Tuesday 18 May 2021
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Flags raised over consistency of ratings agencies

Moody’s Investors Service’s decision to revise South Africa’s outlook to stable from negative have focused attention on the role, influence and consistency of ratings agencies when assessing countries.
When South Africa passed a motion to discuss land expropriation without compensation last month, flags were raised in Namibia over the consistency of the modalities used by credit-rating agencies to plug an informational gap in the creditworthiness of potential debtors.
In principle, they[rating agencies] expend resources on gathering data that is otherwise unavailable to prospective creditors and on analysing that data in a manner that is beyond the immediate intellectual capabilities of prospective creditors; they then combine these outputs to deliver an assessment that clients take into consideration when they make lending decisions.
Last year Namibia’s outlook was revised from stable to negative, contributing factors included the Swapo Party congress and the controversial New Equitable Economic Empowerment Framework(NEEEF).
Moody’s problem with NEEEF was premised around the ownership pillar which prompts Namibians to own at least 25% in companies operating in Namibia.
Economist, Salomo Hei, says South Africa’s land expropriation plans and Namibia’s NEEEF have similar intentions and mirror each other by design.
“One of the factors that led to their[South Africa] outlook revision from negative to stable was  because they introduced Value Added Tax that will increase their public revenue stream. In Namibia we introduced a dividend tax, will we be rated on the same basis?” he questioned.
“South Africa got a favourable revision despite the risks that are in place that are to a certain extent similar to ours, these include, high unemployment rates, low growth and increasing public debt. The major difference here is their proactive nature of doing things instead of being reactive,” he said.
Hei called on government to begin engaging ratings agencies more aggressively “to determine what it is that the ratings agencies focus on when they conduct their assessments.”
“We[Namibia] tend to catch the news late, look at South Africa, they were constantly engaging Moody’s prior to the review process and they kept South Africans informed during the entire process. To what extend do such discussions take place in Namibia, if at all?” he questioned.
The economist said “as much as sentiment is key, so is transparency and data authenticity”.
“In light of South Africa’s revised outlook, how do we as Namibia position ourselves to also get a positive outlook?
We need to go to the ratings agencies and tell them what we are doing to address structural inequalities while at the same time maintaining sound and responsible fiscal policies which are also investor friendly,” he said.
South Africa can’t be complacent after Moody’s Investors Services affirmed the nation’s credit ratings at investment grade, Finance Minister Nhlanhla Nene said.

SA ratings
While the government is in a “honeymoon phase” following the election of Cyril Ramaphosa as president and Nene’s return to the National Treasury, it has to take forward its agenda for structural reforms to promote economic growth, the minister said in an interview with Johannesburg-based broadcaster Talk Radio 702 on Monday.
Africa’s most industrialised economy escaped a third junk rating on Friday when Moody’s kept the foreign- and local-currency assessments at Baa3, its lowest investment grade, and raised the outlook to stable from negative. S&P Global Ratings and Fitch Ratings Ltd. cut their assessments of the nation’s debt to junk last year after former President Jacob Zuma fired Pravin Gordhan as finance minister.
Ramaphosa, who replaced Zuma as leader of the ruling African National National Congress in December and as president last month, has since appointed Gordhan to head the ministry of public enterprises, which oversees state-owned companies.
While the other rating companies will consider the same issues Moody’s did when they review South Africa’s assessments later this year, Moody’s decision won’t affect them, Nene said. S&P is scheduled to make a ratings announcement on May 25.
“When they do review us, they will be judging us based on what the situation is then,” he said. “If growth begins to take off, if we begin to address structural reforms, then they are also likely to look at us in a positive light.”
South Africa must still deal with growth concerns but has made “very good improvements” in the fiscal path, which reduces downward pressure on the rating, Gardner Rusike, a sovereign analyst at S&P, said in Johannesburg Tuesday.
The company raised its forecast for South Africa’s economic expansion this year to 2% from 1%, accelerating to 2.1% in 2019, he said. This could help to improve the rating, Rusike said.
“We may have bottomed out on the current rating level,” he said.
*Additional reporting by Bloomberg

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