The Jump To Junk

We ask experts the burning questions about SA’s new “junk status”. 

- Sabelo Ndlangisa

JUNK. It’s hard to believe it but this is now the way the world views South Africa. After reviewing our country, two respected ratings agencies downgraded us to non­investment grade – or junk status – which means foreign investors will now think twice before doing business here.

Although this new development caused an outcry, it wasn’t entirely unexpected. SA has been trying to ward off a downgrade for months but president Jacob Zuma’s bizarre cabinet reshuffle earlier this month, which saw respected finance minister Pravin Gordhan being axed along with 14 other ministers and deputy ministers, was the final nail in the coffin.

Within days ratings agencies Standard and Poor’s (S&P) and Fitch announced their devastating downgrades, causing money to haemorrhage out of the country and the rand to bleed. But now the question on everyone’s lips is: what will this mean for ordinary people and how do we turn the situation around?

WHY DO THESE RATINGS MATTER? 

These downgrades by two of the world’s most respected ratings agencies mean many foreign investors will now perceive SA as too big a risk. In terms of the rules governing some investment portfolios, fund managers will now have to move their clients’ money out of the country.

It will also mean that when government borrows money, it will have to pay higher interest rates. This will have many knock­on effects for the economy, likely causing growth to stagnate.

WHAT DOES THIS MEAN FOR ORDINARY PEOPLE?