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Financial Integration and Risk Mitigation in Southern Africa: UNDP/S&P Ratings Initiative OECD policy seminar 25 – 26 March Konrad Reuss Standard & Poors Number of Standard & Poor's Sovereign Credit Ratings 120 100 80 60 40 20 0 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 Distribution of FX Sovereign Ratings 1975-2003 AAA (#) AA A BBB BB B CCC/C SD 120 100 80 60 40 20 0 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975 *Implied senior debt ratings through 1995; sovereign credit ratings thereafter. ODA vs. FDI vs. MDGs • ODA flows have been declining: – Peak in 1990 of US$ 63.5 billion – Down to US$ 34 billion in 2002 • Private capital flows to developing countries surpassed ODA going from US$ 60bn to US$ 150bn • Africa received 2.3% of the world FDI, and only 0.7% of world equity investment. • No single African country under the top 20 FDI recipients; flows to 23 of the continent’s 53 countries declined in 2002. • FDI to Africa fell to US$ 11billion in 2002 from US$ 19 billion in 2001 • US$ 50 billion investment needed annually between now and 2015 needed to achieve MDGs Strategic Objectives • Enhance resource mobilisation through strengthening domestic financial systems. • Improve developing countries access to foreign direct investment and other private capital flows. Ratings and LDCs • The traditional use of sovereign ratings vs. the needs of LDC • Are sovereign ratings a sufficient or necessary condition for promoting capital flows to LDCs? • Do sovereign ratings provide new information, that is not already available? Africa – Sovereign Ratings History • South Africa: BB (Oct. 94); BB+ (Nov. 95); BBB(Feb. 2000); BBB (May 2003) • Senegal: B+ (Dec. 2000) • Botswana: A (April 2001) • Ghana: B+ (Sept. 2003) • Cameroon: B (Nov. 2003) • Benin: B+ (Dec. 2003) • Burkina Faso: B (March 2004) Per capita GDP (in USD) 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Benin Burkina Cameroon Ghana B-Median 2000 2001 2002 2003 2004 2005 Real per capita GDP (% chg.) 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 Benin Burkina Cameroon Ghana B-Median 2000 2001 2002 2003 2004 2005 Government deficit-to-GDP 8 6 Benin Burkina Cameroon Ghana B-Median 4 2 0 -2 -4 2000 2001 2002 2003 2004 2005 Government Debt-to-GDP 180 160 140 120 100 80 60 40 20 0 Benin Burkina Cameroon Ghana B-Median 2000 2001 2002 2003 2004 2005 Conclusions • Ratings have to be seen as part of the wider range of initiatives in the context of NEPAD, MDGs and AGOA • The combined effect could open the way toward integrating Africa into global capital markets.
