Ratings linked with policy

RELIEF was palpable across South Africa when Moody’s announced it was maintaining the country’s credit rating at investment grade. Reactions of social media in particular have taken this to mean an indifference to the government’s more contentious plans, notably introducing a regime of expropriation without compensation.

One Twitter user’s comment was typical: “Moody’s doesn’t seem concerned about EWC. (It) is not listed as a risk. They acknowledge that it’s long-standing ANC policy.”

This would be a misreading. Ratings agencies conduct regular reviews; Moody’s’ last review was in November. It tries to factor in a range of variables and developments – short and long-term – germane to countries’ credit worthiness.

Moody’s has made it clear that it views South Africa’s change in leadership as a positive development, setting the country on a growth trajectory, and evidence of a strategy to deal with the country’s fiscal challenges. At present, Expropriation without Compensation has not been confirmed as policy – as such it doesn’t feature prominently in the current review.

However, Moody’s notes clearly that challenges remain. Among these, it explicitly lists Expropriation without Compensation and the Mining Charter: “How the government acts will provide important insights into how it plans to balance nearer-term economic objectives (to sustain confidence and promote investment) against longer-term social and economic objectives (to address unemployment, inequality and poverty).”

Policy trajectory could alter its assessment of South Africa, Moody’s says. It is highly unlikely that growth – and investment–destroying land grabs wouldn’t have deleterious consequences. If good sense prevails, we won’t have to face it.