Rating agencies which have continued to show their culpability – no more so than during the 2008 world economic meltdown – continue to be used as a yardstick by markets in evaluating investment grades of countries and business.

With Covid-19 proving a leveller, the effects of which will require a reset for most if not all economies around the world, would now not be an opportune time to call for reform at the three biggest rating agencies: Moody’s, Fitch, and Standard & Poor’s?

This is not a new call: the US Congress has tried but has failed in its bid to have both the banking sector and rating agencies, both highly complicit in the 2008 market crash, better regulated.

The Financial Crisis Inquiry Commission found credit rating agencies to be the “key enablers of the financial meltdown” in 2008.

German Finance Minister Wolfgang Schäuble made a call as far back as 2011 that the world needed to “break the oligopoly of the rating agencies”. Rating agencies have been continuously accused of being politically biased, using a flawed methodology and encroaching on government policies.  

Seemingly, very little has changed.

And now, in the time of Covid-19 people are starting to ask: how necessary and relevant are these rating agencies as countries look to reimagine and refocus their economies?

South Africa, for example, was junked before the pandemic took a foothold in the country as it did elsewhere. Seemingly ignoring this, foreigners are returning to South Africa’s bond market, Bloomberg reported on Friday 12 June 2020.

“It’s as if South Africa’s downgrade to junk never happened,” the Bloomberg article starts off.

Given the intricacies and volatility of markets, more so now than ever in the past 100 years or so, we can but hope that this is a clear indication that investors are seeing opportunity in markets and countries which may have been downgraded by these dubious report cards from the rating agencies.

More so, how much credibility does, say, Standard & Poor’s have in terms of its Africa focus? It has one office on the continent – in Johannesburg. It is as easy for them to continue to play dice with the economies of developing nations as it is for them to have colluded with Wall Street banks.

Also, rating agencies have often been accused of pronouncing on a country’s rating once the market has reacted to a borrower. They have also been accused of false ratings, having and using flawed methods, having political bias, rating shopping, encroaching on governments’ policy and selective aggression.

An example of bias is the rating agencies’ higher-than-deserved score for Greece ahead of the 2008 financial crisis on the basis that it was part of the Eurozone and would therefore be automatically bailed out. 

Which, as history has proven, did not quite work out that way.

Also, obvious and clear conflicts of interest exist, not least the fact that institutions being rated are paying for the rating which is then used by investors to inform how and where they spend their money. 

Perhaps as the current custodians of the African Union chairpersonship, South Africa should start a conversation on the continent about the continued influence of rating agencies on developing nations. 

And perhaps these should be broadened to be discussed at BRICS level as well. 

The rating agencies continue to operate with an almighty level of impunity despite being shown to be vulnerable and highly susceptible to corruption, bribery and collusion.

Some commentators have recently voiced their concern for Africa, given the economic frailty of the so-called established economies of the West.

Noted writer Sharon Harris in Born2Invest says “having lost operational space in the US and Europe, the rating agencies have ‘thrown themselves’ against emerging countries, particularly those in Africa. 

“It is not necessary to have analytical skills to imagine the economic difficulties in a world devastated by the Covid-19. Especially in the emerging countries, which have always been susceptible to what happens in advanced economies.”

So, once again, developing nations have to bear the brunt of whatever catastrophe is happening in “advanced” economies.

If we are to combat systemic biases, which essentially forms the basis of the #BlackLivesMatter movement, then surely we need to look at how poorer countries, the majority of whose populations are black, are treated by the agenda-setting nations, most of whom have never been made to pay reparations for colonial genocide, the ravages of which still haunt Africa and South America, in particular?

Rating agencies should not be allowed to continue doing business the way they did previously and should be held accountable by the investors looking for credible financial insights, but also the governments which have had to bear the brunt of these agencies who use a wholly biased lens to peer through, especially in their estimation of developing nations. 

We cannot afford for them to continue playing Russian roulette at a time when so much is already at stake. DM