It's not just Zuma's fault - Other reasons S&P downgraded SA

Picture credit: KEVIN SUTHERLAND
Picture credit: KEVIN SUTHERLAND

President Jacob Zuma has taken much of the blame for Monday’s Standard & Poor’s downgrade. But S& P gave many other reasons for its decision.

They spoke about South Africa’s slow economic growth‚ burgeoning levels of government debt‚ the dodgy financial situation at parastatals and the fact the corporate world is not investing its cash in the country.

They even mentioned that South Africans don’t pay e-tolls and Sanral needs the government to help it pay its debt.

Maponya feels Zuma justified in getting rid of GordhanRenowned entrepreneur Richard Maponya yesterday defended President Jacob Zuma's controversial cabinet reshuffling, which resulted in Pravin Gordhan being axed as finance minister. 

Here are seven reasons that Standard & Poor gave about why they downgraded South Africa’s foreign debt to junk:

• S& P blamed Jacob Zuma’s reshuffle and his firing of Finance Minister Pravin Gordhan for the downgrade.

“In our opinion‚ the executive changes initiated by President Zuma have put at risk fiscal and growth outcomes.”

• They said the South African government was getting into more and more debt and many parastatals needed “extraordinary government support“.

The government puts up guarantees to assure investors who buy debt that if they are not repaid‚ the government will repay their money. These guarantees‚ according to S& P‚ will make up 10 % of Gross Domecstic Product this year or R 500-million. Most of this money goes to securing debt for Eskom that needs to borrow billions to survive.

The ratings agency even mentioned that government has to support Sanral because it could not pay its debt as it was unable to collect e- tolls.

• S& P blamed South Africa’s low growth for the downgrade.

“South Africa’s pace of economic growth remains a ratings weakness.” It noted the economy was growing more slowly that the population‚ meaning there weren’t enough jobs each year for the new entrants into job market‚ who finish school of university. It mentioned the ongoing skills shortage as a reason for poor growth.

• It noted business was sitting on substantial cash piles rather than investing in the economy and expanding operations.

“An additional risk is that businesses may now choose to withhold investment decisions‚ that would otherwise have supported economic growth.”

• Eskom’s huge debt and poor governance is an issue.

Eskom needs R70 billion to fund its deficit this year‚ it noted. “Eskom still has to complete its board appointments and appoint a permanent CEO“.

• S& P were concerned that the country’s trade deficit may widen as oil prices. SA trade deficit exists means we import more than we export and spend more than we make.

• It pointed out that policy change needed to stimulate the economy was happening too slowly and questionable policy led to fewer jobs and less growth.

The conflicts within the ANC could further stall needed policy changes and this could lead to a breakdown relationships between business and labour‚ it said.


- TMG Digital



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