Everything relative as ratings slide across the globe

COULD it be that in the world of ratings agencies BBB+ is the new AAA+? If so, then Finance Minister Pravin Gordhan does not really have to worry. Having been roundly, and rightly, criticised for the significant role they played in precipitating the 2008 global financial crisis, it does seem the ratings agencies are determined that they will never again be charged with being too lenient in their ratings.

So they have scoured the world looking at things from Greek tavernas to South African banks and toll road operators and marked them all down a few – or more – notches. Presumably the hope is that if you look at their ratings over a 12-year period – taking in Enron back in 2001 – on average they have done okay, with the recent strict period making up for the earlier rather lenient period.

But if it is a relative game and everybody, or almost everybody, is marked down a few notches doesn’t that leave everybody – relatively speaking – where they were?

And what does this all mean for finance providers? Assuming a downgrading doesn’t reduce the demand for funding, they seem to be on to a good thing as it means they get more for their funds. The big five local banks will have to pay higher costs if they borrow offshore, which seems like a good thing for the offshore lenders.

The danger with the ratings agencies, which do actually play a very important role in an economy, is the extent to which they are involved in dangerous selffulfilling prophecies that lead to chaos. Their bullish ratings for mortgage-backed securities helped to increase the demand for those securities, until the whole system collapsed. Their bearish ratings for Greek debt increases the cost of that debt, which justifies an even more bearish rating.

For this reason the manner in which they reach their conclusions must be open to close scrutiny.

Land reform

Rural Development and Land Reform Minister Gugile Nkwinti showed he was good at understanding figures at a briefing by the economic cluster ministers yesterday.

He noted that it was deemed that 82 million hectares of agricultural land was in the hands of “white commercial farmers”, although he did not say that the land audit wasn’t at this stage actually studying the race classifications of the commercial farmers because it was only being done to provide information about state land.

To have detailed information on the

If it is a relative game and everybody, or almost everybody, is marked down a few notches, doesn’t that leave everybody… where they were?

white commercial farmland and who it had been transferred to would involve discussions with the Home Affairs offices, deeds offices and various other authorities. It is the government’s aim to transfer 30 percent of white land to black farmers by 2014. This equals 24.5 million hectares.

He noted that the figure of achieving an 8 percent transfer was bandied about. But one could also say 26.7 percent of the land required to be transferred was achieved. He hoped this would dispel “confusion”.

The minister did shed some light on the government’s intolerance for the willing buyer, willing seller concept. He conceded that there were many willing sellers – white farmers included. But the government was not a willing buyer, it was obligated to do it. The consequence was that the price of the farmland bought by the state rose astronomically.

He did not say it, but a new system where there would be a land management commission and a surveyor-general would probably ensure that a lot more farms are expropriated in future, fast-tracking state purchases of land at lower prices.

“The farmers are not investing… it has to do with the model of restitution we use,” the minister said.

This had consequences for farmworkers who lost jobs and moved to towns. This became an urban problem. An agricultural problem became an economic problem.

Government policies and their consequences are often as clear as mud, it seems.

Kagiso Media

Advertising in the radio industry have begun to return to pre-recessionary levels, resulting in an improved performance for Kagiso Media’s broadcasting division over the six months to December, according to Murphy Morobe, the chief executive of the diversified media group.

In 2008, in terms of contribution to the bottom line, Urban Brew Studios and the digital business were “doing well” and left the broadcasting division “trailing” and now the latter had “shot the lights out”, Morobe said yesterday.

“The financial services sector and motoring sector have come out very strongly during the past year and a half,” he said.

Kagiso Media’s broadcasting division, comprising its six radio stations and Edited by Peter Deionno. With contributions from Ann Crotty, Donwald Pressly and Asha Speckman.