Last week was a terrible one for South Africa.

Officials spun President Cyril Ramaphosa’s annual investment conference last week as a success that would result in large flows into the country. Yet in reality there were no investors lining up to invest in mega new steel, vehicle, mine, or agribusiness projects.

The absence of new greenfield mega-investment projects should in itself be a warning that the South African investment conference was a case of putting the cart before the horse. Without cutting government debt, solving load shedding problems, loosening empowerment rules, and deregulating the economy to make for a far more business-friendly environment there is no persuasive story that the country can tell investors.

Ratings agencies made their call

Just days after the investment conference, the verdict delivered by the credit rating agencies on South Africa’s overall direction of travel was much the same. Two of the big three agencies, Moody’s and Fitch, pushed South Africa’s credit rating further into junk status with a negative outlook that points to further downgrades. South Africa now has the lowest credit rating since 1994 and none of the agencies see things improving in the medium-term.

Earlier this year South Africa was pushed down into junk status, which means certain investment funds cannot invest in South African government debt. Last week Moody’s downgraded South Africa to Ba2, the second tier down on the junk ladder, and that came with a negative outlook pointing to future pushes down the ladder. Fitch gave it a similar rating on its ladder of junk status. The job of credit rating agencies is to assess the ability of, in this case, the government, to service its debt over the medium term.

Ratings are lagging indicators of the economic state of the country, but if they fall, they ultimately point to higher borrowing costs for the state by signaling an all-in-one risk assessment of an investment destination. With the possibility that Covid-19 vaccines will be rolled out sooner rather than later, and the US election over, investors are now more prepared to take on greater emerging market risk. That is why the Rand, which largely tracks other emerging market currencies, held its own after the rating downgrade. Besides, for the moment, the traders like the high yields on SA bonds, although they worry about taking on too much longer-term South African debt.

Bleak outlook

The country is being forced to borrow for a shorter term at higher rates, With tax revenue collapsing in the wake of the lockdown and South Africa’s interest bill rising fast, the concern is that South Africa will at some point not be able to borrow sufficiently to service debt. For the moment it is not too bad in the markets for South Africa.

The prime reason for the downgrades last week is the view that South Africa lacks the ability to take the necessary measures to consolidate government finances and grow the economy. South Africa is not alone in having been battered by the Covid-19 crisis, but it’s capacity to deal with the shock is lower than many other countries due to what Moody’s says are, “significant fiscal, economic and social constraints and rising borrowing costs.”

While the economy is rebounding from the pandemic lockdown and will come off a low base next year to show a growth rate of 4.8 percent, Fitch expects that to be a one-off bounce,  and in two years it will return to around 1.5 percent. Investment spending has slumped in recent years and last year was at the lowest level since 2012, which does not bode well for future growth.

Unconvincing plan

The rating agencies say the government fiscal consolidation plan is unconvincing and relies heavily on freezing public wages, which is unlikely to happen. Fitch says it expects that the budget deficit will rise from 16.3 percent in this fiscal year, to well over the Treasury’s latest projection of 15.7 percent. It says the government will be forced to reverse its decision not to pay a wage increase to the public service for the current fiscal year. Picking a fight with union allies by freezing pay will be very difficult, with the local government elections coming up next year and the uncertain state of play within the ANC.

The difficulty in cutting spending was highlighted over the past week with a strike by taxi drivers, resulting in blockages of highways to support their demands for additional Covid-19 support. Will the government stand up against the taxi drivers as they force traffic to a halt?

Government’s overall determination to cut spending is also questionable. Continued free flights for former ministers, some of whom left office under a cloud, has to be wasteful spending. The employment of Cuban mechanics to work on Defence Force trucks has yet to be fully explained. Salaries paid by the SABC, which is now in financial distress, are way above market benchmarks, but have continued for years. And then there is the continued bailout of SAA. In this case it might be best to pay the once-off closure payment and get out of the business rather than endure endless calls on the public purse. What other items of excess are hidden away in government departments and state-owned enterprises?

Poor track record

While there is a reform plan and the President’s Economic Reconstruction and Recovery has been laid out, the track record on implementation has been weak in the past and Fitch says: “Even if implemented, the effect of the reforms would be limited and take time to accumulate.”

Moody’s thinks needed changes are unlikely due to “economic and social constraints.” A translation of that is that necessary reform under the ANC is highly improbable.

South Africa’s proposed reforms still fall short of what is required, both agencies say. Missing is labour market reform to rid the market of rigidities. That might be regarded as a cliché used by the IMF and the rating agencies, but it is one repeated by investors who don’t like the centralised bargaining process. The result is the imposition of a wage structure on all firms. The result is a built-in creator of unemployment, which is likely to grow in the aftermath of the Covid-19 shock.

How to change the view

What could change the view of the rating agencies?

Moody’s says they could give a stable outlook, which implies that the rating is likely to remain the same, if there was a durable pickup in growth, partly due to “meaningful and effective labour market or power sector reforms, and a steadily narrowing fiscal deficit. On the fiscal side, an agreement with the unions which substantially moderates future increases in the wage bill would also be supportive.”

The year ahead will test the ANC’s ability to achieve that. The Treasury’s response to the downgrades was to say increased hardship would result from the downgrades, but “growth-enhancing strategies in order to rectify the accumulation of debt” need to be fast-tracked.

But later, Finance Minister Tito Mboweni tweeted that the rating agencies were unfair and were violating the Queensberry Rules, by hitting someone who was down “during a global crisis.”

To maintain their credibility, the rating agencies have no option but to call what they see. South Africa’s best option would be to prove the rating agencies wrong and deal with its ‘own goals’ that have pushed us deep into crisis.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Image by a_roesler from Pixabay


  1. I was “shocked” to hear that former ministers and their voluminous entourages were still enjoying free stuff.
    Mboweni appears to have lost touch with reality. He, of all people, should know that the markets will not respond to emotional appeals. They usually deal with facts.
    Cyril is back in hiding (appears to be following the Boris model). Ace is whimpering. He is outdone by malema, who is behaving in a truly Hitlerian manner. Why does this creature get so much airtime? Amazing, cut off the oxygen of publicity.
    Cuban mechanics? One can only guess.
    SAA is dying. Life support should be removed, the administration of a suitable dose of something to help it on its way is urgently needed. Probably won’t go quietly.
    A bleak picture indeed.

    • And the SABC invited the politicians in to run their business, thereby keeping the door open for more bailouts. Not going quietly.

  2. South Africa (RSA) will not survive economically for the next 7 years and the “failed state” status will have been reached and similar to Zim where Gadaffi owned about 35%+ of the land in exchange for oil that he supplied to Zim, the Chinese will own a bigger % of land in the RSA. By then the RSA’s SAA, Escom and about 50% of all other SOE’s will also be in the hands of the Chinese.
    I estimate that farming in its true sense will have dwindled to being 5% of what it used to be and more than 80% of all meat (beef, sheep, chickens, pigs, etc.) will be imported at high costs as well as sugar, flour, maze products, etc will mostly also be imported.
    The current top 10% of wealthy citizens will have moved to greener pastures and this will include the rich grape farmers but will exclude the wealthy politicians who will continue to milk the tax payers dry.
    Unfortunately the point of no return has been breached and even if another political party comes into power in 2021 and tries to rectify all the wrong economic decisions that the current government have made, they will take longer than 25 years (most probably never) to get the country nearly self sufficient as it used to be prior to 2001.
    The now known fact that segregation of the Western Cape will not happen within the next 5 years (which will be too late), will not help the Western Cape citizens to recover from the economic devastation that has been caused by the ANC and EFF and the most politicians.
    I can still remember when 1ZAR was equal to $0,70 (USD) and the only reason the Rand is still steady against the USD (when measured over a 2 year period) is due to the misfortune that the US Voters (with and without fraud) has brought upon themselves and which has influenced the USD negatively.
    Our education systems have collapsed despite the thousands of good teachers that still try every day to educate our youth for a better future for them and their offspring (sic). The universities are all following the collapse of international recognition for degrees and higher qualifications due to the collapse of standards applied – just look at the collapse of UNISA and degradation of qualifications achieved there over the past 5 years.
    The silly notion that you can keep on borrowing money from international lenders to get out of the spiralling debt is plain stupid and will only escalate the downfall into a once promising country that had citizens who excelled at every level, especially farmers and mechanics who created solutions for every problem that they encountered.
    Another silly fallacy that the current government is chasing headlong is to think that creating jobs mean to create more and more “infrastructure projects” under the state’s control that will all just end up like the current SOE’s e.g. Escom, SAA, SABC, Denel, Prasa (old Railways). etc. – I cannot think of a single SOE that showed a profit in the last about 30 years.
    The once proud “Ex Unitate Vires” (spelling might be incorrect) has been replaced by “Cry My Beloved Country” (sic).

    • It seems that the idea of the Chinese buying up SA land and companies is a very popular thing among the comments on the different SA websites. I do not agree with this. The Chinese are not stupid, why would they do it with EWC hanging over their head? Also, they know that in Africa a contract is not worth the paper it is written on. If it is true that Gadaffi owned 35% of the land in Zim, which I never heard of, what happened to it? Who is the owner now?

      • The Chinese wiil not actually pay for any land but will “trade” by dropping loads and loads of their citizens into the RSA (as they have already started doing some time ago) and have already opened 3 or 5 police stations serviced by their own countrymen and have asked permission to build their own “Escom” to service their own people and in exchange they will bribe the politicians by greasing their palms to allow the Chinese to build their own freeway into the rest of Africa, as they have already started doing in other African Countries.
        The Chinese are running out of space in China and needs to deposit some of their citizens in Africa so that they can take over the whole of Africa.
        The current government cannot see this nor understand it and are only in it for their own personal short-term financial gain – they do not even worry about the impact on their own offspring in the years to come.

        • I am sorry unless you can tell me where these ‘Chinese Police stations’ are then your comments are false! It is impossible to open a SAPS station staffed by foreigners. That a chines speaker can be appointed as ‘liaison’ cum language speaker to a SAPS station is potentially possible but not in any other capacity.
          But be free to convince me.

      • Don’t underestimate their strategic thinking (longterm). They have, for instance, been propping up the failed state of Cuba since the collapse of the USSR and have had to write off a lot of Cuban debt to date. Still they find it money well spent. The same, I think, will be true for SA, where they will buy the Karoo if they could, simply to frack it and get anything of value out of the ground. I’m in the camp of those who say SA’s future is Chinese. That’s another reason why I say the sooner the Western Cape can split off, the better are the chances of escaping the Red Menace.

        • I agree totally. But how do we get people to know of the plan for capexit. There are far to little signatures. How can we get it more public?

      • There is a document floating around that indicate the Chinese has a goal of 100 000 000 Chinese nationals on African soil by 2060.

      • Why would the Chinese buy land? They just want to build a casino, or extract minerals. But they don’t want those pesky property rights in the way.

  3. How long are South Africans going to tolerate a criminal regime in power and how long is it going to take the world to realise that there was and still is NO PANDEMIC in 2020 ? A Communist regime using fearmongering and lies to do what it wants, when it wants and blaming much of it on a global lie. This is all leading to something much bigger in 2021 with a genetically modified DNA and RNA patch vaccine combined with nanoparticles where we will all be tracked, controlled and genetically compromised. Those who don’t accept it are labelled a threat to society and forced into detention camps. No travel, no banking account, no shop access. Don’t believe this ? Then you had better do some research quickly.
    So the Moodies downgrading is nothing compared to what’s coming.

    • It will only be a very vocal and active minority who will be able to deflect or derail this tyrannical plan of mass medication. How to find like minded people to band together and start to protest? How to establish and promote a true viewpoint when almost all mainstream media is promoting fake science, disinformation and brainwashing.

    • ” How long are South Africans going to tolerate a criminal regime in power?”

      based on 60 years in this country and observing its citizens for 45 of them, the answer to that is simple; Forever.

      We are too busy praying for some god to deliver us from our own bad choices as it is a lot easier than doing so ourselves. I have been mulling of late as to the prospect of this nations religious fervor being its final downfall and the obliteration of some of its minority groups memory from the continent in the final analysis due to waiting for some god to do the heavy lifting for them.

      • Exactly right. We cannot expect government to solve the problems that were caused mostly by government in the first place. Nobody is coming to save you.

  4. Please wake up good people of SA.if you haven’t realized that communism is at work and that we the frog,are slowly boiling to death,then what you now see is exactly that.The ANC and EFF are bosom friends spinning the web to increase their power and riches and make the rest of the citizens equally oppressed.Get out there and travel Africa my friends .Speak to the people and see the results.

  5. I can’t fathom the need to continue criticism of the ANC “government”.
    They will not heed advice based on commonsense but continue their search for “Nirvana”.
    Nobody will invest because they’re black & oppressed by the racists of the world.
    Investors are interested in stability, energy, freedom to employ who they want to employ, return on investment, not in dumbass laws, corruption, nor in expropriation without compensation.
    The ANC will never relent in loosening their ideological agenda even though it’s hopelessly outdated. Currently there is only one direction RSA is moving & it’s a bloody steep downhill!
    The more clear the scenario becomes the more they look the other way!

  6. Vote DA in the forthcoming municipal elections. This is the last resort. The DA can manage municipalities. They are small. Small administrations show results quicker and with rising excellence. National government is too unwieldy presently. DA successes in municipalities are able to show the uneducated mass electorate that there CAN BE an alternative for them, to the mob-led ANC.

    Otherwise, and if readers deny the above, then the last hope will be gone. Simple! Devastatingly simple!

    • With the ANC ‘s majority they could easily legislate really well planned economic reforms. More than half the electorate wouldn’t know a good policy or reform from a hopelessly useless one. So what’s stopping the implementation of commonsense policies. Probably the lack of vision &/or commonsense. They prefer to hang onto outdated retrogressive ideologies & dogma. The cause of that is the infamous & even more retrogressive presence of Malema. He & his brand of dictatorship will be the death of both the ANC & the whole country.

      • What you, and many other people, don’t realise, Graham, is that the EFF is not an independent political party, they are the more radical ANC supporters being encouraged to vote EFF. Once they have a large enough following, i.e. enough seats in parliament, the ANC and EFF will announce that they are merging into a single party again, probably under the ANC name, but with the EFF’s policies.
        And it’s not impossible to do, because with floor crossing the elected member(s) of parliament, provincial or local government, take their votes with them.
        So before you can blink, all the elected parliamentarians of the EFF would rejoin the ANC, probably with Malema as Deputy President.

        • Surely then that is proof enough to RSA citizens not to mention potential investors that that the country as whole is not the place to invest & RSA citizens should be urgently planning to move to very much greener pastures.
          That bloody steep hill I mention in a previous comment has now morphed into an abyss.

    • I agree wholeheartedly with you, Roger. However, the ANC has a “solution” in place for cases like this where a municipality is run by the DA.

      The first thing they do, is boikot the council meetings, usually in cahoots with the EFF members of the council. As long as there are uneducated and uniformed masses in all of the RSA, the DA will always have to contend with a council where enough seats belong to the ANC/EFF alliance, therefore making the management of the municipality impossible.

      Soon after, the provincial governments, which all bar one, are ANC/EFF controlled will issue an administration order against the DA municipality claiming that they’re presiding over an “ungovernable” local institution. The ANC/EFF controlled provincial government then will proceed to take over the management (and finances) of that municipality.

      The provincial and municipal laws that had been drawn up by the ANC, gives the provincial government total free reign over any municipality it desires to take over, without having to prove any of their accusations against the Mayor or Council in a court of law.

      They’ve already done this in Pretoria/Tshwane and other smaller municipalities in the Freestate and North-West. Nobody will be able to prevent this from happening to every municipality that becomes DA controlled, especially those that are the so-called “highly visible” ones, like Pretoria, Johannesburg, etc.

    • Why DA? The DA is imploding, and despite taking the moral high ground, they are still getting outfoxed by those who are willing not to take the moral high ground. Sorry, but I don’t see how we vote ourselves out of the mess that voting got us into.

  7. Thanks. Great analysis and clarity for us lay people to understand the economic landscape we are faced with. Hopefully someone in Government, who has some sway, has the good sense to implement some of these suggestions

  8. The IMF and WTO like it like that; they too can keep lending so, like the Chinese, they get our products at prices they set – while subsidising their producers. The radicals in South Africa [and much of the ‘Poor South’ make much out of this, yet fail to implement the kinds of reforms which will once again see us beneficiating our raw materials and ramping up manufacturing/production which brings proper returns, getting out of debt and being able to compete.

    One can lead a horse (or donkey) to water, but one can’t make it think

    • The IMF and WTO can’t lend to us if we’re junk bonds. But there is a new kid on the block who can, namely the BRICS bank. There is a reason why we don’t need visa for Russia any longer, for starters.

  9. Based on the lack of action by Government “Cyril and his immediate heads of Government on all fronts to take control and act on:
    Malema for inciting racial conflict and using hate speech.
    The attacks on Trucks and their drivers.
    Removing those in Government who have committed dishonest acts including, bribery, corruption and theft of public funds by whatever means to achieve personal gain even claiming for SAA free flights when the purpose was not approved.
    It is now out of the Bag, Cyril admits that most of the capital funding for development and reconstruction is from local industry. Soon they too will be out of money and close businesses leaving 100% of SA unemployed. What happened to foreign investment? Yes you guest it went to the Dogs or should I say Chinese who now own around 50% of S.A. Both SOE’s and land. NO WONDER THE STATE PENSION FUND WANT TO NOW DIVERSIFY ITS PENSION INVESTMENTS INTO OFF SHORE OPPORTUNITIES FOR GROWTH OF ITS FUND.

  10. The ANC is hog tied by ideology so there is zero possibility that it will heed any advice which doesn’t conform to the ideology. Inherent in their ideology is the belief that any problems that arise during its implementation are the fault of others, not the policies or the implementors. This serves to firmly insulate them from reality so that South Africa is doomed whilst the ANC remains in power. The only uncertainty that exists being how deep is the hole of despair going to be?

    To save ourselves from the looming destruction, minorities have got to legally secede from a South Africa [mis]governed by the ANC. See the ULA website for details.

    • Hi Rory, I am sorry to burst your bubble about secession (even yjough I am 2000% for it), it will not happen in the next 50 years since I have tried my utmost just to try and get some of the 12 different secession-minded groups to get together for 2 days to try to reach a concensus of what would be the minimu requirements that these 12 groups (or at leat some of them) could agree to and muster those groups’ followers together to at least have a big enough number of people that are for it to sign a single petition to “force” the DA-led Western Cape Government to call a Referendum to measure the support within the specified area to see how many people in the area supports the idea – guess what – none of these 12 organisations that state that they are supporting secession, were willing to become a part of such a unified group to request en masse for such a referendum.
      The ULA has been at it on their own for more than 7 years and have gained some overseas support, as have some of the other groups, but alas even they are not willing to become a part of a unified group just to request the Referendum to be called.
      The poorest of the poor in the RSA mostly supports the EFF, some since they believe the rubbish that are uttered by the EFF’s leaders and the middle class (those that can read and understand what is happening and that could see the benefits of a secession, but they are too afraid to stand up to be counted and thus do not want to “stick their necks out”.
      The very rich in the RSA does not care since they are sending their riches overseas and/or invest in Cryptocurrencies so that they can leave at anytime via plane and extract their riches anywhere in the world.
      Even when the Great Trek occurred in the past, there were actually 5 great treks since the people wanted to support their own leaders and did not want to stand together – we have learned nothing from the past – even with the Zimbabwe, Venezuela, Cuban examples visible to all, we still think that it will not happen in our dearest RSA. We still believe that just talking, writing, voting anti-ANC and anti-EFF will get us what we want.
      No political party in the RSA exist that will stop this downhill roller-coaster ride into the abyss similar to the countries mentioned.
      Even prayers with no action (deeds) to support those prayers, will succeed.
      ‘Nuff said.

  11. Why the junk bonds rating? Eskom, EWC, repeated bailouts of white elephants meaning corruption is not taken seriously. Nobody takes Ramaphobia seriously any longer. Ramaphoria lasted until he opened his mouth and confirmed that he’s just like Zuma, except he hasn’t been caught for corruption yet.

    Recall that the ratings agencies have given us a break, for years. The other side of the coin is that even investment grade bonds are highly overvalued, so imagine how terrible a country’s economic outlook must be if the ratings agencies downgrade that country.

    All and sundry have repeatedly warned Ramaphobia that we cannot carry on bailing out the likes of Eskom, SAA, and any other SGO/tenderpreneurship extortion rings. All and sundry have avoided SA ambassadors like the plague at DAVOS and other international conventions, after Ramaphobia went back on his word when he was luring investors, and started paying lip service to nationaliation/expropriation without compensation. Add to this rumours of prescribed assets, and it’s clear that if our country is to go anywhere positive, it would have to be without Ramaphobia at the helm.

  12. Hey everyone , we all know what is wrong and we all know that it will not be corrected so just stop putting all of us who cannot afford to get out into a deep depression and leave!

  13. What the writer omitted to say was investors will never risk investing in SA as long as the ANC continues with its corruption program, refusing to hold its cadres responsible for previous corruption/state capture, inability/reluctance to drastically cut the gravy train and other exorbitant/reckless government expenditure, maladministration.
    While the ANC continues on its present path of placing itself (self-interest ) before the interests of the country, which it was mandated to govern effectively, then there can be no hope for survival. This being the situation we have no choice but to unite and vote them out. Whether they would ever accept defeat at the poles is another question.


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