BLSA believes that President Zuma is directly responsible for South Africa’s catastrophic rating downgrade by Standard & Poor’s today.
Prior to the Presidents ill-considered decisions on the restructuring of the Cabinet, South Africans working together had made sufficient progress on economic growth, structural reforms and fiscal consolidation to maintain our investment grade rating and engender confidence that was reflected in the gradual strengthening of the Rand.
The cost of the downgrade to all South Africans, the poor in particular, will be felt in higher interest rates, higher inflation, higher food prices and lower economic growth which will reduce investment and employment. In addition, capital from international investors will be less available and more expensive for the funding of government, SOEs, projects and companies.
President Zuma has done South Africa great harm, and should be held to account by all South Africans.
CEO Initiative statement
South Africa’s growth outlook has been dealt a severe blow following the downgrade of the country’s long-term foreign currency sovereign credit rating to sub-investment grade. As a result of this downgrade all South Africans will be poorer and in particular it will put increased pressure on the most vulnerable sectors of our society.
Standard & Poor’s (S&P) decision was based on their opinion that the executive changes initiated by President Zuma “have put at risk fiscal and growth outcomes and that contingent liabilities to the state are rising”. This is a disappointing outcome as a number of green shoots were appearing in the economy following the tireless efforts over the past year of collaboration between government, labour and business.
This downgrade could and should have been avoided had the structural reforms necessary to underpin sustained and inclusive economic growth been implemented in the interests of all South Africans.
The most immediate effect of the downgrade is that the country will have to pay more interest on the money it borrows to deliver essential services such as housing and social welfare. It goes without saying that in a low-growth environment this leaves even less money for pressing national priorities such as education and healthcare.
Ratings decisions affect everyone in the country. When investors lose faith and trust in our economy, all citizens pay the price for this in the form of higher inflation, higher borrowing costs and decreased buying power as well as large reductions in the values of their savings, pensions and investments.
Progress towards higher levels of inclusive growth suffers as confidence levels fall and it becomes more expensive to fund investments. Lower growth means businesses will be less likely to expand and take more people into employment.
The CEO Initiative has always maintained that true, sustainable economic empowerment and transformation will only be achieved through inclusive growth. Populist policies that focus on short-term solutions with no regard for the liabilities that we bestow on future generations will only result in the economy slipping further away from providing opportunities that benefit all that live in the country.
South Africa can ill afford to have its limited resources – that should be spent on uplifting the poorest and most vulnerable in society – be stripped through self-seeking behaviour in the public and private sectors.
No good comes from a downgrade. Now that this has happened, what is important is how we react. South Africa needs leadership that is dedicated to the singular task of creating a conducive environment for pursuing policies that support higher levels of inclusive economic growth. Withovut this our country will not fulfil its democratic potential and all our people will be worse off.