On Friday night, S&P Global downgraded South Africa’s credit rating to junk status. Which is bad news for jobs as retrenchments are almost certainly on the cards, not to mention fuel and food price hikes.
Moody’s, another rating agency, set SA to a "downgrade review”, placing it in an even more dubious economic situation.
The impact will be felt across the board, with Chamber of Mines chief economist, Henk Langenhoven, saying, "The downgrades could not come at a worse time".
“The pervasive negative impact on the mining sector is of great concern. The sector has the potential to continue to recover on the back of improved commodity prices. However, a weaker rand, coupled with rising oil prices, will lead to higher inflation and higher short-term interest rates. Mining costs have already risen by more than 10% this year.
“The mining sector’s sustainability is inextricably linked to the dynamics of the domestic economy. This latest credit downgrade, effected because of the mismanagement of the economy and uncertainty regarding government policies, has dramatically turned sentiment for the worse.
“The mismanagement of state-owned enterprises has also become an albatross for the government, and for the country as a whole, because of the size of their debt and debt-servicing costs,” he continued.
The country’s predicament means there's “no painless way” out due to the “clear lack of confidence in the domestic economy”, according to Langenhoven.
“The rating agencies and prospective investors will be watching the outcomes of next month’s ANC leadership conference closely. Without solid indications of policy reforms emanating from the conference and/or the years between the conference and the general election in 2019, no respite can be expected from rating agencies.
"No amount of ‘talking’ without credible rescue plans will turn the situation around, It will be a long, hard road back to investment grade,” he concluded.
Mike Schussler of Economists.co.za said the credit downgrade will mean, "a weaker rand and hikes in the prices of petrol, diesel, chicken and maize.
“Because of this downgrade, the government will pay more debt and there will be less money for social grants and public servants, as well as for public health care. The rand will be volatile for a while as we wait for the review from Moody’s. This is not a good place to be for South Africa,” he said.
The effect of this means it less likely that we can expect the SA Reserve Bank to decrease interest rates.
The trade unions have also weighed in. The national spokesman for labour federation Cosatu, Sizwe Pamla, said credit downgrades will "be our new reality".
"We have an economy that is on its knees and the fifth administration of President Jacob Zuma is the cause. What we appreciate for now is that the other rating agencies have been patient with us. We are hopeful that in December, the ANC will have a peaceful conference where a new leadership will emerge and make sound economic decisions,” he said.
Patrick Craven, the acting spokesperson of the SA Federation of Trade Unions has said they are “extremely concerned” by the downgrades although because the economy had been heading into a free-fall for a long time, that they were not surprised. Adding that "a change of policy was needed." He went on to say that, "The rating agencies should also be condemned for protecting the interests of the rich, castigating the government for refusing to stand up to them".
Managing director of the Banking Association of SA, Cas Coovadia, said, "S&P Global’s decision and our long-term foreign currency debt has serious consequences for the poorest of the poor, with a catastrophic impact on our country’s economic prospects.
“Political meddling in our institutions and continued bailouts of nonperforming state-owned entities are wreaking havoc on our economy,” he added.
In a statement, Treasury said, “The Presidential Fiscal Committee is seized with the task of restoring business confidence in the immediate term and of executing decisively growth-enhancing measures previously announced.
“Restoring business and consumer confidence and catalysing inclusive growth is the top priority of government.”
Chief executive of Business Leadership SA (BLSA), Bonang Mohale, said, “This administration seems to derive joy at scoring own goals,” blaming South Africa's leadership for the downgrades.
“The BLSA has long stated that many economic and political problems that South Africans experience are rooted in corruption, state capture and political patronage, resulting in a trust deficit. Unfortunately, it is ordinary people who continue to feel the impact the most with the lack of jobs, ever-increasing prices of goods and denial of basic services,” he said.
Take a look at what Professor Jannie Rossouw has to say on the issue in the video below: