Strikes not the end of the world

2012-10-04 00:00

THERE is no reason to panic about the wave of bad news in recent times, says Roelof Botha, one of the country’s leading economists.

After weeks in which the bloody mineworkers’ strike at Marikana has spread to other mines, shops, ATMs and filling stations are all running low on stock due to a strike in the road transport sector.

A countrywide strike of municipal workers is looming.

Moreover, on Tuesday, the credit rating agency Moody’s extended its downgrade of the government to 12 municipalities, Eskom, Telkom and the East Rand Water Care Company (a municipal entity in Ekurhuleni).

Prospects for seven other municipalities and the Gold Fields gold mine have been adjusted from stable to negative.

Such a downgrade means that the entities will find it more difficult to borrow money and that repayment interest rates will be higher.

These higher financing costs could lead, for example, to higher municipal and electricity charges.

In addition, the South Africa Chamber of Commerce and Industry’s (Sacci) business confidence index dropped again yesterday.

Botha says Moody’s are mistaken.

“We have had 12 consecutive quarters of economic growth and the budget deficit is shrinking. There are large infrastructure projects underway, such as the construction of two power stations, dams, harbours and pipelines, which can ensure growth.

“PriceWaterhouseCoopers, the Reserve Bank, and virtually every other organisation in the world, including the International Monetary Fund, are predicting substantially higher economic growth in 2013, as against almost no economic growth in Europe,” says Botha. “The per capita disposable income of households has risen by 46% since 1994,” he adds.

This figure has been recalculated to show real growth without the distortion of inflation.

Mike Schüssler of economists.co.za says the latest events have increased the chances of a recession from 5-10% to 20%, and the wave of strikes will lead to job losses, but “it’s not the end of the world”.

He says the good news is that in response to the recent events, people are paying closer attention to reasonable voices such as those of Pravin Gordhan, Gill Marcus, Trevor Manuel and Naledi Pandor.

The downgrade will affect municipalities that are planning to borrow big money soon.

Cape Town deputy executive mayor Ian Neilson says that city has just finalised a R2 billion loan with the French Development Bank and the interest rate is fixed. However, should the council want to borrow money again in a year or so, it could cost more because of the downgrade.

From the Moody’s statement, the downgrades appear to be based on municipalities’ dependence on central government and are purely a result of their weaker financial position.

Furthermore, Moody’s did not investigate all municipalities and single out some of them to downgrade. The agency simply reviewed the rating of all its clients.

Eskom said yesterday that another rating agency, Standard & Poor’s, left its ratings unchanged.

CEO Brian Dames said, however, that Eskom’s R180 billion debt will double in the next six years, and its credit rating could determine whether it will obtain the necessary loans and at what price. This could be used to argue for higher electricity tariffs.

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