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Brics ratings agency is 'politically motivated'

Oct 18 2016 07:52
Lameez Omarjee

Johannesburg – The establishment of a ratings agency for Brics (Brazil, Russia, India, China and South Africa) countries is “politically motivated” to suit the context of emerging market economies.

In a telephonic interview with Fin24, Dr Martyn Davies, managing director of emerging markets and Africa at Deloitte, shared views on recent reports that the Brics countries want to “fast-track” the establishment of their own credit ratings agency.

Read: Brics to fast-track new credit rating agency

The agency is meant to “better cater” to developing economies, as opposed to the existing agencies - Moody's, Standard & Poor's and Fitch Ratings - which are believed to favour developed economies.

“The notion that economics must change for developing economies is naïve,” said Davies. Creating a ratings agency “sympathetic” to local contexts is a recipe for potential problems. Similar models introduced in China and Russia have not worked, he added.

The aim of introducing this agency would be to provide an alternative voice to existing agencies, which is more sympathetic to “failing and flailing” state-owned entities (SOEs), he explained.

The idea of a “political conspiracy” against emerging markets is not true, said Davies. Existing agencies rely on data which is consistent. These rating agencies do not take political decisions. “They look at data to make accurate, informed and objective decisions. They do not get it right all the time, but no one is infallible,” said Davies.

In July, businessman Vivian Reddy told Fin24 on the sidelines of Indian Prime Minister Narendra Modi’s state visit to South Africa that a ratings agency for Brics countries would have no political agenda.

He used India as an example of a country with economic growth of over 7% annually, with a lower credit rating than Greece, with recent growth stats at -0.9%. He said that introducing a new ratings agency should address that kind of discrepancy.

(Left to right) Brazilian President Michel Temer, Russian President Vladimir Putin, Indian Prime Minister Narendra Modi, Chinese President Xi Jingping and South Africa President Jacob Zuma at the Brics Summit in Goa on October 16. ( AFP)

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A new Brics rating agency would have to compete in the market by providing a value added service to become “more credible” and “influential”, like any new entrant seeking to grow market share.

That is the view of FNB chief economist Sizwe Nxedlana, in response to Fin24's query on the matter.

“Increased competition is good," he explained. "It tends to lead to the provision of better goods and services at better prices for the end consumer.

"So a new ratings services provider based in the Brics countries should be viewed in the same light,” he said.

A Brics rating agency would have a good outcome provided that it is competent and provides a good service, he added.

Any bias on the part of the rating agency would be “detrimental” to its long-term credibility or sustainability, said Nxedlana. “It should provide a credible service based on sound methodology if it is to gain traction and prosper.”

Read Fin24's top stories trending on Twitter:

fitch  |  moody's  |  s&p  |  ratings agencies  |  brics  |  credit rating  |  investment


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