S. Africa has chance to overcome current challenges: economists

Economic commentators believe all hope is not lost on South Africa after the downgrading of its foreign currency ratings to subinvestment by international rating agencies.

Standard & Poor's (S&P) lowered the country's foreign currency ratings to junk status, which led to seven banks suffering the similar fate. Many economists contributed to a panel of discussion on Thursday saying South Africa could rise from this bad situation if they put their act together.

Lesiba Mothata, chief economist of Investment Solutions, said the South African rand and bonds did not sharply decline after the downgrade. Countries like South Korea, Hungary and Thailand have fallen into junk status and lost policy direction which is not the case with South Africa.

He said South Korea lost the ability to raise taxes with currency falling and the banking sector in crisis. Columbia was also in the junk status with drugs and wars which made it take long in that state.

"The situation looks different in South Africa, the issues are not exogenous. We have prospects to be fallen angels and can turn around things if we do the right things. Our banks are capitalized and the Treasury as an institution continues with clear transparency and vision. South Africa has shown agile response from Treasury," Mothata said.

Aza Jammine, chief economist of Econometrix, also agreed with Mothata that there is still hope for the country. He said the rand has shown resilience even though had it not been for the downgrade it could be around R12 against the U.S. dollar.

"The story is not over yet, what is worrisome may be an opportunity as well ... If Malusi Gigaba (South Africa's new finance minister) keeps saying the things he has been saying in the last few days, we may renew the momentum of recovery and avoid recession," Jammine added.

Jammine said there were some fears that the interest rate and inflation would increase, but it has not happened and the drought seems to be ending, with also no load shedding that could contribute positively to the country.

The chief economist said the country has to do some structural reforms and also implement the country's economic blue print, the National Development Plan (NDP). One of the positive things was the confidence in the business that had been inspired by the former Finance Minister Pravin Gordhan.

He also said Gordhan brought about unity in government, labor and business to avoid protracted strikes. The country should emulate some Asian countries.

"China made private sector partner with government while maintaining oversight on them. How they invested on education and skills is unbelievable. Even Singapore in 1977 developed skills and encouraged small businesses to thrive such that they could be proud of. I do not foresee that happening in our country," Jammine said.

Rabelani Dagada, Member of the Mayoral Committee of Finance, City of Johannesburg, said currently residents owe the city about R17 million. If the city is downgraded there would be more pressure on residents to pay for the rates, water and electricity, which would increase the debt.

"If we are downgraded further it would be difficult for the city to borrow as the debt would be expensive to service. We will be squeezed and affected on our quest to deliver infrastructure," Dagada said.

He said the downgrade would mean that many cities will have a backlog on their infrastructural projects and struggle to maintain and provide services.

Dennis Dykes, chief economist of Nedbank, said South Africa is consuming more than it could produce and has been relying on investment to fill the gap. There is a need for fiscal sustainability, making the ease of doing business better and reducing unemployment.

The Nedbank economist said it would be difficult for state enterprises, banks and business to borrow. If they borrow they will pass on the cost to the consumer, and there is still possibility that a country could survive the recession.

Moody's is expected to announce their decision in June, and a possible downgrading is feared. Dykes said even if the country goes into recession, the government could respond in a positive way to speed up the recovery. Enditem