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WHEN “our newly minted minister of finance” declared that junk status would have little effect on South Africa, he was either lying or ignorant about what such status means, says Terry Bell in his latest Labour Wrap. And he points out that latest unemployment statistics seem to reveal that the adverse effects of downgrading are already starting to be felt.
At the same time, we have the announced “obscenity” of CEOs of major companies being paid R69 000 a day.
The reaction of government, he maintains, can be summed up in two lines from an old English music hall song: “It’s the rich wot lives in clover/it’s the poor what gets the blame.” Because, says Bell, Minister Malusi Gigaba and others in government seem to feel that the only problem with the local economy is with working people not rallying and “pulling together”.
According to Bell, it is a fact that the world is economically “in a mess”, but he claims South Africa is “in a deeper hole than it should be in” because of the poor planning, ineptitude and corruption in government. And the investment status downgrades will further compound the problem.
He points out that, at a basic level, junk status means that new borrowings and the servicing of existing loans will be more expensive. And, as they always do, government and business will pass on this cost - this pain - to the consumers, to workers and the unemployed, all of whom make a contribution to the fiscus, at the very least through VAT.
As matters stand, South Africa’s current annual interest payment on loans stands at R144bn. Even a 1% rate hike would cost the country an additional nearly R1.5bn a year.
However, Bell says Gigaba is correct in maintaining that the likes of Fitch, Standard & Poor’s and Moody’s do not represent - for all their influence on lenders and investors - anything real.
These rating agencies can be compared with horse racing tipsters, except that they operate in a more manipulated game than their counterparts in the “sport of kings”.
* Add your voice or just drop Terry a labour question. Follow Terry on twitter @telbelsa.
