#StateCaptureReport: Good news for ratings agencies

Cape Town – Ratings agencies will most likely see the Public Protector’s report on state capture as a sign of institutional strength in South Africa, economists say. 

Gina Schoeman, South Africa economist at the global bank Citi, told Fin24 that the release of the report, although damning, would satisfy ratings agencies who want to see that the country’s Chapter 9 institutions are sound. 

Former Public Protector Thuli Madonsela’s report on state capture was released on Wednesday after President Jacob Zuma dropped his bid to interdict the release of the report. 

“It’s never good to have an official report of findings that the leader of your country may be implicated in corruption,” Schoeman said, “but what’s important is that it shows our institutions are strong and that there’s no meddling.” 

READ: Despite political noise, SA institutions remain strong - Moody's

For this reason an emerging market country, such as Turkey, was downgraded earlier this year on political uncertainty, while South Africa has managed to stave off a downgrade to junk status thus far, Schoeman said. “It shows South Africa is a fairer place than other emerging markets.

“Although financial markets may take a while to digest former Public Protector Thuli Madonsela’s 355-page report, financial markets will in all likelihood price in a greater probability of an earlier exit of President Jacob Zuma.” 

Jeffrey Schultz, economist at BNP Paribas Securities South Africa, opined that from a financial markets perspective the release of the report shows a strong sense of institutional capability and credibility.

“This is something that we have been lacking in South Africa in the last couple of months – since Nenegate, really," he said. “Today’s report shows the strength of our Constitution and the strength of our judiciary.” 

Schultz agreed that ratings agencies would deem the release of the report in a positive light. “From an institutional standpoint ratings agencies would be happy.” 

He said the information in the report is “relatively damning” in that high profile public servants, as well the president himself, are implicated in corruption. However, he said this could buoy South African markets on the positive side.