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Sunday Read: Moody’s and the woman who didn’t press the red button

Mar 31 2019 09:30
Ferial Haffajee, Fin24

The woman with the South African economy in the palm of her hands personifies Parisian elegance, is slight and quiet -  yet she holds such heft for our country. 

As lead South Africa analyst for Moody’s Investors Services, Lucie Villa is the key person responsible for making the decision on how the company will rate South Africa as an investment destination. 

On Friday, she led a team which said ... nothing. Moody’s is the last of the three big agencies to hold South Africa’s debt at investment grade: if we drop out of its basket, the economy falls into what is colloquially called junk status.

A rating decision was said to be imminent on Friday but South Africa escaped the junk noose once again and we have Villa to thank.  

This means South Africa’s debt, or bonds, is still contained in the Citigroup World Government Bond Index. If it is not in that, investments funds would hot-tail it out of our market to the tune of about R167-billion at the latest calculations. 

It would be a catastrophe. 

Fin24 met Villa when she was in South Africa in September and addressed a Moody’s conference. When asked to speak up because microphones could not catch what she was saying at a media conference, she said she had been forced to learn to speak more quietly as her voice usually boomed. 

She is a senior member of Moody’s Africa Sovereign Ratings team and is the lead analyst for several Sub-Saharan African sovereigns (countries) and supranational issuers. She has worked at the ratings agency for 11 years now and previously spent two years at the French Ministry of Finance in the forecast division, responsible for projections and analyses of government finances. 

She holds a postgraduate degree in Probability and Statistics and a Master’s degree from the Panthéon Sorbonne University in Paris. Her ease with numbers was clear throughout her presentations as she took a powerful audience of analysts, fund managers, business and political leaders through various projections. 

Her focus was on South Africa’s debt to GDP levels – and at the time, specifically on the growth of the state’s wage bill. But she builds relationships in addition to looking only at data and her many meetings with leaders she meets regularly at the Treasury, the SA Reserve Bank and in the Presidency have possibly given her the margin of confidence to give the country breathing space until the election. 

Moody’s is scheduled to make a ratings decision again in November, but it may do so earlier or miss the date as it has this time. 

There is little chance of debt to GDP levels decreasing immediately and it is in fact slated to rise but if there is a post-election bump in confidence, growth and employment, then the bill may be contained at less than 60% of GDP.

At the September conference, Villa came across as a measured and knowledgeable observer of South Africa’s politics and finances. While land has since come off the boil as a hot-button issue, at the time she spoke, the idea of forthcoming land expropriation without compensation was still roiling.  

At the time, she said that there was a clear objective stated by the government on what it wanted to achieve with land reform: redistribution without harming the economy.

It could, in her view, be regarded as positive with regard to the long-term growth ambitions of South Africa, she said. 

But she noted that until there is policy certainty with regard to expropriation, it could be a factor in how foreign investors regarded South Africa. Villa said she was taking a wait and see attitude to the political changes here. Since the September conference, South Africa has a whole new Finance Minister which might not be regarded as the best news. All the ratings agencies have said political stability is a lodestar for our country’s fortunes as both the Treasury and the position of finance minister have been buffeted in the past three years. 

It is likely, though, that she and Finance Minister Tito Mboweni are acquainted because of his global positions and because of his former role as the South African Reserve Bank governor.  Mboweni is a straight-shooter which likely is a good quality in his dealings with Moody’s and he is charming. The IMF, the World Bank and the South African Reserve Bank have all lowered their growth forecasts for the year, but the stimulus plan is now in place.

This week SARB governor Lesetja Kganyago said growth should turn north toward the end of this year. 

Villa has said that structural reform of the South African economy is necessary.     

sa economy  |  ratings agencies
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