Is this the quiet before the ratings storm?

MOST young South African adults will not know what they escaped on Friday evening when S&P Global Ratings decided not to downgrade our sovereign debt, and to continue recommending us as investmentgrade paper.

It may only be a brief respite, but it is a hugely important one. S&P has South Africa on its lowest investment grade but, crucially, with a negative outlook. They call it BBB- and the next downward step is into a junior league. It’s relegation. On average, countries take seven years to get back and until they do life is hell.

Here’s what would have happened had S&P nudged us one notch down on Friday. The rand would have weakened, meaning that the cost of goods in the shops, most of which are imported or contain imports, would have risen immediately.

Prices would have risen faster (that’s inflation) and interest rates would have gone up. The cost of government borrowing would have risen, meaning that it would borrow less and have less money to pay welfare with and to modernise our infrastructure with.

Finally, what little economic growth we enjoy would probably have vanished altogether, plunging us into recession, with even greater numbers of unemployed fellow citizens, which at some point would have become unsustainable and with unimaginable consequences.

It is 16 years since we were last downgraded to below investment grade, or junk.

In the interim our economy has changed beyond measure. An industrial economy has become a service economy. Before Trevor Manuel left the National Treasury in 2009, he had balanced the budget and given his successor the luxury of being able to fund up to 16 million citizens on welfare and to pledge huge sums towards the infrastructure development that is vital to our ability to grow our internal and export markets.

That successor was Pravin Gordhan. He was able to fund President Jacob Zuma’s vaulting ambitions for transformation of the economy up to a point, but Zuma wanted more, and with Nhlanhla Nene running the Treasury he got a little more. But, again, not enough, and by the time he fired Nene in December last year the government had run out of money, leading ultimately to the nail-biting ahead of the S&P announcement on Friday.

It’ll happen again on Wednesday when another agency, Fitch, reports and again in December when they all do another rating.

We are on a treadmill. The Zuma years have doubled our debt and more than halved our growth. He has been an absolute disaster. And every six months the world’s three big ratings agencies will judge us. It is their job. Ratings are their product and the institutions we borrow money from rely on their judgment. That’s our problem.

My bet is that Fitch will change its rating downwards on Wednesday to align with S&P. Fitch has us on BBB (stable) and will change its outlook to negative: BBB-. We have six months to save the country, simple as that.

What the agencies want to see (or what their clients, the folk we borrow from, want to see) is solid evidence of three things. That our spending is under control. Gordhan has probably provided that assurance. That our politics are under control. Zuma, after the local elections are done, will have to lead the country, rather than a clique of his party. That we have the policies in place to ensure economic growth.

That last one is the real problem. You can’t pretend. You are either doing the right things or you’re not. If state-owned companies are still being run like personal fiefdoms by Zuma’s friends by the end of October, it’ll be bad. If mining industry transformation legislation isn’t settled by rational consensus by the end of October, it’ll be bad. If we’re still fighting about a minimum wage by the end of October, it’ll be bad. If the government is still insisting on buying 9 600MW of nuclear reactors by the end of October, it’ll be bad.

So much to do, so little time. The entire country should be on its knees today thanking two men for the fact that we are still afloat — Gordhan and Jabu Mabuza, the Telkom chairman who has corralled business into a joint effort with the government and the unions to turn the Nene disaster around.

Of course, at some stage someone will have to say what an astonishing and wise leader Zuma has been to allow all of this to happen. His ego is too fragile to be ignored.

But we all know the truth.