President Jacob Zuma complained last week that we politicise ratings in SA. "In other countries, this is not politicised," he added. The besieged 74-year-old pointed to recent downgrades in France and the UK as well as other emerging markets of Russia, Brazil and China. "But here, we make a big issue of it," he said.
Encapsulated there, in just a few sentences, is why this magazine warned on our cover in February 2008 that SA should be afraid of a Zuma presidency — supplementing this sentiment last year by saying we actually should have warned: "Be very afraid."
It’s not even Zuma’s cavalier economic illiteracy that’s the problem: it’s his casual ability to distort fact, while blithely choosing to discount the day-to-day impact of his kamikaze-presidency on people he swore an oath to protect.
His response on the ratings evoked that of the iconic Alfred E Neuman, the grinning country bumpkin mascot for Mad magazine whose motto for every scenario was: "What, me worry?"
The problem for SA’s own Alfred E Neuman is that the ratings agencies have placed SA on a precipice, entirely because the country’s economy has been held hostage to Zuma’s political whims.
Last week, Fitch granted the country a stay of execution from a downgrade but changed SA’s rating outlook to "negative" — in other words, a downgrade is the most likely step from here.
Paramount, said Fitch, was "political risks to standards of governance and policy-making have increased and will remain high at least until the ANC electoral conference in December 2017".
Fitch said SA’s "indicators of economic development are weaker" than similar-rated countries. In other words, we’re hanging onto investment grade by the skin of our teeth.
Moody’s also left SA’s rating unchanged (at two notches above investment grade, in their case), but published a report last week that made no bones about just how precarious this rating is, thanks to the "noise" and "political uncertainty".
Zuma might argue about how his enemies are "politicising" the ratings, but the fact is, the ratings agencies themselves point to the deep economic risks of his political actions. If he doesn’t like it, well, then he can start his own ratings agency like the mooted Brics ratings agency. But any agency that acts as a mouthpiece of the politicians would be ignored by any serious investor.
Now, delving deeper into his argument, it is true that the UK and France were downgraded. But both are still comfortably in investment grade territory, as is China. And that does help keep the more ravenous critics from the door.
To best answer Zuma’s question of why a downgrade should be a "big issue", look to Brazil, which was downgraded to "junk" status this year.
This year, Brazil’s economy is set to shrink by 3.4% — in part, a self-fulfilling prophesy as foreign investors are often obliged to pull cash from countries with subinvestment-grade ratings. The equivalent of its prime interest rate is now 14%; inflation hit 10.6% earlier this year; and unemployment has doubled within three years to 11.8%.
A chilling report last week by consultancy the Paternoster Group is titled: "What if SA does a Brazil?" Its worst-case scenario suggested that a steep slowdown in growth would lead to sharp hikes in taxes, rocketing unemployment, rising poverty, and a harsh security crackdown as Zuma responds to rising "slow-burn" pressure.
A country can, of course, survive a downgrade to junk, though much would depend on the rand. But what is clear is that if finance minister Pravin Gordhan were to be fired, it could get really nasty.
Zuma himself, having survived a heated ANC discussion on his future, isn’t going anywhere. Clearly he is eager to avoid the fate of Brazil’s now-impeached president, Dilma Rousseff — whose economic legacy is horrendous.
So take a look at Brazil, Mr President. And see why ratings can be such a big deal.