Get ready to feel the pain as SA’s ratings drop further

2017-11-26 05:59
Job seekers are seen on many corners in and around Johannesburg. The latest ratings downgrade will only add to SA’s economic woes. Picture: Trevor Kunene

Job seekers are seen on many corners in and around Johannesburg. The latest ratings downgrade will only add to SA’s economic woes. Picture: Trevor Kunene

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Get ready for more job cuts and hikes in food and fuel prices now that S&P Global has downgraded South Africa’s credit rating to junk status.

It made the announcement on Friday night.

Ratings agency Moody’s has put the country on a downgrade “review”, which places it in an even more precarious economic situation.

Chamber of Mines chief economist Henk Langenhoven said the downgrades could “not come at a worse time” for the mining sector.

“The pervasive negative impact on the mining sector is of great concern. The sector has the potential to continue to recover on the back of improved commodity prices,” he said.

“However, a weaker rand, coupled with rising oil prices, will lead to higher inflation and higher short-term interest rates. Mining costs have already risen by more than 10% this year.

“The mining sector’s sustainability is inextricably linked to the dynamics of the domestic economy.

"This latest credit downgrade, effected because of the mismanagement of the economy and uncertainty regarding government policies, has dramatically turned sentiment for the worse.

“The mismanagement of state-owned enterprises has also become an albatross for government, and for the country as a whole, because of the size of their debt and debt-servicing costs.”

Langenhoven said there would be “no painless way” out of the country’s predicament, given the structural nature of its causes and the “clear lack of confidence in the domestic economy”.

“The ratings agencies and prospective investors will be watching the outcomes of next month’s ANC leadership conference closely.

"Without solid indications of policy reforms emanating from the conference and/or the years between the conference and the general election in 2019, no respite can be expected from ratings agencies.

"'No amount of ‘talking’ without credible rescue plans will turn the situation around,” he added.

“It will be a long, hard road back to investment grade.”

A weaker rand

Mike Schussler of Economists.co.za said South Africa’s credit downgrade means a weaker rand and hikes in the prices of petrol, diesel, chicken and maize.

“Because of this downgrade, government will pay more debt and there will be less money for social grants and public servants, as well as for public health care,” he said.

This makes it less likely that the SA Reserve Bank will decrease interest rates.

“The rand will be volatile for a while as we wait for the review from Moody’s. This is not a good place to be for South Africa.”

Sizwe Pamla, national spokesperson for labour federation Cosatu, said credit downgrades are our new reality, adding: “We have an economy that is on its knees and the fifth administration of President Jacob Zuma is the cause.

“What we appreciate for now is that the other ratings agencies have been patient with us.

"We are hopeful that in December, the ANC will have a peaceful conference where a new leadership will emerge and make sound economic decisions,” Pamla said.

Acting spokesperson of the SA Federation of Trade Unions Patrick Craven said they were “extremely concerned” by the rating downgrades, but were not surprised because the economy had been heading into a free-fall for a long time.

He said a change of policy was needed.

Craven added that the ratings agencies should also be condemned for protecting the interests of the rich, castigating the government for refusing to stand up to them.

Cas Coovadia, managing director of the Banking Association of SA, said S&P Global’s decision and our long-term foreign currency debt “has serious consequences for the poorest of the poor, with a catastrophic impact on our country’s economic prospects”.

“Political meddling in our institutions and continued bailouts of nonperforming state-owned entities is wreaking havoc on our economy,” he added.

Treasury said government noted the decisions of S&P and Moody’s.

“The Presidential Fiscal Committee is seized with the task of restoring business confidence in the immediate term and of executing decisively growth-enhancing measures previously announced,” it said.

“Restoring business and consumer confidence and catalysing inclusive growth is the top priority of government.”

Business Leadership SA (BLSA) chief executive Bonang Mohale blamed the country’s leadership for the downgrades.

“This administration seems to derive joy at scoring own goals,” he said.

“The BLSA has long stated that many economic and political problems that South Africans experience are rooted in corruption, state capture and political patronage, resulting in a trust deficit.

“Unfortunately, it is ordinary people who continue to feel the impact the most with the lack of jobs, ever-increasing prices of goods and denial of basic services.”

Read more on:    economy

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