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Cape Town – South Africa remains unique in that the crisis it faces regarding the credit rating downgrades is not as deep as elsewhere, according to Lesiba Mothata, executive chief economist at Alexander Forbes Investment Solutions.
“Don’t have an exaggerated view of the downgrades or its economic outcome. I have a glass half full approach,” Mothata said on Wednesday at a seminar hosted by the Cruywagen-IRMSA Risk Foundation.
“People ask if SA is more like Zimbabwe or more like Venezuela. Yet, we have seen spectacular bond performance and globally it looks like there will be continued demand for emerging market debt.”
The rand has also been surprisingly resilient after the downgrades.
In Mothata’s view, it could take six years for SA to get out of junk status. He also does not think SA will approach the International Monetary Fund (IMF) for a bailout.
And although he thinks SA will get downgraded again in December, he does not regard it as the end of the world. Neither is it clear that all foreign investments will then exit the country.
“I am not saying there are no risks. There are, for instance, concerns about left leaning policy in SA,” he pointed out.
Regarding government guarantees of state-owned enterprises (SOEs), Mothata said the problem lies in the core SOEs like Eskom and Transnet.
He said Finance Minister Malusi Gigaba has indicated that he will address issues regarding non-core SOEs, but it is not yet clear how he will address it in core SOEs.
“SOEs can make a huge contribution and parts of it can be privatised. Although I do not think privatising Eskom will be beneficial. That would make electricity very expensive,” said Mothata.
“Global tides are helping SA, but SA should take advantage of growth in sub-Saharan Africa. SA policy error risks are substantial and it has become a confidence issue now. Yet, I believe SA can weather the storm.”
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