct on the part of those who hold public office. 

These are the people who are expected to be the custodians of the values around which the nations could coalesce and hold an organic dialogue about the future. 

This should be understood as a means of promoting good governance and safeguarding the welfare of the Africans. 

Africa cannot afford to slide deep into an abyss of corrupt practices. 

Corruption is like cancer; it destroys the moral fabric of the continent. 

A moral crisis is difficult to turn about because the principles of wrong and right as well as the good and bad will have been violated. 

The international rating agencies are expecting Africa’s new baby to fail. We must discipline ourselves and promote good governance to win the trust of the international community. 

Transparency and accountability are critical for the efficient functioning of a modern economy and for fostering social well-being. 

Bribers become aware that an up-front bribe would be required to be paid before the economic activity is commenced, and that such bribe would also be payable out of the returns on investment, thereby making them discouraged to invest. 

This practice will kill our markets; where corruption becomes a lucrative activity and officials enrich themselves without fear of punishment or sanctions, the desire to get involved in productive activities gets discounted. 

If talented, efficient and well-educated persons get lured by possibilities of enrichment through corruption, there will be less inclined towards productive activities with adverse consequences.

The ongoing process of reshaping the African economy from a group of small-segmented national markets into an Africa-wide market is leading to greater efficiency and will bring important welfare gains for consumers and investors. 

The SAR is a massive centralisation of decisions at Africa’s level and a significant concentration of powers in the hands of a small group of individuals, which may endanger one of the fundamental principles of Africa – individual liberty. 

The SAR seems a good idea – but at some point, politicians would like to have that power to intimidate small countries. 

This must be discouraged at all costs. It is Africans’ obligation to serve the interest only of the issuers because SAR is affecting businesses, sovereigns and individuals. 

These microeconomic factors are likely to contribute to improved competition and resource allocation within the African market. 

To that end, it requires plenty of energy, patience and political leadership.

It goes hand in hand with various doubts, disagreements and setbacks. 

However, the objectives of the integration, the improvement of competitiveness and greater prosperity in Africa, as well as joint control over the domination of market forces in a world that is increasingly sensitive are so important that efforts to foster this project should be intensified. 

Therefore, as a longer-term vision, one should see African integration as a step towards better global cooperation and securing peaceful and balanced development. 

The SAR seeks to provide African countries and investors with a corresponding analysis of the sovereign credit ratings.

As our eyes increasingly open to this truth, we must continue to liberate and defend ourselves from limited notions. 

We do not need to reinvent the wheel; we can and should take inspiration from those who are already reshaping the narrative of Africa.

2022-09-30  Josef Kefas Sheehama

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