African Entry into Capital Markets Key to Getting Foreign Investment

Kansteiner to host Sovereign Credit Ratings Conference April 23

Washington -- Increasing private sector investment in Africa is one of the Bush administration's top priorities for the continent, says Walter H. Kansteiner III, assistant secretary of state for African affairs. Toward that goal he is sponsoring a half-day conference on Sovereign Credit Ratings for Africa April 23 at the State Department.

"It's really an effort to get the African finance ministers and central bank governors cognizant that private capital markets are very important for their future. And the way to get into private capital markets is that you've got to start with the credit rating," Kansteiner told the Washington File in a recent interview. The conference, to be held on the day following the World Bank/IMF spring meetings, will take advantage of the ministers' presence in Washington.

The proposed conference agenda includes welcoming remarks by Secretary of State Colin Powell, and Treasury Secretary Paul O'Neill has been invited to deliver the luncheon address.

There will be a panel of "success stories" from African countries that already have a credit rating, Kansteiner said, adding: "There will be some good stories there. They will explain how it was easy to go through the 'due diligence' process, and how attaining the ratings has been useful to them. I think it will also be interesting to see which countries show up. That will say a lot about which countries are willing to open their books to get this determination."

With sovereign credit ratings, the governments of sub-Saharan Africa can signal to the international market their readiness to participate in the global economy by opening their books to public scrutiny, maintaining transparency, and adhering to liberalization policies and reform efforts, the official said.

Only a handful of African governments currently have sovereign, meaning "national," credit ratings, he said. These include Botswana, Mauritius, Senegal, and South Africa. The conference aims to educate sub-Saharan African nations about the benefits of, process by which to attain, and implications of having sovereign credit ratings.

The credit rating agency that will conduct the ratings will be selected through the competitive bidding process. One of the three established credit rating agencies - Standard and Poor's, Moody's, or Fitch - will receive the contract. The successful agency will also co-host the conference.

The contractor will then work independently with the countries to issue the ratings. The ratings process takes less than three months per country and several countries will probably be rated simultaneously. In this way, the completion of credit ratings in eight to 10 countries is projected to take less than one year.

Issuance of the sovereign credit ratings will include analysis of financial and economic data; a trip to each country to be rated, during which representatives of the rating agency will speak with a range of individuals from different elements of society who have an interest in and knowledge about the country's financial and economic situation; and, lastly, a review of their report with officials of the rated country before final issuance of the rating, to allow for further clarification.

The official rating includes a "letter grade" rating, for example AA- or BBB, on the country's ability and willingness to pay its debts, and a standard written report that provides more detailed information to investors.

Among the benefits of attaining a credit rating, the secretary said, is that such ratings foster transparency in the collection and dissemination of information, and help to justify realistic monetary and fiscal policies throughout sub-Saharan Africa, even in the face of political opposition, as countries feel the pressure to keep up with neighbors who receive sovereign credit ratings.

Therefore, the dialogue between rating agencies and government officials can strengthen a government's commitment to market-oriented growth strategies and improve its credibility.

The rating process, as well as the rating itself, can operate as a powerful force for good governance, sound market-oriented growth, and the enforcement of the rule of law, Kansteiner said.