Fitch dumps SA in the TRASH

The coun­try’s sec­ond credit down­grade in one week has been viewed with res­ig­na­tion by busi­ness and with sus­pi­cion by labour

CityPress - - Business - JUSTIN BROWN AND LESETJA MALOPE busi­ness@city­press.co.za

Fitch Rat­ings on Fri­day be­came the sec­ond global rat­ings agency to cut the coun­try’s credit sta­tus to sub-in­vest­ment grade, send­ing South African dol­lar bond yields to a year high and caus­ing the rand to weaken. Fitch’s move marked the first time that the agency had down­graded the coun­try to junk sta­tus since June 27 2000.

On Mon­day, S&P Global was the first agency to cut South Africa’s credit rat­ing to junk sta­tus.

Moody’s In­vestors Ser­vice has put the coun­try’s rat­ing on re­view for a down­grade.

Fri­day’s an­nounce­ment caused the rand to weaken by 12c to the dol­lar, to reach an in­tra­day weak­est point of R13.84, be­fore be­ing quoted at R13.78 at 6.36pm. Yields on South African dol­lar bonds jumped to the high­est this year, Bloomberg re­ported.

Fitch an­a­lysts Jan Friederich, Jer­maine Leonard and Stephen Schwartz, all based in Hong Kong, said they did not be­lieve Fi­nance Min­is­ter Malusi Gi­gaba’s as­sur­ances that he would not change any pol­icy that was in place at the Na­tional Trea­sury.

The Fitch an­a­lysts held a tele­phonic con­fer­ence call with Gi­gaba hours af­ter he be­came fi­nance min­is­ter on March 31, fol­low­ing the ax­ing of Pravin Gord­han by Pres­i­dent Ja­cob Zuma as part of a Cabi­net reshuf­fle.

“The new fi­nance min­is­ter has stated that he does not in­tend to change fis­cal pol­icy and re­mains com­mit­ted to ex­pen­di­ture ceil­ings that have been a pil­lar of fis­cal con­sol­i­da­tion,” Fitch an­a­lysts said in a re­port on Fri­day.

“How­ever, Fitch be­lieves that, fol­low­ing the gov­ern­ment reshuf­fle, fis­cal con­sol­i­da­tion will be less of a pri­or­ity, given the pres­i­dent’s fo­cus on ‘rad­i­cal so­cioe­co­nomic trans­for­ma­tion’.”

In his state of the na­tion ad­dress in Fe­bru­ary, Zuma said: “Rad­i­cal so­cioe­co­nomic trans­for­ma­tion is not just po­lit­i­cal rhetoric ... Rad­i­cal eco­nomic trans­for­ma­tion, of which af­fir­ma­tive ac­tion and black eco­nomic em­pow­er­ment form a part, are part of heal­ing the di­vi­sions of the past.”

Cas Coova­dia, man­ag­ing di­rec­tor of the Bank­ing As­so­ci­a­tion of SA, said the ma­jor lo­cal banks held a twohour meet­ing on Thurs­day with Gi­gaba dur­ing which he had com­mit­ted to use the term “in­clu­sive growth” rather than “rad­i­cal so­cioe­co­nomic trans­for­ma­tion”.

Coova­dia added that the lo­cal banks had al­ways pro­moted in­clu­sive growth.

May­ihlome Tsh­wete, Gi­gaba’s spokesper­son, said clar­ity was needed on in­clu­sive growth.

“It needs to be un­der­stood. We need to con­vince in­vestors that there is not go­ing to be a dan­ger­ous pol­icy shift or any­thing reck­less.”

He de­scribed rad­i­cal eco­nomic trans­for­ma­tion as an ANC pol­icy that would ad­dress the eco­nomic or­der by giv­ing black peo­ple up­ward mo­bil­ity and giv­ing more peo­ple jobs.

Tsh­wete said the banks un­der­stood the need for in­clu­sive growth and that rad­i­cal eco­nomic trans­for­ma­tion would be achieved through state pro­cure­ment and state ex­pen­di­ture, which would open up op­por­tu­ni­ties for black busi­nesses and funding for small, medium and mi­cro en­ter­prises.

In the late 1990s, the talk was just about growth as the econ­omy was grow­ing at 3% a year. Now, with the econ­omy hardly grow­ing, in­clu­sive growth was the buzz phrase, Tsh­wete added.

Re­gard­ing his im­pres­sions of Gi­gaba, Coova­dia said it was early days and the banks had yet to work with him.

“He is send­ing out the right mes­sage and we will give him the ben­e­fit of the doubt,” he added.

Coova­dia said the down­grade by Fitch was “dev­as­tat­ing, though not un­ex­pected”.

Trea­sury said the Fitch down­grade was a set­back and reaf­firmed its com­mit­ment to the ex­ist­ing pol­icy stance. It added that gov­ern­ment re­mained com­mit­ted to the fis­cal pol­icy tra­jec­tory that had been out­lined in the 2017 budget speech, as well as to state-owned en­ter­prise (SOE) re­forms, sta­bil­is­ing gov­ern­ment debt and en­sur­ing that the nu­clear pro­gramme would be im­ple­mented at a scale and pace that South Africa could af­ford.

Fitch also ex­pressed con­cerned about the new nu­clear build pro­gramme.

“Un­der the new Cabi­net, in­clud­ing a new en­ergy min­is­ter, the pro­gramme is likely to move rel­a­tively quickly,” Fitch said.

Build­ing new nu­clear power sta­tions would in­crease gov­ern­ment’s con­tin­gent li­a­bil­i­ties, the agency added.

Sbongiseni Mbatha, pres­i­dent of the As­so­ci­a­tion of Black Se­cu­ri­ties and In­vest­ment Pro­fes­sion­als, said the Fitch down­grade was un­war­ranted.

He said the rea­sons given were unconvincing and bor­dered on bul­ly­ing by the agency.

“They re­acted harshly be­cause they should have just been pa­tient and not brought their rat­ing an­nounce­ment for­ward,” he said.

Nar­ius Moloto, gen­eral sec­re­tary of the Na­tional Coun­cil of Trade Unions, said while the gov­ern­ing party could be blamed for the down­grade be­cause of their re­cent public spat, the rat­ings agen­cies seemed to be col­lud­ing against the coun­try.

Sizwe Pamla, spokesper­son for labour fed­er­a­tion Cosatu, said the Fitch rat­ing – like that of S&P Global – should be treated with sus­pi­cion.

“Maybe these rat­ings agen­cies can go to hell,” he said, adding that the fed­er­a­tion was con­cerned about the ef­fect these down­grades would have on work­ers.

Den­nis Ge­orge, the gen­eral sec­re­tary of the Fed­er­a­tion of Unions of SA, said the lat­est down­grade did not come as a sur­prise.

“We were ex­pect­ing it. Pres­i­dent Zuma and his gov­ern­ment do not un­der­stand that peo­ple will not lend money to peo­ple they don’t trust to pay back. He is ob­sessed with hav­ing this coun­try con­trolled by the Gup­tas,” he said.

Ge­orge Se­bulela, the sec­re­tary-gen­eral of the Black Busi­ness Coun­cil, said the tim­ing of the down­grade, like that of S&P Global, was sus­pi­cious and the rat­ing ques­tion­able.

Alan Mukoki, the CEO of the SA Cham­ber of Com­merce and In­dus­try, said the down­grade by Fitch was ex­pected. He added that it was un­for­tu­nate that gov­ern­ment’s so­cial pro­grammes would be halted be­cause of less money be­ing avail­able to it. In ad­di­tion, busi­ness would have less rev­enue and the smaller amount of tax avail­able to spend would mean there would be less money for SOEs to em­bark on cap­i­tal projects.

Look­ing ahead, Tsh­wete said Gi­gaba was plan­ning a meet­ing next week with the CEO Ini­tia­tive, a plat­form com­pris­ing CEOs mainly from the fi­nan­cial ser­vices and bank­ing sec­tors, whose aim is to work to­gether to boost in­vestor con­fi­dence.

A spokesper­son for the CEO Ini­tia­tive con­firmed that the meet­ing had been sched­uled for next week, adding that Gi­gaba was likely to at­tend. “The agenda is be­ing fi­nalised,” he said. Gi­gaba was also look­ing to meet with labour lead­ers, said Tsh­wete.

He said Gi­gaba was plan­ning to em­bark on an in­ter­na­tional road­show later this month to Europe and the US.

In ad­di­tion, Tsh­wete said Gi­gaba was look­ing to meet with the ma­jor rat­ing agen­cies as well as former fi­nance min­is­ters Nhlanhla Nene and Trevor Manuel, af­ter meet­ing with Gord­han this week.

Manuel de­clined to an­swer ques­tions about restor­ing South Africa’s in­vest­ment-grade rat­ing and the re­cent Cabi­net reshuf­fle.

Since be­ing ap­pointed fi­nance min­is­ter, Gi­gaba had met with the ANC’s na­tional work­ing com­mit­tee and its women’s and youth leagues to es­tab­lish com­mon ground among the po­lit­i­cal play­ers, Tsh­wete said.

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