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BRICS setting up its own credit rating agency

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Experts on regional strategic policy have urged BRICS member countries to step up efforts towards setting up its own credit rating agency as an effective mechanism to consolidate the bloc’s new multifaceted spheres of cooperation. BRICS (Brazil, Russia, India, China and South Africa) is currently working on a set of new proposals including the establishment of women business club and a rating agency, among others, for the 10th edition of BRICS Summit scheduled to take place from 25-27 July, 2018, in Johannesburg, South Africa.

As far back in 2015, Prime Minister Narendra Modi of India called upon members of BRICS to take begin the BRICS credit rating agency. India has long held the view that a new rating agency would provide an immense contribution to the existing knowledge of rating systems. Since then, there have been discussions at several conferences and forums, the latest was during the special panel session on the future prospects of BRICS at the St. Petersburg International Economic Forum late May.

“As a first step towards creating such an agency, we propose the countries offer their national agencies to form a network. Our partnership with one of the Chinese rating agencies, Golden Credit, could be used as a prototype of this network,” Ekaterina Trofimova, Chief Executive Officer of the Analytical Credit Rating Agency, said.

There are also similar views. “Many foreign countries most often consider or rate BRICS countries, enterprises and financial institutions get a biased evaluation. We would like to see more neutral ones that we can further relate to,” according to Sergey Katyrin, President of the Chamber of Commerce and Industry of the Russian Federation. It’s necessary to have unbiased ratings of institutions of BRICS countries as there are is open to the world and consistently expanding ties with concerned countries and seek integration into business associations, he explained.

Jayshree Sengupta, a Research Fellow from the Observer Research Foundation in New Delhi, India, thinks that BRICS want to have their own rating agency and are set to have it soon because the three international rating agencies Moody’s, Fitch and Standard & Poor that dominate the world sovereign rating market have been rather unfair to BRICS members and other developing countries. They frequently downgrade them on unjust grounds and criteria that serve western political interests. They downgraded Brazil and Russia in 2017 and keep changing their grading about India, creating much uncertainty.

Sengupta indicated in an email interview that “their ‘issuer paid’ model of rating is biased and BRICS members are perhaps contemplating having their own rating agency on ‘investor pays’ model which may be more appropriate for their Emerging Market economies.”

While expressing the fact that the idea is highly laudable, Francis Kornegay, a Senior Research Fellow at the Institute of Global Dialogue, University of South Africa, explained recently to me that “it has something to do with the global economic balance of power as to whether there is sufficient leverage among BRICS countries and other emerging powers to provide such an alternative.”

Kornegay specializes on global geopolitical and strategic trends and he is also a long-term analyst of global South and emerging power dynamics and US foreign policy. As such, he recently produced, as lead co-editor, Laying the BRICS of a New Global Order: From Yekaterinburg 2009 to eThekwini 2013 (Africa Institute of South Africa).

The BRICS economic growth rate is increasing. “Starting last year, all BRICS countries have demonstrated positive trend in economic growth. Moreover, we expect that the growth rate will be increasing through 2018 and 2019, especially in India,” according to Yaroslav Lisovolik, Chief Economist and Managing Director for Research at the Eurasian Development Bank.

Thus, a BRICS own rating agency has the benefit of reducing the dependency of sovereign and corporate ratings of the developing world on the verdicts of the “big three” referring to Moody’s, Standard & Poor and Fitch. “The fact that all five BRICS economies are to participate in launching the ratings agency serves as a wide enough base to create sufficient demand and use of its ratings compared to the relatively narrow potential of national rating agencies,” he explained.

In other words, an alliance among the largest developing countries is crucial in launching such an enterprise – on top of the possibilities of operating in the BRICS countries themselves and there may also be the possibility to expand the operations of such an agency to the regional partners of BRICS countries, Lisovolik suggested.

On his part, Brazilian Ambassador to Russia, Jose Vallim Antonio Guerreiro questioned how the procedures of existing rating agencies could be applicable to all economies. “The question is whether this procedure includes all the relevant factors. You may need to look for alternative indicators and broad approaches to assess the health of economies,” he argued. “I do not believe that the new agency will be something to resist the existing institutions. They do their job, and certainly, there is a demand for their services. But it is possible that the BRICS countries will elaborate a different approach.”

Some experts still cast doubts about the feasibility of the project. “As far as I know, this endeavour was considered too expensive and not feasible at the moment,” Professor Georgy Toloraya, Executive Director at the National Committee on BRICS Research in Russia, wrote me simply without detailed discussion on the topic.

But, an Associate Researcher at the South African Institute of International Affairs (SAIIA), who requested for anonymity, strongly suggested that the BRICS credit rating agency as a business project could be well-managed if given to India, or at best, to China that previously offered a larger part of seed capital for the establishment of the New Development Bank.

The Financial Times reported that BRICS countries have long deliberated on plans to establish their own rating agency along with the formation of the New Development Bank. The BRICS member countries (namely Brazil, Russia, India, China and South Africa) collectively represent about 26% of the world’s geographic area and are home to 2.88 billion people, about 42% of the world’s population.

*Kester Kenn Klomegah frequently writes about issues connecting Russia, Africa and BRICS.

MD Africa Editor Kester Kenn Klomegah is an independent researcher and writer on African affairs in the EurAsian region and former Soviet republics. He wrote previously for African Press Agency, African Executive and Inter Press Service. Earlier, he had worked for The Moscow Times, a reputable English newspaper. Klomegah taught part-time at the Moscow Institute of Modern Journalism. He studied international journalism and mass communication, and later spent a year at the Moscow State Institute of International Relations. He co-authored a book “AIDS/HIV and Men: Taking Risk or Taking Responsibility” published by the London-based Panos Institute. In 2004 and again in 2009, he won the Golden Word Prize for a series of analytical articles on Russia's economic cooperation with African countries.

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Economy

An Airplane Dilemma: Convenience Versus Environment

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Mr. President:  There are many consequences of COVID-19 that have changed the existing landscape due to the cumulative effects of personal behavior.  For example, the decline in the use of automobiles has been to the benefit of the environment.  A landmark study published by Nature in May 2020 confirmed a 17 percent drop in daily CO2 emissions but with the expectation that the number will bounce back as human activity returns to normal.

Yet there is hope.  We are all creatures of habit and having tried teleconferences, we are less likely to take the trouble to hop on a plane for a personal meeting, wasting time and effort.  Such is also the belief of aircraft operators.  Add to this the convenience of shopping from home and having the stuff delivered to your door and one can guess what is happening.

In short, the need for passenger planes has diminished while cargo operators face increased demand.  Fewer passenger planes also means a reduction in belly cargo capacity worsening the situation.  All of which has led to a new business with new jobs — converting passenger aircraft for cargo use.  It is not as simple as it might seem, and not just a matter of removing seats, for all unnecessary items must be removed for cargo use. They take up cargo weight and if not removed waste fuel.

After the seats and interior fittings have been removed, the cabin floor has to be strengthened.  The side windows are plugged and smoothed out.  A cargo door is cut out and the existing emergency doors are deactivated and sealed.  Also a new crew entry door has to be cut-out and installed. 

A new in-cabin cargo barrier with a sliding access door is put in, allowing best use of cargo and cockpit space and a merged carrier and crew space.  A new crew lavatory together with replacement water and waste systems replace the old, which supplied the original passenger area and are no longer needed.

The cockpit gets upgrades which include a simplified air distribution system and revised hydraulics.  At the end of it all, we have a cargo jet.  If the airlines are converting their planes, then they must believe not all the travelers will be returning after the covid crisis recedes.

Airline losses have been extraordinary.  Figures sourced from the World Bank and the International Civil Aviation Organization reveal air carriers lost $370 billion in revenues.  This includes $120 billion in the Asia-Pacific region, $100 billion in Europe and $88 billion in North America.

For many of the airlines, it is now a new business model transforming its fleet for cargo demand and launching new cargo routes.  The latter also requires obtaining regulatory approvals.

A promising development for the future is sustainable aviation fuel (SAP).  Developed by the Air France KLM Martinair consortium it reduces CO2 emissions, and cleaner air transport contributes to lessening global warming.

It is a good start since airplanes are major transportation culprits increasing air pollution and radiative forcing.  The latter being the heat reflected back to earth when it is greater than the heat radiated from the earth.  All of which should incline the environmentally conscious to avoid airplane travel — buses and trains pollute less and might be a preferred alternative for domestic travel.

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Economy

There Is No Business, Like Small Business: New Strategy

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Marc Chagall, Circus Horse, 1964

Once upon a time, all big businesses of the world were only small businesses. However, occasionally, when big businesses classified as too big to fail, it is the special status when they start failing their own nations, damaging common good, hurting humankind at large. This is when big business allowed to morph into a Godzilla to trample all over the governments and institutions and line them up as hostages. Study the rise and fall of the world’s largest business empires of last century. 

Now Showtime: There is no business, like small business, because the small business sector is not only a giant business, but also the biggest layer of the economy, largest contributor in kind to its nation, adding jobs, paying taxes and creating real value creation, while taking all the abuse and bureaucratic nonsense.  Hence, post pandemic recovery will take no prisoners and harshly unleash economic challenges as mirror on the economic development competency and question national priorities. Here, no worries, as usual the big business will always take care of itself. Small business will be the only game left in town, something for the political leadership to cling on to and something for local trade groups to try to claim as success. The definitions on what is big and what is small are both on the table for honest evaluation and equally juxtaposed need a declaration on what business serves the economy of the nation and what business destroys the economies of nation.

New math of the post pandemic world clearly shakes down old mindsets. Unless national economic development leaders, trade groups and trade associations acquire proven entrepreneurial experiences, expertise and tactical battlefield capability at the very top and display a warrior mindset to upskill for global competitive excellence, they are just a dance party with water pistols.  Entrepreneurialism is the real value creation driving force behind the economy and not a value manipulation exercise with some certificates. Any misunderstanding on such issues only creates shiny cities, surrounded by tent-cities. Study the global economic chaos and worklessness is creeping across the world.

The illusion of super big technology driving super global growth is another myth of crypto-tyrannies. The worshiping super magnanimous technologies, including Facebook engaged in stealing the future from the next generations, now manipulating data to divide and conquer elections and serving special agenda groups causing tribalism and global socio-economic damage. Study how the future routinely stolen in broad daylight by Social Media. 

Mutation of economic thought:  Why is creation of fake economies much easier; this is where zeros bought, sold and traded as real assets, everything multiplied, subtracted, divided but nothing adds up, there are no bottom-line totals, ever. When columns do not fit anywhere, like an abstract art on canvas, for the eye of the beholder they glow in the dark. Hence, cubism-finances  and impressionist-economies, while on the other hand, real value creation economy is one of the hardest journeys,it isrealentrepreneurialism wrapped in integrity and solid hard day’s work creating common good. The reason is that small medium businesses have lost trust in their government and major institutions, while they paint the economy as abstract art and print invisible unlimited money but SME only thrown in jail if they only photocopy a dollar bill.  Covidians demand a new narrative on economic affairs and overall totals of budgets.

Unless trade groups of nations assembled and thanked profusely for their work done over the last century. Invited to join as new players, as this is now a new page for a new age and a new direction for a new digital future. Let meritocracy chart out the future of trade-groups; let vertical sectors build their own independent global age narratives to ride on entrepreneurial mindsets. When methodical agenda on simultaneous synchronization bring all key components under master plan tabled critical thinking and hardcore business experiences should lead. When vertical groups and all upskilling and reskilling features interact on digital platforms combined, eventually they will all see the light and most importantly learn the future of the global-age of digital commerce. Upskilling of all layers is critical so all grow together. Reskilling to create real value production is essential so it becomes a sustainable model. 

With no room to spend another decade on some academic feasibility studies, organize a warrior team to undertake such mobilization developments. Such national mandates are often not new funding dependent rather execution starved and deployment hungry. Why shut down the electricity of the building and climb the skyscraper via the staircase.  With the majority of nations locked up in an old mindset on digitization, today, they simply cannot zip up to the top floor, exhausted and breathless as they are climbing stairs and badly stuck on lower floors.  Pandemic recovery is harsh. Fire the first person who says they need heavy new funding, fire the second person who says they are too busy to change. Change is a gift for free but for the right mindset.

The New Trends: National mobilization of entrepreneurialism will advance; small and medium businesses will grow, as they have no choice but to upskill innovative excellence and reskill for quality manufacturing of goods and services. Learn from Asia, study Africa, stop reading newspapers but the world maps, acquire new math from ‘population-rich-nations’, and expand collaborative alliances with the knowledge-rich-nations to reach global markets.

New Trends on Small Medium Business Economy:

The new math:  why all over the world it is now attracting new entrepreneurs at rapid speed? Why are Covidians all over the world refusing high-rise, low pay, cubical-slavery and transforming to creative freedom, global-age access and hammocks. Today a USD $1000 investment in technology buys digital solutions, which were million dollars, a decade ago. Today, any micro-small-medium-enterprise capable of remote working models can save 90% of office and bureaucratic costs and suddenly operate like a mini-multi-national with little or no additional costs.

The new uplifts: How struggling economies are now exploring the “National Mobilization of Entrepreneurialism on Digital Platforms of Exportability Protocols” as alternate revolutionary thinking. Study how Africa model under Dr. Ameenah Gurib-Fakim is expanding and why the groups of western developed economies are so fearful of such a mega shift in thinking. Study Expothon on Google.

The new speed: If Agrarian age to industrial age took a millennia, while industrial age to computer age took a century, now from cyber-age to paperless, cash-less, office-less and work-less age it is almost knocking the door, just open and see. Is this the revenge of The Julian Calendar, time like a tsunami drowning us in our own depths of performance, challenging our lifelong learning and exposing our critical thinking forcing us to fathom the pace of change, swim or drown?

Time to study deeply, why forest fires always put out by creating more selected fires;  therefore let government and bureaucracy stay where they are, while creating a far superior brand new meritocracy centric digital firefighting unit to act at the top and bring required results. The cost is a fraction of what routinely wasted 1000 times in lost and missed opportunities.

Time to appreciate, why is the fear of exposure of limited talent the number one fear of adapting digitizationas digital-divide is just a mental-divide.Why without digitization there is no economy and why it has taken decades?

Time to apply entrepreneurial mindset, why incentivizing all frontline management of all midsize business economic development and foreign investment attraction and export promotion bodies is a requirement of time? Observe the power of entrepreneurial mindset in the driver seat, deploy national mobilization of midsize economies, accept upskilling as a national mandate, and digitization as national pride.

Is there any authoritative leadership on entrepreneurialism present in the boardroom?  No need to have chills, as mainly from Asia, there are some 500 million new entrepreneurs already on the march, therefore, no need to ask where are they headed but rather ask where your national entrepreneurialism is going? Study why entrepreneurialism is neither academic-born nor academic centric, why all most successful legendary founders that created earth shattering organizations were only the dropouts?

Is there a new realization or back to water pistol games? Not to be confused with academic courses on fixing Paper-Mache economies and already broken paperwork trails, chambers primarily focused on conflict resolutions, compliance regulations, and trade groups on taxation policy matters.  Mobilization of small medium business economy is a tactical battlefield of advancements of an enterprise, as meritocracy is the nightmarish challenges for over 100 plus nations where majority high potential sectors are at standstill on such affairs. Surprisingly, such advancements are mostly not new funding hungry but mobilization starved. Observe the trail of silence. The empty shelves are not supply chain issues but symptoms of broken down economies. Economies are not cryptopia; they are about real value creation by the local small medium business forces to create local grassroots prosperity. The failure is not having the right mindsets.

Five things to watch for the year 2022: US election will surprise the world as it has the last two times. World economies tested, financially along with leadership competency levels. Big business will remain big and undisturbed.  The Covidian will march for truth. Small medium business mobilization will further grow as a reliable answer to the economy and jobs.This is how humankind will crawl towards critical thinking.

The rest is easy

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Economy

The Philippines’ Circular Future

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From the period of 2000-2019 The Philippines placed 4th as the most affected by climate-related disasters according to the Climate Risk Index. This is because geographically, it occupies an area that makes it a hotspot for tropical typhoons and other natural disasters. But the system of rural livelihood in the Philippines and it’s archipelagic state are also contributing factors to its vulnerability to the impacts brought about by the climate crisis, such as sea-level rise and extreme weather events.

Understanding these realities, the government has been proactive in developing the country’s adaptive and mitigating capacities.  These efforts are seen in their national and global initiatives such as the establishment of The Climate Change Act of 2009, a law that aims to prevent and reduce the adverse impact of climate change, as well as taking part in the Paris Agreement through its NDCs that commits to a 75% reduction in carbon emissions by 2030.

A Circular Economy

Beyond the health and social crises caused by COVID19 pandemic, it has also underscored the importance of fast tracking climate action and the need to rethink economic systems through circular models as supported by the Department of Finance Secretary Carlos G. Dominguez III. Currently, the House Bill (HB) 7609, also known as “Philippine Circular Economy Act of 2020” is being proposed to serve as a mitigation strategy to accelerate the country’s contribution to the 2030 Agenda for Sustainable Development through mainstreaming of circular and sustainable consumption and production strategies. Similarly, according to The Circularity Gap Report 2021 of the Circle Economy, the implementation of a circular economy would complement the efforts of the NDCs globally, as it will aid in keeping the global temperature rise to well below 2degC by 2032.[1]

Circular economy is a consumption production model that in essence would allow elimination of waste through maximizing the use of valuable resources within systems, the opposite of current linear economies in which products are disposed of after use. This can be achieved by ensuring that materials circulate within operating networks while also allowing natural systems to regenerate. In order to implement this effectively would require collective commitment from stakeholders across the value chain i.e. from the public and private sector, up to the consumers.

Inline with this pursuit, among other proposed key initiatives of the government that are being developed is the Single Use Plastic Regulation Act (HB 9147), a tiered phase-out plan for single-use plastics (SUPs) that aims to improve the country’s waste management and promote circularity. The HB 9147 is also aimed to foster engagement within the business community through the integration of an Extended Producers Responsibility (EPR) scheme. This EPR scheme will serve as a policy tool that would instill accountability from producers throughout the lifecycle of their products that utilize plastic packaging. This scheme will promote funding and collaboration among the private sector and the government through the shared responsibility in managing these waste. At the same time this will encourage innovation of more sustainable and eco-friendly designs for products and packaging.

Business opportunities in the shift from linear to circular pathways

Accordingly, these proposed policies should not be viewed as threats by businesses in order to reap the benefits it entails. Gary Steele, group CEO of TES, enumerates several opportunities that businesses can leverage from this scheme, such as improved reputation and customer relationship through extended value adding services. Steele recognizes that this system also decentralizes sources of raw materials needed for the production of goods, thus contributing to strengthening the supply chain. As such, a circular economy would open avenues for innovative business opportunities that would result from the recycling of waste materials and even repair of products among others. Ultimately these opportunities contribute to reduced cost and increased profits, making a strong case for the implementation in business models and marketing strategies.

Building momentum towards transformational change

However, the degree of circularity within the Philippines is still relatively low as noted in a study by the Asian Development Bank in 2020[2]. Reasons for this are mainly due to its large primary resource extraction sector, growing infrastructure development and poor waste management at municipal levels. Albeit laws such as the Ecological Solid Waste Management Act of 2000 have been implemented, the country’s lenient law enforcement and lack of infrastructure continues to serve as barriers to its waste management efforts.

That being said, it is imperative that the Philippines continues to develop an enabling environment for businesses to champion circularity through financial incentives, new legislations and the enforcement of already existing laws. Given the economic, environmental and social benefits that a circular economy presents, it’s vital that it continues to build on this current momentum in contextualizing and mainstreaming the concept of a circular economy in the country. It is important that the countries, including the Philippines, exhaust all efforts in contributing to climate action to prevent the forecasted catastrophic events that lie ahead. This would need transformational changes in our systems, one of which is a shift to a circular future.


[1] Circle Economy. (2021). The Circularity Gap Report 2021.

[2] ADB. (2020). Regional: Supporting Implementation of Environment-Related Sustainable Development Goals in Asia and the Pacific (Philippine Subproject) Circular Economy in the Philippines.

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