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Just when we began to hope we wouldn’t hear another word about the matter, the bomb burst.
Minister of Finance Pravin Gordhan, who has been trying to placate credit rating agencies and investors for some time, has to appear in court in November.
The charges against Gordhan are widely regarded as a farce, but it seems someone wants to make a point.
If the present problem isn’t solved and Gordhan is pushed out, South Africa’s economy and consumers could suffer even more, say economist Ulrich Joubert and Dawie Roodt, chief economist of the Efficient Group:
1. A junk status rating for South Africa is again high on the agenda of international credit rating agencies because of the continuing uncertainty over the key post of minister of finance and whether a replacement’s policy would bring about vital economic growth.
2. Junk status could lead to outflow of foreign capital, further weakening of the rand, higher inflation and interest rates, worse economic growth and greater poverty.
3. For most consumers a higher interest rate means they will have to pay more on home- and car loans and other debt.
4. Food and imported goods will become more expensive.
5. Foreign and local companies will be hesitant about investing here. Business confidence in SA recently dropped to a 30-year low.
6. Junk status would increase the state’s interest burden. Debt-servicing costs are already the fastest-growing state expenditure. This affects consumers because there’s less money available for infrastructure, education and health care.
7. It could become much more difficult for the state to pay social grants, which a third of the population depend on. State finances could be under greater pressure as more and more unemployed people would want grants.
8. Concern over the integrity of the SA Revenue Service (Sars) could increase. Gordhan recently wondered how current Sars chief, Tom Moyane, could allow his adjudant, Jonas Makwakwa, to remain in his post despite allegations of corruption and mismanagement. The view exists that Moyane, as a Zuma loyalist, had a lot to do with the campaign against Gordhan and his former Sars colleagues.
9. The already limited number of tax payers could lose confidence in the tax system, and a less efficient Sars and smaller tax income would mean less money to meet state obligations.
10. A higher interest rate because of a credit downgrade could benefit consumers living on an interest-based income. But if more foreign investors withdraw from our stock market and share prices drop, savers with exposure to the stock market could suffer. This could adversely affect annuities and retirement fund growth.
What can the average consumer do? Get more involved in civil society programmes and exercise your political rights, Dawie says. Be led by your risk profile when deciding on where to invest. “Diversify. In general people must ensure that part of their investment portfolio has foreign exposure.” Don’t make hasty decisions, Ulrich says. “Wait until the dust has died down and maintain financial discipline in the meantime.”
