Cape Town - S&P Global's late night downgrade of the SA government's long-term local currency rating to junk will put more strain on the country's already low levels of business and consumer confidence, according to the SA CEO Initiative.
The business leadership grouping called the downgrade, announced late on Friday night, a "significant blow", noting that of the three major global ratings agencies, only one - Moody's - still has kept SA at investment grade.
Just minutes after S&P Global had made its announcement, Moody's placed SA's government debt on review for downgrade, but unlike S&P Global did not downgrade the debt to junk status.
The business body said the ratings announcements would lead to money leaving SA.
"While this downgrade does not cause South Africa’s government debt to be excluded from the World Government Bond Index, it will likely lead to capital outflows at a time when our country needs it most," it said in a statement near midnight on Friday.
"It is especially concerning as the local currency downgrade affects approximately 90% of the government’s debt, of which an estimated 40% is currently held by foreigners who have invested in our country."
The CEO initiative said the downgrade was a response to the "mismanagement of government finances".
"Unfortunately, this action – combined with the downgrades already suffered earlier this year and a low-growth economic environment – will put more strain on already low levels of business and consumer confidence, and mean that the welfare of millions of ordinary South Africans is yet again significantly disadvantaged."
Jabu Mabuza, the convenor of the CEO Initiative and chairperson of Telkom, said the negative ratings actions that SA had suffered "could and should have been avoided had the required structural reforms necessary to underpin sustained and inclusive economic growth been implemented in the interests of all South Africans".
"The CEO Initiative has spent much time over the last few months working with government and labour in developing a plan on what was required to avoid these downgrades, but little has been implemented and – if anything – we saw political and policy uncertainty increase," he said.
“It is disappointing that key sectors for economic growth and employment continue to operate amid uncertain industry policy, and there are still too many regulatory impediments that hinder investment. The continuing challenges regarding the proposed Mining Charter is an example of legislative uncertainly that has been negative for confidence, growth and jobs at a time when exactly the opposite was needed."
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER