All the President’s Men?
for a possible downgrade.
With revelations from Jonas and others this week of Gupta family influence in government — which the family has denied — doubts have surfaced over governance and institutional integrity in South Africa, which will be taken into account by Moody’s.
Moody’s, the only ratings agency to have kept South Africa on investment grade since 1994, has placed the country’s Baa2 sovereign rating under review, with the threat of a downgrade looming large.
The unfolding political drama over “state capture” will almost certainly hasten a decision to lower its rating to the level assigned by Standard & Poor’s and Fitch, which have placed South Africa one grade above junk status. The other two ratings agencies are scheduled to review their ratings in June.
However, the ANC can steer South Africa Inc to safe ground if it acts decisively. “This is a defining moment for the ANC in terms of recouping lost moral high ground,” said Abedian.
Pepkor chairman Christo Wiese
Finance Minister Pravin Gordhan with, from left, Treasury director-general Lungisa Fuzile, Deputy Finance Minister Mcebisi Jonas and Reserve Bank head Lesetja Kganyago at a pre-budget media briefing last month said: “All this turbulence is not good and we should all hope these things get sorted out as soon as possible. Regrettably, the way people will interpret the allegations that are surfacing point to the fact that there is just too much smoke for there not to be fire.”
Gareth Ackerman, chairman of Pick n Pay Holdings, said: “From my perspective, the issue is simple: we need to have openness and transparency in government. Questions that have been raised need to be answered properly. The country needs to be run by government, not by third parties.”
Colin Coleman, MD of Goldman Sachs in sub-Saharan Africa, said: “Everyone will be watching very closely for the response of the government and the party — the markets will not respond well to a whitewash of the issues. If there is no credible action taken to address them, the unanswered questions around the institutional strength of South Africa will add to the weight of pressure for a downgrade.”
Khanyisile Kweyama, CEO of Business Unity South Africa, said the focus of business could not only be economic; political stability was crucial.
President Jacob Zuma’s sacking of Nene late last year and the appointment of the unknown David van Rooyen wiped billions of rands off the value of South Africa’s stock and bond markets. The decision to replace him with Pravin Gordhan a few days later reversed some of those losses and allayed concern that the integrity of the country’s most respected institutions — including the Treasury and the South African Revenue Service — was being undermined. However, Gordhan is now facing pressure from the Hawks over a “rogue” unit set up at SARS when he was commissioner.
The rand has clawed back lost ground since December and in the past few days gains could partly be because of perceptions that there is a groundswell of ANC disapproval over Zuma’s leadership.
George Glynos, MD of ETM analytics, expects a substantial rally in the second half of the year, with the rand expected to firm to R13 to the dollar from the current R15.30.
“Politics can always throw a curve ball, which can have a material impact on the currency, but they can also blow over very quickly. Unless they find expression in policy change we treat them as noise,” he said.
If Zuma was recalled, markets would respond “very favourably”, but right now markets were prepared for disappointment, he added.