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SA must sort itself out

Oct 09 2012 12:24 *Malcom Sharara

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SOUTH Africa really need to put its house in order - if not for itself, then for the sake of Africa.

The country is considered globally as Africa’s next best thing to a developed nation.

It’s even included as one of the Brics nations also comprising Brazil, Russia, India and China, even though its growth rates are nowhere near those prevailing in the other countries.

Nevertheless, we in Zimbabwe and the majority of Africans view South Africa as a role model, especially when it comes to running economic affairs.
 
Success in South Africa gives investors the courage to expand their interests further into the continent. In other words, South Africa can be used as a springboard by investors to launch their operations into Africa.

Several companies now operating in other African countries have used South Africa as a gateway or launch pad. Many foreign investors which have been investing in Zimbabwe over the years actually use South African brokers to help them invest in Zimbabwe.

Thus the importance to Africa of a stable and flourishing South Africa cannot be over-emphasised.
 
It is against this background that I believe SA needs to sort out the current trend of tragic events - before we have another black sheep in our midst.

Yes, SA might not be able to do a “Greece” to Africa the way that country affected Europe, but the African image that a collapsed South Africa can paint could be equally devastating.

For instance if its banks are downgraded, what does that mean to Zimbabwean banks, which are already in a worse position?

Individuals and companies in Zimbabwe are paying interest rates of more than 30% because of the risk associated with the country.
 
There is a tendency from some sections in South Africa to deny that their country will go down the drain like Zimbabwe. I am sure they are even dismissing Moody’s ratings as wrong.

Yes, they are entitled to such opinions but at least they must admit that South Africa has problems that need to be sorted out sooner rather than later. Institutions like Moody’s have so much power that what they say - no matter how misplaced or wrong - is taken seriously by investors.

And if Moody’s unleashes a series of downgrades like what has happened now, something somewhere is not right.  Moody’s downgrades cover the entire economy, from central government to local government down to municipal government.

Moody’s continued with its downgrading spiral and downgraded credit ratings of private companies like Gold Fields, as well as public ones like Telkom. Banks were not spared either, with Moody’s downgrading South Africa’s top five banks’ foreign currency deposit ratings.
 
On Tuesday, Moody’s announced the downgrading of  the insurance financial strength rating of Old Mutual Life Assurance Company (South Africa), to A3 from A1, with a negative outlook.

According to Moody’s, the company's credit quality is partially linked to that of what it terms "the South African sovereign and its economy". 

Typically, Moody’s considers that an insurer’s key credit fundamentals (asset quality, capitalisation, profitability and financial flexibility) are correlated with the economic and market conditions in the countries where they operate.
 
In downgrading South Africa’s government bond rating, Moody's said the decision was prompted by a “reassessment of a decline in the government’s institutional strength amidst increased socioeconomic stresses” and a “more negative investment climate”.

Said Moody's: “Investors’ awareness of the country’s long-standing socioeconomic challenges, in particular the high unemployment rate and continuing wide income disparities nearly 20 years after the democratic transition, have been heightened following recent developments in the mining sector.

“Since the South African economy has a low savings rate, it is heavily dependent on foreign portfolio inflows to finance its rather large current account deficits,” said Moody’s.                                                                    
 
Yes, as Zimbabweans we might celebrate and say we can now import more cheaply from South Africa since the rand has weakened, but the bigger picture tells us we have more to lose than gain.

Estimates say there are more than 2 million Zimbabweans living in South Africa; these people need jobs and a deteriorating South Africa will not offer them any comfort. The close to R7bn Zimbabweans are said to be remitting from South Africa will also be reduced.

Moreover, Zimbabwe exports many items from South Africa, and production slowdowns in SA because companies can’t borrow to fund operations or are facing high borrowing costs will eventually affect Zimbabwe.
 
One thing that is sure is that no foreign investor would touch Zimbabwean or other African investments if SA, which is supposed to be the model economy, is unstable.

In the bible, Luke 23:31 says: “For if men do these things when the tree is green, what will happen when it is dry?" Likewise, if SA can be in such a mess, much more so other African countries.

 - Fin24

*Malcom Sharara is Fin24's correspondent in Zimbabwe.

zimbabwe  |  african economy
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