The Federation of Unions of South Africa (FEDUSA) as labour participated with government together with business in the international investor roadshow, who met with rating agency Standards and Poor, Fitch, Moody’s and eighty other investors from 12 to 16 March 2018 in London and New York, said Dennis George FEDUSA General Secretary.
Rating agencies and investors were pleased with the appointment of Finance Minister Nhlanhla Musa Nene, Deputy Finance Minister Mondli Gungubele and congratulated the officials of National Treasury, that they managed the transition and the dark days of political uncertainty well in a professional and constructive manner in the interest of the country, added George.
Minister Nene designed a new methodology for this roadshow and suggested a “question and answer sessions” other than a presentation approach, as it gives the rating agencies and investors an opportunity to zero directly into the critical areas of concern. Rating agencies and investors focused mostly on future growth expectations, budget reforms, land redistribution without compensation, labour market reforms, and state owned companies (Eskom) and investor confidence.
Rating agencies and investors argued that land redistribution without compensation, the state owned companies specifically Eskom’s debt of more than R350 billion and structural reforms are the major barriers to uncertainty for the country.
Within this context, Moody’s is scheduled to publish its rating decision on South Africa’s debt this week, after cutting the country’s debt one level in June last year. Moody’s currently has South Africa one notch above junk status, though the rating is on review for downgrade and the announcement will be made on Friday 23 March 2018.
If South Africa loses its Moody’s investment grade status it was be a major economic disaster as certain types of investors, usually big pension funds or Exchange Traded Funds are mandated to only buy high-grade debt. Thus meaning that these investors are forced to sell any bonds if Moody’s downgraded the country to junk.
A downgrade would remove South Africa out of the Citi World Government Bond Index and the Bloomberg Barclays Global Aggregate Index, which could in turn trigger financial outflows of as much as $6 billion (R72 billion). Moreover, a cut to junk could trigger up to R100 billion ($8.5 billion) in selling by foreign investors.
However, Team South Africa has noticed change in sentiment, since the election of Cyril Ramaphosa as president, and Moody’s also had a constructive meeting with president Ramaphosa a week prior to Team South Africa departing on the International Investor Roadshow said George.
Team South Africa assured investors and rating agencies that land redistribution without compensation would be done in a constitutional and responsible manner, while fiscal consolidation, both on the revenue and expenditure side will be managed prudently. The capacity of the South African Revenue Service (SARS) will be strengthened to improve tax collection, concluded George.