The financial rating agency Moody's has announced the acquisition of a majority stake in Global Credit Rating (GCR), the first African agency. A step towards total control of the financial rating of African States?
While 95% of global financial rating activity was already concentrated between the “big three” – including the big three, Standard & Poor's (S&P), Fitch and Moody's – Moody's intends to gobble up the only African agency in the sector.
Indeed, the African branch of Duff & Phelps, Global Credit Rating (GCR), the only financial rating agency based in Africa, will see 51% of its shares come under the control of Moody's in the coming days. This takeover bid concerns GCR's offices in South Africa, Nigeria, Kenya, Senegal, Zimbabwe and Mauritius.
Moody's does not hide it. The agency's director for Europe, the Middle East and Africa, Scott Phillips, said his agency's takeover was aimed at "supporting the growth of African capital markets". “We really believe in the story of economic growth in Africa. We see a lot of potential for capital markets on the continent, and GCR is an African champion in this area,” he said on Wednesday.
Nevertheless, “no volunteering in the world of finance”, confides a specialist to us. "It is the logical continuation of the policy of total and absolute control of the big three on the management of risks and the manipulation of financial analysis", he confirms.
The end of the US-China fight for the financial rating market in Africa
The financial rating assesses the risk of non-reimbursement of the debts of States, companies or communities. According to Christopher Alessi of the think tank Council on Foreign Relations, it is an oligopolistic market, controlled by three or four companies in the world ».
The evaluations of the rating agencies have influence on the choices of donors, up to a state level. For example, a country with a favorable rating is more likely to obtain funds from world powers or international institutions, such as the International Monetary Fund.
In Africa, the hegemony of Moody's and S&P has always been moderated by the presence of the GCR. It can also be noted that in the countries where GCR has an office, it is rare for the fluctuations of the financial markets to be dissociated from the reality of the national stock exchanges and the real economic situation. However, with the takeover of GCR by Moody's, this balance risks being lost.
As a reminder, the African shares of GCR were at the center of a bidding war between Moody's on the one hand, and its Chinese rival Dagong. The Chinese agency was seeking both to get its hands on the African financial market, but also to impose itself on the world market where the three American companies control 95% of the agencies around the world!
Is Moody's hegemony in Africa limited?
Nevertheless, according to Moody's Scott Philips, the US agency “wants to increase its relevance in the continent's domestic capital market. But will not intervene in the rating of issuers borrowing on national capital markets in local currency”. Indeed, due to the nature of African currencies, some of which have a fixed parity with Western currencies, Moody's can only process ratings for companies and institutions on international loans. In other words, only markets that are not accounted for in Euros, CFA Francs, or certain other currencies.
As a reminder, Moody's has held a majority stake in the Egyptian agency Middle East Rating and Investors Service (MERIS) for several months. The American agency thus continues, in Africa this time, its wave of acquisitions. Moody's had bought over the past four months shares in some fifty rating agencies in Asia and Latin America.
Scott Philips said Moody's has no plans to start providing credit ratings for domestic capital markets. It "will always leave it in the hands of GCR and other national agencies" acquired by Moody's. “All the things that make GCR successful today, like the management team, the local people… All of that really is the fabric, the foundation of what GCR is, and we don't want to change that,” Phillips said.
However, with several African countries seeking to formalize the return to financial market activity, with the overall decline in Covid-19 cases, Moody's will now have control over the attractiveness of these countries to foreign investors. By focusing almost solely on countries' debt levels, critics point out that agencies like Moody's are forcing African countries to make tough choices. Who often find themselves between spending their limited resources to reduce poverty and save lives, or paying off debts with unreasonable interest rates.