The Mercury – 5 April 2017

Independent economist Dawie Roodt:  Both the stock and the bond markets have pre-empted the downgrade, hence the rapid movements on the JSE and the effective devaluation of the urgency over the past two days.

I think pretty much everybody in the finance world realised that it was coming, but that it happened only 90 hours after the reshuffle perhaps came as a bit of a surprise and shows how strongly the rating agency feels about the changes.  It is virtually certain that the other two rating agencies will follow suit.  The only silver lining was that S&P’s decision might perhaps be the catalyst that pushes President Zuma over the brink.  The moment Zuma decides to step aside, South Africa incorporated will immediately become a buy.  We will see an immediate uptick in growth, a rapid inflow of foreign direct investment with a commensurate decrease in unemployment and increased economic growth.

Chris Gilmour, an investment analyst at Absa Wealth & Investment:  Management:  Junk status means South Africa is going to have to pay more, to raise the money it needs for economic growth, key projects and service delivery.  Like individuals approach a bank for a home loan to buy a house, governments source financing from international financial markets to fund key projects like new roads and power plants.

Interest rates will most likely rise, thus increasing the monthly cost on things like home loan and vehicle finance repayments.  We may also find that the rand loses further ground against international currencies, which would increase the price that we pay to import foreign goods into South Africa.  On average, if we do all the right things, it could take South Africa anything between five and seven years to get out of junk status.  We would have to convince the rating agencies that we can display that we’re not going to allow wasteful expenditure to take place on a big scale.

Essentially, we’re going to have to find a balance in how we spend our money.  Let’s take the average South African who has a home loan, vehicle finance, perhaps a personal loan and a credit card.  Being downgraded to junk status, we could conceivably – over time – be paying 2 to 3 percent more to service this debt.  Perception is everything when it comes to ratings.  As long as South Africa has a plan in place, we can regain a better rating.  We will see no proportionally linked wage increase in the future and the ability of your average consumer to repay their debt is going to be hugely compromised.  It’s going to mean the consumer will be under relentless pressure – particularly the consumer who over-indebted.

Ian Matthews, the Head of Business development at independent investment bank and corporate finance advisory firm Bravura:  it is clear that increased domestic private investment will only take place when government creates an environment that strengthen business and investor confidence to help the country move out of its low-growth cycle.  Clear and consistent policy-making, good governance and a clamp on corruption will promote private investment.

The events of last week are not indicative of a government that treasures the fragile confidence of the business sector.  Uncertainty among local and international investors is likely to reverse South Africa into another low-growth cycle, with dire consequences.  Indeed, the S&P’s downgrade will have severe consequences for the South African economy going forward.

We are at a crossroads.  South Africa will only through a concerted effort by government and business reach its full potential, or the GDP will continue to decrease.  To a very large extent, the private sector holds the key, but government holds the door.

Black Business Council (BBC):  Following the announcement by S&P Global Rating Agency to downgrade South Africa to sub-investment grade, the BBC believes that this is a questionable and a bad judgement by the agency.

The BBC is of the opinion that South Africa has built a resilient democracy and institutions that are better placed to protect the country and respond accordingly to any difficult situations.

“Our democracy is table and we do not have situations that are prevalent in some of the war-torn countries in the rest of the world. We are not about to have regime change or coup d’état in South Africa.

Our schools and health systems are in good shape that some of the multinationals with operations in other African countries choose to live in South Africa with their families and commute to these countries.” says Danisa Baloyi, the president of BBC.

It’s the BBC’s view that there is no justifiable basis and rationale for downgrading our country.

There are many other investors around the globe that trade South African Bonds.  They assess the country’s creditworthiness continuously, and their collective judgement is that South Africa has the means and political will to make good on its obligations.

The magnitude of this action by S&P’s and the haste with which S&P’s have changed its principal rationale for action after the cabinet reshuffle raise fundamental questions about the credibility.

 

Ian Matthews discusses how radical transformation policies and the ratings downgrades will impact negatively on private investment in South Africa

Watch Here:
Ian Matthews – SA’s Radical reforms, downgrade on investors on CNBC Africa – April 2017

Catergories: Economy, News
Published: April 5th, 2017