All is not lost despite the recent spate of credit rating downgrades – but South Africa needs to act now. That’s the view of Wesgro economist Janine Botha who told a business delegation in Cape Town recently that against a background of poor GDP growth, political instability and policy uncertainty the downgrades had come as no surprise. “We can turn this around. It is imperative that we avoid any further downgrades which would be catastrophic.” But with all the top rating agencies having given South Africa a negative outlook, more downgrades seem to be inevitable, in her view. “The outlook is an indication of where the rating agency is going next. Positive indicates a rating upgrade in the intermediate term, stable remaining where one is and negative pointing most likely to a downgrade,” she said. “That is the problem for South Africa as we have several negative outlooks at present and we simply cannot afford any more downgrades.” She said it was imperative that business stayed clear of the term junk when referring to South Africa as it was unfair and not warranted. “Rather refer to the status as being speculative grade or non investment. All of our endeavours should be aimed at getting us back into investment grade.” But, she said, developments were disturbing and not pointing in the right direction. The recent release of the Mining Charter has raised more concern as it is commonly accepted that as it stands it will deter investment and carries huge consequences for an already fragile sector. “Recent comments by the Public Protector on the Reserve Bank are also worrying as this has been one of the few entities in the country that has been seen as extremely positive. Muddying thoughts around the SARB is not going to help our current situation. We remain on negative watch,” she said. While the Mining Charter and the Public Protector’s comments are closely aligned to the “radical economic transformation” narrative of the new finance minister, Malusi Gigaba, and President Jacob Zuma, it is not a stance that the rest of the world is embracing. It’s rather seen as a populist policy at the expense of economic growth. Botha said strong leadership in a politically certain environment where relative policy stability was guaranteed could turn the entire situation around. “It won’t be easy but we can change this and avoid South Africa being further downgraded. An improvement in governance that is supportive of public finances and the business climate can ensure an upgrade,” she said. “Trust also needs to be re-established between government, business and labour.”
It’s imperative that business stays clear of the term junk when referring to South Africa as it is unfair and not warranted. – Janine Botha
