Small business minister says South Africa can overcome junk status
Small Business Development Minister, Lindiwe Zulu says that South Africa can overcome the downgrade to junk status, by sourcing locally.
On Monday, ratings agency S&P Global lowered South Africa’s sovereign debt to below investment grade, with Fitch and Moody’s likely to follow.
Hours after S&P announced that it would be downgrading South Africa to junk status, Moody’s confirmed that it would also be placing the country on review for downgrade, though the group has now delayed its report for at least 30 days as it assesses the country.
Economists have warned that the downgrade to junk is likely to trigger a recession as its effects spread to the wider economy.
“The downgrade greatly complicates the prospects for South Africa being able to stage an economic recovery. Without a growth recovery, employment growth and revenue collection will stagnate and may even decline,” said CEO of the South African Institute of Race Relations, Frans Cronje.
According to Bloomberg, only six of the 20 countries that have declined into junk status have managed to get back out of it over the past three decades. The news and research agency said that the average time for those countries to achieve an investment grade rating, is seven years.
“It’s time we changed our minds because once its locally produced, it also means that the money circulates within SA. So, when we talk about radical economic transformation, it’s about how can we empower our own to begin to realise that we can benefit despite the fact that we are facing challenges here and there,” minister Zulu told the SABC.
“Now, we have been told that we have been downgraded to junk. This is an opportunity for South Africans to start looking if there is capital around us, are there ways and means to deal with this issue of being downgraded.”
Zulu’s sentiments echo those of newly appointed finance minister Malusi Gigaba, who has put radical economic transformation at the top of his agenda.
“We need to radically transform the South African economy, such that it works for all South Africans, including those who have been and still continue to this day to be marginalized – the working people and the poor, black people in general, women and youth,” minister Gigaba said upon his appointment.
“We must be able to create industrial capabilities to localise the South African economy to develop new supplier sectors, to ensure that we use government’s vast procurement budget of about R500 billion to empower black people,” the minister said.
According to the IRR, the country’s most pressing policy challenge of all is how to empower the disadvantaged.
“BEE was supposed to achieve this, but BEE continues to benefit only a small elite,” the institute said.
The IRR’s 2016 field survey showed that 13% of black people have benefited from employment equity, 14% have gained from BEE ownership deals, and 9% have been awarded BEE tenders.
In addition, 15% of blacks have benefited from land reform, of whom many have opted for cash payments rather than land. Overall, some 14% of black South Africans have benefited from BEE, whereas 86% have not.
Read: What financial experts say about South Africa being junked
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