TCSA to launch Sovereign Africa Ratings
The new product extension of TCSA will be called Sovereign Africa Ratings. Announcing the changes on Wednesday morning Sifiso Falala, the CEO of Plus 94 Research, remarked that TCSA as a brand had improved a lot over the years and that the envisaged new changes cannot be accommodated within TCSA in its current format. Some of the most telling TCSA improvements were announced at a project briefing by Plus 94 in September 2018.
“We recently hosted the BRICS summit in South Africa, during which it became quite clear that there was a need for an alternative sovereign rating measure to the known international brands. We made a decision to invest in ways by which an African Sovereign Rating product could be piloted following on our success with the Top Companies Index”. Falala said. He added that Sovereign Ratings were in many ways a step up from the TCSA, involving “more extensive retrospective background economic research”.
Plus 94 Research has spent some years analyzing the calculation methods used by the most visible ratings agencies in the world. An important consideration for the emerging market is not just the methodology but the relevance and efficacy of the variables used.
According to the company there are currently three internationally recognised Sovereign rating agencies, namely: Standard & Poor’s, Moody’s and Fitch. On the basis of the probability of default and the average monetary loss incurred by the defaulting party, Moody’s ratings indicate an expected loss. On the other hand, Fitch limits itself to evaluating only the likelihood of default prior to it occurring, thus differentiating the agency’s assessments on the basis of recovery of the principal investment. In contrast, S&P’s ratings seek simply to reflect the likelihood of default. However, they do not estimate the magnitude of this likelihood, the period during which the government will remain in default or the expected amount involved in the recovery of principal.
Taking the emerging market scenario into account, Sovereign Rating is mainly based on seven major pillars: Economic facts, Governance outlook, Population Optimism, Infrastructure and Technology, Education, Healthcare and Crime control. A significant proportion of the data is obtained through a survey, internationally recognized data agencies such as the World Bank, approved literature sources and news. This together with a designed weighting system are then used to come up with a rating score of an economy under consideration.
Currently, S&P, Moody’s and Fitch have maintained their outlook on all BRICS nations as stable with different grades on each rating agency. However, it is important to note that these agencies used calibration methods that are different to quite a substantial number that will be used by Sovereign Africa Ratings.
It is hoped by the researchers that eventually the relationship between the performance of the private and public sectors measured through TCSA can be used to predict overall investment risk, which is a summative function of the inputs of both government and the private sector.