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Downgrade to hit black businesses

Economy
Johannesburg - The junk status accorded to South Africa’s sovereign credit rating will be detrimental for black professionals and business owners in the “untransformed” financial services sector.

This is the view of Sibongiseni Mbatha, the president of the Association of Black Securities and Investment Professionals (Absip).

Absip has a membership of roughly 10 000, which includes black-owned small financial services firms, young and established professionals and asset managers.

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File picture: Tracey Adams

He was reacting to Friday’s announcement by Fitch Ratings that the agency had downgraded government’s long-term foreign and local currency debt to BB+ from BBB- with a stable outlook; a non-investment grade - or junk - rating.

Fitch is the second agency after Standard & Poor’s to downgrade South Africa to non-investment grade.

Mbatha said this will reverse the “little gains” that have been accrued in the sector, and hinder the association’s efforts at contributing to the speeding up of transformation in the sector.

“There is a problem of market concentration where white corporations manage the majority of assets in the country, including in the banking sector where the big five banks control 90 percent of the market.

“So the effect on black firms, although it won’t be as it will be on white firms, it will be an effect anyway,” he contended.

Read also: Fitch follows S&P, downgrades SA

“There is also a big concentration in the asset management sector, where you have the big, white asset managers managing more than 70% of assets under management.

“Black firms are barely managing 4.5 percent of assets under management, which is a far cry from what it should be.

“But that 4.5 percent will be affected by the downgrade that has been visited upon us.”

He also expressed concern at “the flight of investment away from the country to more favourable investment destinations”, which was the same concern held by chief economist at the SA Institute of Race Relations, Ian Cruickshanks who told Independent Media the Reserve Bank “could raise interest rates by as much as 2 percent in no time because it will have to protect capital outflows”.

“Unfortunately, in South Africa worst case scenarios frequently come to fruition.”

THE STAR

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