Disappointment over Moody’s and Fitch ratings downgrade on SA
The Southern African Private Equity and Venture Capital Association (SAVCA) notes with disappointment the downgrade of the country by ratings agencies Moody’s Investors Service and Fitch Ratings, further into junk status.
In March this year, Moody’s had downgraded SA to BA 1 junk status, not long after the country had entered its hard lockdown brought on by the impending threat of the coronavirus.
In April, Fitch downgraded South Africa’s credit rating deeper into “junk” status, citing the lack of a clear path towards debt stabilisation and higher economic growth.
What the country now faces is a further stretching of its already strained resources, which runs the risk of impeding our economy’s ability to recover from the long-term effects of the global pandemic and economic strain under which we find ourselves in.
We are now faced with a situation where foreign investors might not look to South Africa as a favourable investment destination.
This is against the backdrop of the President attracting R109.6-billion in investment pledges from domestic and international companies this week during the third SA Investment Conference. In 2018 and 2019 the president secured R664-billion in investment pledges, of which 70% were from domestic companies.
In an ideal world, direct foreign investments would most certainly provide us with an economic boost. And while securing foreign investments should remain on our radar, our vision must certainly be to look towards inward self-investment. How will the investing community view us going forward and how will we carry ourselves out of this predicament?
Today, we find ourselves drowning in a pool of debt after international organisations such as the International Monetary Fund (IMF) approved US$4.3 billion (about R66 billion) in emergency financial assistance under the Rapid Financing Instrument (RFI), to support South Africa’s efforts in addressing the challenging health and severe economic impact of the Covid-19 pandemic.
In August, the IMF projected a loss in government revenue for SA of $18.2 billion (about R280 billion) this year alone. The country has for the last decade faced weakening economic activity, despite significant government spending, which has resulted in increased job losses, poverty, and income inequality.
With this downgrade, we’ve become an economy which is highly speculative for foreign investors, and we need to ensure we are able to lift ourselves up from speculation to certainty.
By harnessing our own potential, the private equity and unlisted space plays a dynamic role in ensuring that businesses can operate not just from a cash flow injection perspective, but from a specialist management skills point of view.
During this period, we have seen many of our own members as well as the broader industry look to the specialist skills which firms have, including business rescue practitioners, in order to help mitigate the impact which the virus and the subsequent hard lockdown has had on businesses around the country. Our members are specialists in helping companies adapt to change and manage challenges, something we spoke to earlier this year, when we responded to a call by National Treasury for suggestions on how government can use its limited public finances to deal with the crisis by releasing a position statement.
Our country requires investments not just to boost job creation and alleviate its citizens from economic hardship, but we also need funding in areas where social impact needs will be met, in order to drive social cohesion and spur South Africa forward.
The challenge remains as one of bridging the gap until normal economic activity resumes, and to this point we continue to encourage pension funds and other investors to engage with the industry to identify opportunities to direct further funding towards saving companies and driving job creation.
Despite the downgrade and the economic difficulties which we find ourselves in, there should be a renewed determination now more than ever, to work together in all areas of industry, to build a South Africa free of economic destitution in which all our citizens can breathe a sigh of relief.