World Economy

South Africans Urged to Rebuild Economy

Protesters at an anti-Zuma march in Pretoria.Protesters at an anti-Zuma march in Pretoria.

South Africans should begin to talk about how to rebuild their economy now that credit rating agency Fitch has also issued a junk status downgrade.

That’s according to civil society organization Save South Africa. Less than a week ago, Standard and Poor’s downgraded the credit rating of South Africa and some of its banks to junk status, SABC reported.

South Africa’s social justice activist, Mark Heywood, says the focus should not only be on getting rid of President Jacob Zuma. “We’re now in a very dark hole when it comes to the economy. We’re now in a situation where we are already struggling to get foreign investors in this country. We’re going to see a weaker rand, higher cost of borrowing and losses of job opportunities. They have an impact on people’s day-to-day lives. Now, people in this country are struggling.”

Around 30,000 people had turned up in Pretoria, demanding that President Zuma step down.

The South African rand is weakening again, after a downgrade of the country’s sovereign debt ratings that is likely to slow economic growth. That was prompted by growing concern that the management of the economy was being subordinated to the political survival of the president.

The last bout of currency depreciation, in 2015, prompted producers to cut prices to hold on to market share, in a ‘race to the bottom’. But the market is tighter this time around, and producers have the promise of greater strategic flexibility.

Credit rating agency Standard and Poor’s downgraded South Africa’s long-term foreign currency sovereign credit rating to ‘BB+’ – described as a junk rating by the investment community—from ‘BBB-’ and the long-term local currency rating to ‘BBB-’ from ‘BBB’. Fitch followed suit.

The chamber of mines is outraged, not with S&P but rather with the actions of President Zuma and his “illogical and damaging cabinet reshuffle”, which took place on March 30.

“The firing of a competent, dedicated and globally well respected finance minister, Gordhan, and other cabinet changes, have materially negatively impacted the key institution of the treasury and ultimately the creditworthiness of South Africa’s government,” the chamber said.

The downgrade will hit inward foreign investment, job creation and interest rates. The rand has already responded, having fallen 2.5% following the downgrade.

But currency depreciation does have its benefits, especially as the currency had just reached 20-month highs.

In fact, there could be some short-term upside for South African coal producers. They sell their seaborne products to India, Pakistan, South Korea and the Mediterranean region in US dollars and, so, benefit from weaknesses in the local currency in which they pay their costs.

A fall in the rand for a dollar-charging business opens up the possibility of undercutting competition from other seaborne origins, provided the rivals aren’t themselves up against currency devaluations.

Add new comment

Read our comment policy before posting your viewpoints