Johannesburg - A meeting between South African Finance Minister Pravin Gordhan and business leaders on how to avoid a junk credit rating resolved that the current situation in the economy can’t continue, according to AngloGold Ashanti Chief Executive Officer Srinivasan Venkatakrishnan.
“There was a clear realisation that a ratings downgrade would damage South Africa Inc quite considerably,” Venkatakrishnan said in an interview in Cape Town on Monday. “What was clearly concluded was that the status quo can’t continue.”
Gordhan held unprecedented talks with about 60 CEOs on January 29 to discuss how to avoid a credit-rating downgrade and boost investor sentiment and to canvass their views before his budget speech on February 24. Business confidence is close to a 22-year low and the economy risks falling into recession this year as plunging commodity prices, weak demand from China and the worst drought in more than a century crimp output.
Moody’s Investors Service cut the outlook on South Africa’s Baa2 credit rating, the second-lowest investment grade, to negative in December. Standard & Poor’s, which puts the nation’s debt one level below Moody’s, also changed its outlook to negative, indicating a possible downgrade to junk.
Weak growth in Africa’s most-industrialised economy is the most prominent concern for rating companies. Policy uncertainty increased in December after President Jacob Zuma unexpectedly replaced Nhlanhla Nene as finance minister with a little-known lawmaker, sending the rand and bonds plunging, and then re-appointed Gordhan, who was Nene’s predecessor, four days later.
Gordhan made notes of all the suggestions at the meeting and said he has enough to prepare in the runup to Zuma’s State of the Nation Address (SONA) and the budget speech, according to Venkatakrishnan.
“There was recognition that you can’t just change sentiment without action as well,” he said. “You can’t just repackage, you have to show you’re taking the right action and the right steps. Then sentiment change can happen.”
The rand weakened 0.1 percent to 16.0463 per dollar at 12.20pm in Johannesburg on Monday, extending the decline since the start of 2015 to 28 percent.
Zuma will hold a meeting with business leaders in Cape Town on Tuesday, two days before he delivers his annual SONA in Parliament.
* With assistance from Rene Vollgraaff