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Being downgraded to junk status is not the end of the world

Opinion
Countries with junk status or less are growing and attracting foreign investment, and so can we, writes Victor Kgomoeswana.

Why take responsibility, if you can blame somebody, right? Because, unless we can boldly contest the rationale of Standard & Poor’s in downgrading South Africa and its banks to sub-investment grade speculative, commonly called junk status, we must grow up, figure out how we got here and how to get out.

There is life after a downgrade, however expensive.

Many fast-growing or effectively managed African economies are junk or worse. These include Ethiopia, Kenya, Rwanda, Egypt, the DRC, Republic of the Congo, Ghana, Angola and Cape Verde.

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Why did we not question the credibility of the same rating agencies when we were investment grade? asks the writer File picture: Justin Lane/EPA

But, why did S&P downgrade us? It was certainly not purely because of Pravin Gordhan’s dismissal as finance minister. That simply detonated the loaded time-bomb we had been juggling.

The statement on the downgrade put the decision down to "heightened political and institutional uncertainties that have arisen from the recent changes in executive leadership".

To dispute this, we have to believe there have not been many, and will not be any more, cabinet reshuffles. Considering Malusi Gigaba is our fourth finance minister since December 2015, some of us would be willing to take a bet on this?

Citing a scenario which has "increased the likelihood that economic growth and fiscal outcomes could suffer"’, S&P also expressed a view that "contingent liabilities to the state, particularly in the energy sector, are on the rise, and that previous plans to improve the underlying financial position of Eskom may not be implemented comprehensively and timeously". Any denial of this, based on facts, forthcoming?

On contingent liabilities, S&P highlights the "increased risk that non-financial public enterprises will need further extraordinary government support" to the tune of R50billion in 2020, or 10% of our 2017 GDP. Is there any rebuttal, after the countless financial rescue packages for such loss-making enterprises as SA Airways to date?

Lastly, the rating agency emphasises "internal government and party divisions" which could "delay fiscal and structural reforms"; and that the private sector might continue withholding investments.

If we could disprove these facts, instead of attacking the credibility of the rating agencies, perhaps we would have a reason to question the downgrade.

And why did we not question the credibility of the same rating agencies when we were investment grade? We liked their tune, back then.

Talking about more substantive issues to grow the economy and improve the quality of life of the majority of South Africans is not a reprieve for the rating agencies. All three major agencies were fined billions of dollars - in their home country, the US - for missing the risk of the 2008 global credit crunch in their own backyard.

But if we justifiably do not trust Moody’s and its allies, where is our African rating agency? If we do not want to answer to the US investment services companies, why do we not use our abundant resources to become financially self-reliant to finance our budgets?

Countries with junk status or less are growing and attracting foreign investment, admittedly at higher borrowing costs, and so can we. Most of them do so, by focusing on improving the quality of the lives of their citizens.

Yes, they might have to rely on investments from China or Russia: countries not about to lose any sleep over Fitch or Moody’s. Africa is better off with options to source financing from the US, Europe, China or Middle East, as long at the deals they close are win-win and pro-African.

As long as we focus on doing what matters, with consistency, good governance and in the spirit of Batho Pele - not for the sake of what the rating agencies think - we will deliver on the promise of our potential and honour the sacrifices of our forebears.

But if we ignore quality education, health care and inclusive economic growth for the majority, the rating agencies will hound us. After all, they are protecting the investments of their fellow Americans. Why ask for foreign investors when we can easily be self-reliant?

Let us hate S&P if we must, but loathe our inertia and ineptitude more.

* Kgomoeswana is the author of Africa is Open for Business; media commentator and public speaker on African business affairs, and a weekly columnist for the African Independent - Twitter Handle: @VictorAfrica

** The views expressed here are not necessarily those of Independent Media.

The Sunday Independent

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