{"id":323737,"date":"2019-06-18T07:45:00","date_gmt":"2019-06-18T05:45:00","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=323737"},"modified":"2019-06-18T07:45:00","modified_gmt":"2019-06-18T05:45:00","slug":"by-almost-all-measures-south-africas-economy-was-in-better-shape-in-2008","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/finance\/323737\/by-almost-all-measures-south-africas-economy-was-in-better-shape-in-2008\/","title":{"rendered":"By almost all measures, South Africa’s economy was in better shape in 2008"},"content":{"rendered":"

Lesetja Kganyago, then the top official at South Africa\u2019s Treasury, was taking a break at Sugarloaf Mountain in Rio de Janeiro between two G-20 meetings in November 2008 when he got the bad news.<\/p>\n

Barely three years after his country had managed to get its highest-ever investment-grade ratings from two of the three main credit-rating companies, the global financial crisis was threatening to reverse that progress. South Africa was one of multiple emerging markets in the companies\u2019 cross-hairs.<\/p>\n

Fitch Ratings Ltd lowered its outlook on South Africa\u2019s debt to negative; S&P Global Ratings followed suit soon after. Kganyago spent the short break he had planned fielding calls.<\/p>\n

\u201cThe three days\u2019 holiday was not to be,\u201d Kganyago, now head of the central bank, said on the 32nd floor of the bank\u2019s headquarters in Pretoria. \u201cThe policies that we had in place stood us in very good state\u201d to respond to the 2008 global crisis, he said. In fact, the first downgrade didn\u2019t come for another four years.<\/p>\n

But it didn\u2019t stop there. Under president Jacob Zuma, who arrived in 2009 and left office last year, corruption scandals, overspending, policy uncertainty and rising government debt have left South Africa with only one investment-grade rating.<\/p>\n

The tools the government deployed in the 2000s to build buffers against external crises – a budget surplus, falling debt levels and policy certainty – are lacking today, said Lungisa Fuzile, chief executive officer of Standard Bank Group Ltd’s South African unit. He succeeded Kganyago as the Treasury\u2019s director-general in May 2011.<\/p>\n

\u201cWe had avoided moments where we could have lost our credit rating because of external macroeconomic shocks, because of deliberate – very deliberate – actions,\u201d he said. The current more precarious state \u201cwas self-inflicted,\u201d he said.<\/p>\n

South Africa was well-prepared in 2008 because former presidents Nelson Mandela and Thabo Mbeki didn\u2019t want to repeat the financial troubles experienced by some African nations that achieved independence before South Africa\u2019s 1994 transition to democracy. The two leaders were determined to avoid borrowing from the International Monetary Fund, Fuzile said.<\/p>\n

\u201cOnce the world believed in South Africa and its commitment to sound macroeconomic management, it paid off handsomely,\u201d he said. Yields on the country\u2019s generic, rand-denominated 10-year debt, which date back to November 1999, more than halved by mid-2006 after peaking at 15.27% in May 2000. The economy grew for 42 consecutive quarters starting at the end of 1998.<\/p>\n

\u201cFor a long period of time, South Africa\u2019s credit rating was preserved by the credibility that was earned in the earlier years. And the more we derived benefit from that credibility, the more reckless people were becoming,\u201d Fuzile said.<\/p>\n

\"\"<\/a><\/p>\n

Now, with that trust all but lost, president Cyril Ramaphosa\u2019s new cabinet is battling to preserve the remaining investment-grade credit rating, from Moody\u2019s Investors Service, in the face of a contracting economy, the biggest budget shortfall in 10 years and a power utility that needs billions of rand to keep the lights on.<\/p>\n

\u201cI\u2019m surprised that they haven\u2019t downgraded us,\u201d said Thabi Leoka, an independent economist. \u201cThere are many signs that say we deserve it because we\u2019re working very hard to ensure that we get a downgrade,\u201d she added in jest.<\/p>\n

Losing its sole investment-grade assessment would push South Africa out of debt indexes including the FTSE World Government Bond Index, which according to the IMF could trigger forced outflows of around $1.5 billion and push up borrowing costs even more. The country can\u2019t afford to lose this rating because of how reliant it is on portfolio inflows to help finance the current-account and budget deficits, Leoka said.<\/p>\n

What will it take for Ramaphosa\u2019s government to avoid this, and be assessed as investment grade by other ratings companies again?<\/p>\n

While the Treasury\u2019s said the government\u2019s main focus is to regain investment-grade status and make the country an \u201cattractive investment destination,\u201d it needs to do so with a sense of urgency, said Leoka.<\/p>\n

According to Estian Calitz, an emeritus professor at Stellenbosch University who was the director-general of the Department of Finance in the mid-1990s, the country needs decisive action against corruption, deliberate decisions to turn around state companies and better coordination of economic policy.<\/p>\n

It will also take a fair amount of patience with ratings companies, according to former central bank Governor Chris Stals.<\/p>\n

\u201cThere is no magic formula that any country can employ to influence these ratings,\u201d Stals said. \u201cThe solution lies in appropriate political, social and macroeconomic policies.\u201d<\/p>\n

Fitch spokesman Peter Fitzpatrick referred to some of the company\u2019s recent published reports when asked what it considers when assessing ratings. The firm said in May that weak reform momentum means that potential growth is likely to remain low and continue to weigh on South Africa\u2019s rating.<\/p>\n

Moody\u2019s also resent some of its most recent analysis on South Africa and S&P didn\u2019t immediately respond to emails seeking comment.<\/p>\n

\"\"<\/a><\/p>\n

Ramaphosa will give his third state-of-the-nation address this week, the first since getting an official mandate by leading the ruling African National Congress to victory in last month\u2019s election.<\/p>\n

While his moves to retain key ministers such as Tito Mboweni at finance and Pravin Gordhan at public enterprises drew praise from investors, boosting economic growth and stabilizing government finances to regain the confidence will take longer, especially with Eskom Holding SOC Ltd. in dire financial straits.<\/p>\n

\u201cEconomic gains take a long time to come by,\u201d Kganyago said. \u201cThey take a lot of very difficult trade-offs and many of those trade-offs are painful. And it is amazing: Once you have the gains people forget how hard it took to come to those gains and that losing them could be much faster.\u201d<\/p>\n

\n

Read: \u2018Tough times call for tough actions\u2019: Kganyago<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Lesetja Kganyago, then the top official at South Africa\u2019s Treasury, was taking a break at Sugarloaf Mountain in Rio de Janeiro between two G-20 meetings in November 2008 when he got the bad news.<\/p>\n","protected":false},"author":59,"featured_media":114834,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11121],"tags":[1164,7329,1512,11449,499],"class_list":["post-323737","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance","tag-eskom","tag-fitch-ratings","tag-moodys","tag-sp-global-ratings","tag-standard-bank"],"_links":{"self":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/323737","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/users\/59"}],"replies":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/comments?post=323737"}],"version-history":[{"count":1,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/323737\/revisions"}],"predecessor-version":[{"id":323761,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/posts\/323737\/revisions\/323761"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media\/114834"}],"wp:attachment":[{"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/media?parent=323737"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/categories?post=323737"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/businesstech.co.za\/news\/wp-json\/wp\/v2\/tags?post=323737"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}