While South Africa once again avoided a junk investment rating by Moody’s ratings agency earlier this month, it is not out of the woods in terms of global investment amid rising state debt and increasing political uncertainty. “Should Moody’s follow the example of the other two ratings agencies (S&P and Fitch) and downgrade South Africa’s investment status to junk, I expect the country to immediately lose up to R10 billion in investment,” said Efficient Group senior economist, Dawie Roodt, speaking at the recent Sandton Tourism and Business Association AGM. His estimation is on the conservative side, with many other local economists predicting a loss of up to R100bn. That being said, Moody’s was known among economists for “always giving a country the benefit of the doubt”, added Roodt. But even Moody’s has acknowledged it has a cut-off point, with its senior analyst, Lucie Villa, pointing to power parastatal Eskom’s current R450-billion debt as a red flag for a future downgrade. Roodt told FTW on the side lines of the AGM that South Africa had strong financial institutions, “reasonably good” foreign currency reserves, and a current policy of protection of private property (although there have been motions to change the constitution around this). “Some investors take this into consideration when investing in a country,” he said. Although there were other market analysts who simply looked at how emerging countries were rated and recommended investment (or not) simply on the basis of that, Roodt added. He pointed out that in the aftermath of a decade of state capture and mismanagement of state-owned entities, state debt was estimated to be in excess of 90% of South Africa’s gross domestic product (GDP).
Even Moody’s has acknowledged it has a cut-off point. – Dawie Roodt