I’m feeling some type of way about the recent junk status downgrade South Africa’s received. I love this country, I really do and I want to one day raise my kids here, but the way things are looking now, it seems unlikely that having kids at all will be a viable economic option for me.
For those of you in the dark, this is what went down. Mind you, this is an incredibly watered down version of events passed and it’s probably not as politically correct as you’d like as a base for your thesis or essay or whatever, but here goes.
Not too long ago, our country has been flirting with danger as the threat of being downgraded by ratings agencies to junk status, which basically tells the world that South Africa, is a country that is less likely to meet its obligations in terms of credit and paying back its debts. This would have been bad, because it would also mean that international investors would have turned on their heels and not considered our country and economy a viable investment.
Our then finance minister, Pravin Gordhan, worked his magic, along with a number of skilled representatives, and we retained our then BB- rating. So things weren’t amazing, but they weren’t awful.
Fast forward to the first week of April and after a sudden cabinet reshuffle from the President himself, with little to no warning to the ministers who’d been let go and the country and all its stakeholders, ratings agency Fitch saw it necessary to downgrade South Africa’s credit rating to BB+, after S&P had also downgraded South Africa to junk status.
That was a mouthful. Now, what does that mean exactly? It means that the economic world views our country as more of a liability and a high risk investment than a reliable one. This might sound like one of those out of reach “it won’t affect me” things we tend to sweep under the rug and let the higher-ups deal with, but I assure you this has everything to do with you because your life will be that much tougher if you’re the average or below average South African.
Heck, this is going to heavily affected South African businesses and the tier one’s (a little nickname I chose for those at the highest income rung).
International investment will be scarce, meaning investment from conglomerates wanting to build, I don’t know, manufacturing plants in our country will be a hard to come by in this newly changed economic climate. Investment from outside in our companies will trickle to a dismal drizzle as well as investment in important infrastructure will be made more difficult. The effects aren’t only on the international level.
You’ll feel it too. The cost of enterprise is most likely to increase, that means the cost of banking, corporate tax rate as well as the cost of purchasing resources whether imported or from within the country will all rise. This means that employers will feel the tightening of their belts, so much so that employment opportunities will be a hard find, especially for graduates.
It means that the cost of living will increase, the cost of petrol, the cost of food and an entire host of things will increase as well.
Now, why would a country be downgraded to junk status? Some of the reasons are because there is no faith in the country as a paying entity. Think of a country as its own company, the man at the top is the CEO, and in companies as per the King Code, corporate governance is of the utmost importance if its to list in the securities exchange and if investors are to trust its financial statements and entertain the idea of investing in the company. Now if there is a breakdown in corporate governance, there is little faith in the financial statements presented and thus little hope in investors wanting to invest in the company so that it may grow. Due to recent events, the world now feels like there has been a breakdown in the south African governance structures and because of that, they do not have faith in the country’s financials as well as their (our) ability to meet our present or long-term obligations.
In short, this is a big mess and as bleak as things might look, there’s still hope.
The economy could make a turnaround, reliance on South African enterprises to supply and meet demand as well as focussing on entrepreneurship for job creation as well as service delivery could see us pulling a China and creating as well as satisfying our own demands with little international intervention.
To be honest, this topic is so much bigger than what I’ve tried unpacking, but it’s not all grave news. There’s a silver lining in all this…our is, Bonang. We have her, you guys. Also Trevor Noah and Gqom music and lions, they think we all have pet lions anyway, and…yeah…we’re screwed.