“South Africa has dodged its moment of truth with Standard & Poor’s,” says the FT. Last week S&P had threatened to become the first credit-ratings agency to downgrade South African debt to junk status. The country has been an investment-grade credit since the advent of majority rule in 1994. In the event, S&P stayed its hand. But a downgrade looks “almost inevitable”. It could come as soon as December.
Why? Chalk it up to the “grinding underperformance of an economy held back by uncertainty, lack of policy cohesion, lack of key reforms, and frequent policy mistakes”, Nomura’s Peter Attard Montalto told the FT. The commodities downturn hit exports and a drought has dented growth.
Otherwise, however, the malaise looks self-inflicted. The perception is that cronyism and corruption have become increasingly widespread in recent years, while the government has put off important structural reforms, such as liberalising the labour market.
The Treasury has tried to clamp down on waste and mismanagement, but the widely respected finance minister, Pravin Gordhan, is at loggerheads with President Jacob Zuma and his cronies. Zuma tried to remove him late last year, but was forced to backtrack when global markets panicked. “The messages from the presidency have essentially been that the international investor community and the ratings agencies can go jump in a lake,” says Justice Malala in the Rand Daily Mail.
The Treasury’s campaign to convince international investors that South Africa “is not a basket case”, as Malala puts it, is having little impact. The economy is expected to grow by just 0.8% this year, nowhere near enough to reduce an official unemployment rate of 27%. Violent protests keep erupting. There is little sign, in short, of South Africa getting its act together anytime soon.