From the editor
The day after former finance minister Nhlanhla Nene was fired in December, Zimbabwean entrepreneur and newspaper publisher Trevor Ncube tweeted the following: Many South African friends ask me: “Why did Zimbabweans allow Mugabe to destroy the country? My answer: it was a process not an event.”
I don’t think South Africa is heading towards a US dollar-driven economy, regardless of what Standard & Poor’s (S&P) announces on 3 June. But we should be concerned about the direction we’re heading in.
Red flag number one is the blatant impunity with which this country’s leaders are increasingly operating. We have a president who can fire a competent finance minister, resulting in massive reputational and financial damage for the country, without so much as giving a proper explanation. We have an energy minister who allows the cloak-and-dagger sale of the country’s strategic oil reserve at rock-bottom prices (the three lucky buyers are already about R220m in the money, and the minister still has a job). We have a minister of defence who uses a state plane to pick up a Burundian woman in the Democratic Republic of the Congo and smuggle her into SA. She will keep her job as surely as SA will get a junk rating – if not on 3 June, then before the end of the year.
Perhaps it’s time to stop focusing so much on the event – economic calamity – and start putting a stop to the process that is getting us there: political impunity, regulatory uncertainty, poor policy decisions, no implementation of much-needed structural reforms, and a lack of unity. Feedback: SA foreign debt rating vs local debt rating In our cover story of 2 June on the impact of a possible downgrade to junk, we published the following sentence: “Should Standard & Poor’s assign a junk rating in June, many funds would be forced to sell of SA assets and bonds and our market would suffer severely.”
Paul Hansen, director: retail investing at Stanlib, says it is important to note the difference between SA’s foreign debt rating (which S&P currently rates one notch above junk) and the local debt rating (two notches above junk). Should S&P downgrade our foreign debt rating to junk, it is unlikely to have a material effect on our local bond market, he says. A downgrade of our local debt rating to junk (which is “extremely unlikely” in the short term), however, could lead to a forced sale of South African bonds, as the inclusion of SA’s government bonds in the World Government Bond Index (WGBI) would then be under threat, according to Hansen.