‘Outcome of elective conference key to saving SA economy’

ALL eyes will be on the ANC elective conference next month, with South Africa’s economy under pressure.

This was the response from business, following the country’s downgrade to junk status by ratings agency Standard & Poor on Friday night.

Another ratings agency, Moody’s, elected to put the country’s rating on review for a downgrade, with the observation period expected to end when the national budget is presented in February.

Moody’s said on Friday: “The decision to place the rating on review for downgrade was prompted by a series of recent developments which suggest that South Africa’s economic and fiscal challenges are more pronounced than Moody’s had previously assumed.

“Growth prospects are weaker and material budgetary revenue shortfalls have emerged alongside increased spending pressures.

“Altogether‚ these promise a faster and larger rise in government debtto-GDP than previously expected.”

Moody’s maintained its sovereign rating for South Africa at Baa3 – one rung above junk status.

However, this decision could hinge on the outcome of the ANC conference, from December 16 to 20, Edge Financial Group managing director Ed Gutsche said in Port Elizabeth.

“[We can] expect an ongoing scenario where the country is in limbo, held to ransom by the ANC,” he said.

“However, based on a poor budget and tax collection rate in February, the rand will float sideways until the agencies downgrade us then.”

Gutsche predicted that the rand could fall more than 5% if Nkosazana Dlamini-Zuma were to be elected as the ANC’s next presidential candidate at next month’s conference.

“Our only saving grace will be if Cyril Ramaphosa is elected and decides to take a stand on corruption by dismissing President Jacob Zuma and most of his cabinet, followed by corruption charges and re-employing Pravin Gordhan and Mcebisi Jonas in the Treasury,” he said.

“That way, we would not necessarily see a massive upswing, but could see a normalisation of our economy.”

The Nelson Mandela Bay Business Chamber also expressed concern.

“The volatile political landscape and related weaknesses of stateowned enterprises (SOEs) have contributed to the South African fiscal status, despite collaborative efforts by the business fraternity to grow the economy and local jobs,” chamber spokeswoman Cindy Preller said.

“There is a sense of urgency that exists to turn around the sluggish economic growth.

“South Africa’s economy needs to be reprioritised urgently, without any personal or political agendas.”

However, Old Mutual economic research head Johann Els said South Africa’s outlook remained stable after news of the downgrade.

“Some market reaction is probable, but it is very difficult to judge to what extent the markets have priced in any of the scenarios,” he said.

“The more market reaction there is, the more non-index tracker funds will likely want to invest and take up large parts of the index-tracker sales to take advantage of higher yields.”

S&P’s downgrade might lead to outflows from investors, but recovery was still possible, Els said.

“The rationale for this is that a market-friendly ANC leader might be able to restore confidence and improve growth prospects.

“This outcome might lead to a renewed effort to improve the fiscal outlook at the February 2018 budget.

“Apart from the fiscal deterioration, the weak state of SOE finances will be a key consideration in ratings decisions going forward,” he said. – Additional reporting by BusinessLIVE