Business news

2016-06-23 06:00

SOUTH Africa has avoided credit rating downgrades for now. Major ratings agencies will again assess the country’s credit rating in December. International credit ratings impact the cost of government debt and also inflows and outflows of investment capital.

Fortunately, the current stability in the United States interest rates strengthens the outlook for emerging markets to continue to attract investment but this could change if the U.S. Federal Reserve takes a more aggressive view on rising inflation. Higher interest rates in the U.S. offers international investors a better return at lower risk which can lead to withdrawal of capital from emerging markets like South Africa.

The “Brexit” referendum in the UK can have a major impact on South Africa’s economic trade with the UK and greater Europe. Many observers believe that if Britain does exit from the European Union, it could be the start of a general exodus by other member states which could lead to the collapse of the Union. This in turn would lead to currency fluctuations, trade tariff changes and annulment of preferential trade agreements between African states and the European Union.

According to some analysts a British exit would weaken the pound, which may negatively impact on tourism to South Africa by UK citizens.

The ongoing economic woes of our neighbours Mozambique and Zim-babwe should be a lesson to policy makers in South Africa.

Mozambique’s currency has devalued by more than 50% since the beginning of 2015 leaving that country with diminishing reserves which has seen local prices spiral.

Inflation has risen to 18% and exports have steadily declined further reducing international reserves.

In Zimbabwe, where 80% of the national budget is allocated to state salaries, payment of June salaries to the army has had to be delayed by two weeks.

Other civil servants like teachers, doctors and nurses are facing similar delays in receiving salaries.

Closer to home, labour organisations and government are set to meet again to find ways to reignite growth and save jobs.

The top level meeting will be chaired by President Jacob Zuma and will be attended by deputy president, Cyril Ramaphosa, various economic cluster ministers as well as leadership from mainstream labour organisations.

Optimism regarding the ability of government, business and labour to engineer an increase in growth has improved following the successful avoidance of credit rating downgrades earlier this month.

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