Facing Facts: SA really has problems

2012-10-10 00:00

LAST week saw a cascade of South African debt downgrades from ratings agency Moody’s. First, Moody’s started at the top and downgraded South African government bonds to Baa1 from A3, with a negative outlook indicating the potential for future downgrades.

Moody’s then downgraded the long-term ratings of “13 South African sub-sovereign issuers, including 12 local governments and one government-related issuer (East Rand Water Care Company), and changed the ratings outlook to negative from stable on another seven local governments in the country”. This action included the downgrading of the ratings of Cape Town, Johannesburg, Tshwane, Nelson Mandela Bay; the downgrading of the outlook for a host of municipalities; and the downgrading of the outlook for the South African National Roads Agency (Sanral).

That was a lot to cope with, but Moody’s still wasn’t done. The agency then announced that it had downgraded Telkom to Baa3 from Baa2, and the outlook for Gold Fields to stable from positive. For most of us, that would be enough work for one week, but Moody’s kept at it, announcing the downgrading of Eskom to Baa3 from Baa2, the downgrading of the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation of South Africa (IDC) to Baa1 from A3, and the downgrading of South Africa’s top five banks’ foreign currency deposit ratings to Baa1 from A3. And on the seventh(ish) day, Moody’s rested.

Now, what you just read there was a long list, but I decided to include all of it to make a simple point: the current instability in the country is costing everyone something, from the national government to your city to your local bank. All of them are facing diminished credibility and increased borrowing costs, and that’s going to impact on you and your family unless you do something about it.

According to Moody’s, it downgraded the daylights out of South Africa because it saw “a decline in the government’s institutional strength amidst increased socioeconomic stresses and the resulting diminished capacity to manage growth and competitiveness risks”, “shrinking headroom for counter-cyclical policy actions, given the deterioration in the government’s debt metrics since 2008, uncertain revenue prospects and the already low level of interest rates”, and “challenges posed by a negative investment climate in light of infrastructure shortfalls, relatively high labour costs despite high unemployment, and increased concerns about South Africa’s future political stability”.

What Moody’s is trying to say is that the way things are going in South Africa is not working, that the country is headed firmly and fast in the wrong direction. Now, a number of South African pundits have responded to Moody’s statements by pointing out that ratings agencies have made big mistakes before (sub-prime mortgages anyone?) and that South Africa is a unique place to which ordinary measures of success may not apply. This is all true, but I invite you just to consider the possibility that Moody’s is right, that South Africa actually is on the road to disaster, and that drastic measures are needed.

Just look at the strike action, for example. From Marikana, strikes and protests have spread to gold mines, the trucking industry, and car manufacturers. There are fuel shortages, trucks ablaze, anger, and violence everywhere, and South Africa’s carefully nurtured democratic institutions, including the police, Parliament, political parties, and labour forums, have been unable to deal with it at all. People are throwing up their hands and giving up, and the worst part of it is that South Africa is so much better than this. It’s a great country, full of remarkable people who have literally achieved miracles over the past 20 years. Surely the Rainbow Nation can do better?

Now, I certainly don’t know what the answers are, but I do know that recognising the problem is the first step and that from there, the next step is to get everyone to contribute whatever they can to finding solutions. Every single South African needs to consider what he or she can do to contribute to the issues at hand. And that means you. So if you have a constructive idea for how South Africa can move forward, please share it, and get involved in making SA work. — Moneyweb.co.za

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