Hon House Chair, hon Ministers, hon members, comrades and guests, acknowledgement of the triple challenges of poverty, unemployment and inequality means that all efforts must be focused on how South Africa's economy can be changed for the better.
It is a credit to the ANC that between 1994 and 2009, the economy achieved sustained growth, albeit at a low level. Fiscal prudence ensured government debt was consistently serviced and reduced while the budget deficit was reduced steadily. The cost was very low capital investment in infrastructure. However, the credibility of the new government ensured favourable ratings and access to the world's financial markets.
At present, the performance of our economy reflects the recession in the global economy, especially the eurozone. But our leaders in the ANC have done remarkably well to strengthen our trade links with the developing economies in the East, especially given the difficulties facing many world leaders. The financial services sector is at the heart of the South African economy and touches the life of each and every citizen. Financial services allow people to make daily economic transactions, save and preserve wealth to meet future aspirations and retirement needs, and insure against personal disaster. Given the need for higher economic growth and job creation, it is imperative to ensure that the South African financial system remains competitive and that it is made safer through regulation that follows global best practice, but always bearing in mind the specific circumstances of our own economy.
Credit rating agencies serve an important purpose in the capital markets. They assist borrowers to access capital from public capital markets or private loan markets. Their primary duty, without regard to their revenues or business, is to conduct diligent, systematic, independent analysis and provide intelligent, readable, informative and timely reports and opinions about creditworthiness of borrowers to potential lenders. If I may add to this list of requirements, it should, above all, be honest and fair.
Any weaknesses in the system can generate uncertainty and exacerbate volatile markets, which can trigger general financial instability. The cost of capital for government, companies and individuals rises on all levels and reduces disposable income. In other words, people will have less money to spend, and economic growth will drop considerably. This also means fewer jobs, less domestic investment, less foreign direct investment and less risk-taking by capital.
It has been said that, in the run-up to the eurozone financial crisis, credit rating agencies often gave top-class ratings to complex financial instruments that later proved to be almost worthless, meaning immense losses for financial institutions, many of which had to be bailed out by the taxpayer.
Following the credit crisis, with the value and relevance of credit rating being called into question, the ANC government has wisely put forward the Credit Rating Services Bill to raise standards of independence, diligence, codes of conduct and internal controls for credit rating agencies. It also specifies that credit rating agencies bear financial liability.
Credit rating agencies are important financial market participants and need to be subject to an appropriate legal framework that requires them to comply with rigorous rules of conduct in order to mitigate possible conflicts of interest, to ensure high quality and sufficient transparency of ratings and the rating process. The Credit Rating Services Bill aims to introduce standards of care, diligence and process, and to ensure the independence of rating agencies in South Africa and public ratings in this country. It raises several bars, including the adoption of codes of conduct, the introduction of compliance departments, requirements to submit information to regulators and to get regulatory approval, and general statements of the credit rating agencies' duties.
The Bill proposes that credit rating agencies will have to register with the Financial Services Board, FSB, which, before it registers an agency, will be entitled to ask questions about its ownership and organisational structure, corporate governance, resources and expertise to perform credit rating services - information that is currently unavailable to lenders. The FSB will be able to suspend or cancel the registration of an agency that no longer meets the conditions under which it was registered.
The Bill furthermore proposes that an agency will be liable to compensate an investor for the ratings it issues, if it can be proved that the agency did not do a proper job or was materially conflicted in formulating a rating. The senior management of a rating agency will have to meet fit and proper requirements set by the FSB.
Credit rating agencies will be obliged to, amongst other things: ensure that at all times they have the necessary knowledge and experience to issue credit ratings; manage and disclose any conflicts of interest that agencies and their analysts or employees have; use rigorous methodologies that, along with the key assumptions of their ratings, are reviewed regularly to ensure that they are appropriate; publish ratings with their key underlying elements, their attributes and limitations, as well as the practices, procedures, methodologies, model and key assumptions that agencies use when rating credit; and monitor their ratings regularly and publish any decision to discontinue a rating timeously.
There were a number of comments relating to the scope and application of the Bill. I refer specifically to the concern expressed that the South African credit rating services industry would be subject to disproportionate regulation, given the small size of the industry in South Africa. The ANC does not agree. As a matter of fact, the intention with regard to the use of approved external credit rating agencies could be even more explicitly stated.
Some commentators also noted the strategic objectives of the international credit rating agencies to expand into Africa, using Johannesburg as a base, and for the smaller rating agencies to grow business to ensure a competitive and growing industry. As the ANC, we are of the view that, given that many of the rating agencies plan to actually increase the size of their South African offices, this Bill balances the need for good regulation with the need to support the growth of the industry.
As we approach the end of the second decade of the ANC's democratic government, we must be conscious of the fact that despite all of the achievements made thus far, we are still faced with the huge responsibility of accomplishing unfulfilled tasks for the majority of the millions of South Africans. The 1994 democratic breakthrough provided the ANC with the opportunity to pursue economic policies, which hold inclusive growth, development and wealth distribution at their core, in order to bridge the inexorable gap between the rich and the poor, the haves and the have-nots within our country.
Much has been done, and so much more remains to be done. Therefore, the ANC cannot allow grading systems to virtually destroy what has been built up to now, through processes without sufficient standards of care and diligent processes. The ANC supports the Credit Rating Services Bill. I thank you. [Applause.]