Katalytik Business Review Magazine, SA Down grade interview Ayabonga

The Big Idea
The downgrade to Junk and
its impact on societal
wellbeing
In the aftermath of the March 30 th cabinet reshuffle by
President Jacob Zuma and the fear that this political
uncertainty will lead to low investor confidence, the greater
fear became a reality when rating agency S&P Global
eventually downgrade South Africa’s credit rating to BB+,
put it in lighter terms- junk status.
The country was‚ until March‚ rated by S&P at “BBB-”‚ with a negative
outlook‚ the lowest possible investment-grade rating. The country had
hoped that we still have time to turn the situation around since S&P
had earlier promised to pay us a visit in June. After an emergency
meeting over the weekend they decided to downgrade the country.
This decision was followed by Moody’s credit ratings also
downgrading South Africa citing same reasons as S&P Global,
“political, popular outrage and state of SOE’s”.
May 2017
All this led to the serious backlash from economist and corporate
executives alike with some even interpreting this event as
catastrophic moment for the country (Nicky Newton-King), some
saying that “the work of 14 months has now been wiped out” Steven
Kossef ,the same sentiment is shared by Johan Burger, when saying
"This is particularly disappointing, given the efforts of the finance
ministry, together with labour and business, to avert a negative
outcome, Some have even called for the decision to have Malusi
Gigaba appointed finance minister reviewed. Frans Cronje.
.
The country managed to stave off a downgrade throughout 2016,
thanks to the CEO initiative, a joint venture between business, the
government and labour which have a sole purpose of driving
confidence and growth in the economy.
by
Tsele Moloi
But what is the real reason for this backlash?
Economists say the decisions mean it’s going to be harder and more
expensive for government to borrow money and that there will be less
money for government services.
"If investors lose faith and trust in our economy, all citizens pay the
price for this, in the form of higher inflation, decreased buying power
as well as decimated savings, pensions and investments," says CEO
initiative
Katalytik Business Review Magazine: May 2017

To understand the real issues here, understanding how leadership decisions and
approaches impact the societal wellbeing. Katalytik Business Review as the Bellwether
of leadership and the vanguard of society’s wellbeing went out to find answers.
The first person we contacted for answers was Ayabonga Cawe Development Economist
and Executive content and research at power FM.
Katalytik Business Review (KRB): There is a story of tough time ahead of us in the country, How does this
impact the poor and the working class in the immediate term?
Ayabonga Cawe: The ways are numerous : higher food price inflation (and things like transport as well) due to a
weakening rand, higher cost of credit (especially if the response from the MPC to inflationary expectations is to hike
rates).
KBR: How will this affect the prospect of job seekers in finding employment?
AC: well higher transport costs translate into higher search costs for many (due to Apartheid spatial planning ) who
are looking for work far from where they live.
KBR: Does it matter?
AC: It does matter. A great deal, especially in an economy wherein the relationship between survival and
productive work is often a vulnerable one, its a matter of life and death, and has a huge spillover in terms of
KBR: If there is not much impact for the poor in the short run as some of the economist have said, Is there
any truth in the statement that we are all waking up poorer this morning?.
AC: Well, who is 'we'? if we accept that this is a sovereign downgrade (a downgrade of debt that is issued by a
government that we all collectively own), then yes it means more money may need to go to 'debt-servicing' and less
money towards education, housing, healthcare and transport etc as part of a social wage. We are all the poorer for
it, although not to the same extent because our stake in the 'system' isn't the same.
KBR: Nicky newton King calls it catastrophe, Do you see it as being catastrophic for society at large and
the poor in particular?
AC: Many of the poor are already living in a catastrophic normalisation of the social crisis of post Apartheid South
Africa, the real catastrophy I imagine, will be the segments of society which through debt access and stable
incomes have insulated themselves from the crisis (the lower middle classes, blue collar segment etc.), who are
now increasingly vulnerable
KBR: Does turning around this situation help the poor taking into account that even during the economic
boom the poor are not sharing in the benefits?
AC: we chase growth for growth's sake at our own peril. The silver lining here I guess, is that it presents an
opportunity to change the driving basis of our growth away from exclusive focus on commodities, high level finance
and other sectors, towards restructuring our economy through land reform, reform of urban property relations,
financial inclusion and free education to ensure that when commodity prices rebound, structurally we have a
different society
KBR: What impact does it have on the banking sector and how will that affect financial inclusion of the
poor?
AC: Well the banks have been downgraded as well, meaning that its going to be more difficult to secure inter-bank
loans (which might now cost LIBOR plus whatever our risk is quantified at by these agencies). But the
banks aren't the only stakeholder in the debate on inclusion, and this may be an opportunity for our regulators and
informal savings and landings vehicles to step up to meet the demand the commercial banks have either priced out
of their market or just ignore
KBR: ANCWL and ANCYL are saying South Africa cannot be held to ransom by rating agencies that are
serving certain political agenda, is there any merit in their statement?
AC: Well if we want to make those statements (which are justified and true), we must understand
that we can't borrow in the manner we've been borrowing. We are at the 'mercy' of these discredited
agencies because we don't mobilise enough domestic savings, nor do we have any other means
beyond the capital markets to finance our trade and budget deficits. Just like its nice to swear at the
furniture store, it won't give you a better credit score nor space, until you pay them, they'll continue
to listen to Credit Bureau. Its as simple as that.
Katalytik Business Review Magazine: May 2017