One of the three rating agencies that has South Africa sitting on the cusp of a rating downgrade is due to visit the country nest week. Because of this; the Private sector and the Government have established a R1.5-billion fund for small and medium enterprises.
Burdened with a sluggish economy and political tensions that centre on the president, policymakers are in a race to increase growth, create jobs and convince investors and ratings agencies that the country is still an investment-grade destination.
Representatives of Moody’s, which has South Africa just two notches above junk status, arrive in the country tomorrow.
On Friday, business leaders and President Jacob Zuma launched the SME Fund, which is aimed at stimulating entrepreneurship and the growth of SMEs.
The fund was the private sector’s way of demonstrating that domestic business was not on an investment strike, the fund’s interim CEO, Lisa Klein, said in an interview.
It was also about showing confidence in the country by implementing plans even in the face of heightened political risk.
The SME Fund forms part of the Presidential CEOs Initiative, a grouping of about 90 chief executives and business leaders working on plans and measures with labour and government to invest, create jobs and grow the economy.
Investors have been spooked by tensions surrounding the National Treasury and Finance Minister Pravin Gordhan.
Given the scale of the faultlines in the domestic economy, including a youth unemployment rate that is among the highest in the world, Ralph Mathekga, the head of political economy at the Mapungubwe Institute for Strategic Reflection, was dismissive of the size of the fund.
“I find this to be a clear public relations exercise. They are just trying to defuse the notion that they are sitting on billions of rands which they are not investing,” he said.
“This R1.5-billion is just symbolic. If they really have confidence in the economy and investing in it, why don’t they invest individually instead of just R1.5-billion collectively? If they want to be taken seriously, they should invest more.”
Klein said the aim was to boost the fund to R10-billion, depending on the success of the model.
Ratings agencies have regularly warned that a failure to grow the economy and address rising government debt could result in a downgrade.Anglo American Platinum, Barclays Africa, Discovery, Investec, the JSE and MTN Group are among companies that are part of the fund.
Moody’s this week released a credit opinion – a regular update on South Africa.
It said it would likely downgrade the country’s rating in the absence of growth recovery and more fundamental structural reforms that would put the economy on a high and sustainable growth path.
Moody’s – unlike Fitch and S&P Global Ratings – rates South Africa two levels above sub-investment grade. It was particularly scathing of state-owned enterprises, saying continued guarantees to loss-making companies such as SAA pointed to “avoidance of difficult structural reforms”.
Moody’s this week sounded a strong warning against other SOEs, putting theirratings under review for a downgrade.
This was after asset manager Futuregrowth said it would stop lending to Eskom, the South African National Roads Agency, Land Bank, Development Bank of Southern Africa and the Industrial Development Corporation.