South African credit rating downgraded to "junk" status

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South African credit rating downgraded to

S&P Global Ratings has delivered a blow to South Africa and president Jacob Zuma's recent cabinet reshuffle, downgrading the country's sovereign risk status to "junk" today.

The rand continued to fall against major currencies in response, following a decline in value since finance minister Pravin Gordhan was stripped of his role last week. 

The ratings agency said the cabinet change was risky for fiscal policy, and made the determination at an emergency meeting over the weekend, which was held much earlier than the previously slated date of June 2.

"The downgrade reflects our view that the divisions in the ANC-led government that have led to changes in the executive leadership, including the finance minister, have put policy continuity at risk," S&P said.

"This has increased the likelihood that economic growth and fiscal outcomes could suffer."

The ANC's proposed measures under consideration to improve equality include farm seizures without compensation and curbing the size of landholdings

Late last week, farm group Agri SA said the cabinet shuffle conveyed an underlying message of "disregard to the economy, ignorance with respect to investor confidence and carelessness about the future actions of rating agencies".

"Further turbulence and uncertainty also with respect to the exchange rate is certainly uncalled for," said Agri SA president Johannes Möller.

"South Africa seems to be currently following a beggar thy neighbour policy, a policy traditionally described as one whereby a country adopts certain policy measures that can be detrimental to other countries.

According to the latest World Investment Report, foreign direct investment (FDI) into South Africa decreased by almost 70% in 2015 compared to the previous year - the lowest level in 10 years.

"Clearly foreigners are not prepared to accept local policies just willy-nilly," Möller said.

"On the face of it, it thus made little if any sense for president Zuma having ordered minister Gordhan to cancel meetings with investors in London and New York and to return home.

"What message does this convey about the level of trust to be placed in our current senior country representatives and even, as was announced last night, their successors. Surely such ill-considered steps can lead to the country being further starved of desperately needed FDI."

Möller highlighted 17 million South Africans currently relied on state grants - "people that could have been part of the employed and entrepreneurial cadres of the economy".

"Although not directly affected by the cabinet reshuffling, the agricultural policy environment is equally uncertain if not in a worse state," he said.

"We believe that we as an organization has [sic] presented government with workable solutions with respect to land reform imperatives and non-disruptive financing in this regard.

"Why basically no response was forthcoming is unclear, maybe due to some level of distrust, which should be addressed in the interest of the country, to the extent that it does exist."




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