Gordhan toasts ratings triumph
‘It’s a fantastic achievement for South Africa – we should celebrate’
SOUTH Africa has lived to die another day after two credit rating agencies held back from giving the country “junk status” – a decision Finance Minister Pravin Gordhan said was a “fantastic achievement” for the nation.
He said only a strong, collaborated effort from government, business, labour, civil society and thepublic could pull the country back from economic gloom to prosperity.
Moody’s Investors Service announced on Friday the sovereign rating would remain unchanged at Baa2, while Fitch revised its outlook to negative from stable, but kept its rating unchanged at BBB-.
Rating agencies analyse a country’s credit worthiness, which is a guide for investors.
“This is a very good moment in South Africa, one that we should celebrate. We have retained our investment rating. “That is key,” Gordhan said. He advised that if South Africa was to prosper, the economy had to grow. This would increase job creation, improve business operations and attract greater foreign investment.
Focus had to be on a more “inclusive” economy and black business growth. “Those are the big changes needed to make our economy more dynamic.”
Gordhan thought junk status had been kept at bay because government had managed its deficit and not destroyed the “green economic shoots that emerged”.
“We also managed our expense and debts well.” Economists were also upbeat. Econometrix chief economist Dr Azar Jammine said it was good news to note that the economy had not bottomed out despite declining for several years.
The drought was easing, which was also a positive sign.
“We also don’t have any electricity supply debts and inflation and investment rates are turning out to be better than we had expected at the beginning of the year.
“Commodity prices have also increased and we are performing well in this respect. The rand has stabilised and producers are becoming highly competitive. This serves as an excellent opportunity to increase our imports,” he said.
Foreign tourism was up by 20 percent and this was also good for the future.
“The bad news is that all of these positive factors are short term. In the long term, there is no way that our growth will pick up at a level that will be strong enough to prevent unemployment from rising further, and this is a major problem,” he said.
Economist Professor Bonke Dumisa, said he was surprised there was still negativity despite South Africa avoiding junk status.
“Most of the news reports yesterday make this out to be like it’s a bad thing and everyone wants to be pessimistic about our future.
“I believe that there is always hope. We have a strong Treasury and the finance minister has gone out of his way to ensure the economy remains stable. The fact that we haven’t been downgraded means that we are still an attractive option for foreign investors. It is a sign that we remain sound in terms of economic practices.
“Next year, things will get better for us if the Treasury does its best to keep things the way they are,” Dumisa said.
South African Chamber of Commerce and Industry president Zeph Ndlovu, said he was happy that the sub investment status was avoided.
He did not like the word “junk status”.
Ndlovu said the government could now reduce spending by cutting out non-essential projects and focusing on priorities – reducing poverty, inequality and unemployment.
“South Africa must reprioritise and reduce debt levels as many people are now borrowing to pay off debt. South Africans need to get into the culture of only spending what they have.
“We will need to create a conducive climate for peace and stability, which will go a long way to increase investor confidence,” he said.
David Shapiro of Sasfin shared a different view. He said there was no need to sugar-coat reality.
“We are heading in the wrong direction; we are heading in the path of a downgrade in future.
“The economy is not growing at the rate it should be and we are not adding to its revenue. Next year, we are only going to take on more debt, which will make matters worse. Our political climate also doesn’t make the situation any better. We are okay for now, but unless our political issues are dealt with, we will not be heading in the right direction,” Shapiro said.