Following the announcement by Standard & Poor Global Ratings Agency to downgrade South Africa to sub-investment grade, the Black Business Council (BBC) believes that this is a questionable and a bad judgment by the agency.
This comes on the back of S&P’s pronouncement that in their opinion the executive changes undertaken by President Zuma have put at risk SA’s fiscal and growth outcomes” and that “negative outlook reflects the view that political risks will remain elevated this year, and that policy shifts are likely. In addition, S&P lowered the long-term South Africa national scale rating to ‘zaAA-‘ from ‘zaAAA.’
The BBC is of the opinion that South Africa has built a resilient democracy and institutions that are better placed to protect the country and respond accordingly to any difficult situations.
“Our democracy is stable and we do not have situations that are prevalent in some of the war-torn countries in the rest of the world. We are not about to have regime change or coup detat in South Africa. Our schools and health systems are in good shape that some of the multinationals with operations in other African countries choose to live in South Africa with their families and commute to these countries” – Danisa Baloyi, the President of BBC.
It’s the BBC’s view that there is no justifiable basis and rationale for downgrading our country. There are many other investors around the globe that trade South African bonds. They assess the country’s creditworthiness continuously, and their collective judgment is that South Africa has the means and political will to make good on its obligations.
The question is does S&P’s risk assessment of South Africa encompass an in-depth research of social and economic state of the country and focused on factors such as;
- Assessment of Institutional Effectiveness that includes evaluation of a country on parameters such as stability, policymaking, transparency and accountability of institutions,
- Economic assessment including analysis of economic structure, growth prospects, economic diversity and volatility,
- External assessment that considers currency status of a country in international transactions, external liquidity assessment and indebtedness, official reserve funding mechanisms through cooperation amongst member countries,
- Evaluation of Financial System risks such as strength of a country’s banking system, depth of financial markets, debt outstanding as percentage of GDP,
- Legal risks and Payment culture that evaluates overall creditor friendliness and business competitiveness with a particular country, and
- Political risks including the safety and security of its citizens.
“Globally South Africa is recognised by its strong institutions of representative democracy have been built including Parliament, Provincial Legislatures and Municipal Councils. Independent public entity institutions supporting democracy including the Human Rights Commission, the Public Protector, the Auditor-General and the Commission for Gender Equality have been set up as outlined in the Constitution. Furthermore, an independent judiciary has been established which is trusted by the vast majority of South Africans as the final arbiter of the rule of law in the country.” Said Baloyi
‘The magnitude of this action by S&P and the haste with which S&P changed its principal rationale for action after the cabinet reshuffle raise fundamental questions about the credibility and integrity of S&P’s rating action and pose a big threat to Radical Economic Transformation,” concludes Baloyi.
