From the editor
forget about President Jacob Zuma and his Gupta/ Nkandla/impeachment mess for a moment. While we were being sidetracked by the soap opera, some interesting numbers were released. Looking at the JSE, for example, I didn’t feel quite so depressed about the state of the world. The All Share Index (Alsi) was down only 3.9% in the 12 months to end February, and measuring this over 36 months, it is up 36%. Not so fast, said Geoff Blount, managing director of BayHill Capital, this week. If you strip out Naspers* and SABMiller (collectively, they make up about 25% of the index), the Alsi was down nearly 11% over the 12 months to end February, “masking the severe bear market that the rest of the market is in”, he explained. Over 36 months, an Alsi without Naspers and SABMiller gained a very modest 14%, an annualised return of just over 4.5%.
On 6 April, ratings agency Standard & Poor’s (S&P) pointed out that South Africa’s economic growth has been on a downward trend since 2011 – as it slashed its growth forecast for this year to 0.8%. Yes, external factors are at play, but those in charge at S&P also seem to be losing their patience with our “ongoing structural issues”, such as the highly regulated labour market and infrastructure bottlenecks. It matters more than usual what they think, as they have the power to give SA that much-loathed junk credit rating.
The Reserve Bank used the data of 70 countries to try and estimate what the possible impact of a downgrade to junk would be. In its latest monetary policy review, released on 4 April, it said a downgrade to junk is likely to increase short-term rates by 80 basis points, while long-term bond yields would be expected to move more, rising by 104 basis points.
This will have a number of negative effects, including higher government spending to service debt costs, a depreciation in the rand, which will stoke inflation, and higher corporate borrowing costs, which will raise the cost of investment.
The ANC must be relieved that, instead of demanding to know what the plan is to boost the economy, we are fixated on Channel Zuma.