Katalytik Business Review Magazine, SA Down grade interview Ayabonga

The Big Idea The downgrade to Junk and its impact on societal May 2017 wellbeingby In the aftermath of the March 30th cabinet reshuffle by President Jacob Zuma and the fear that this political Tsele Moloi uncertainty will lead to low investor confidence, the greater fear became a reality when rating agency S&P Global eventually downgrade South Africa’s credit rating to BB+, put it in lighter terms- junk status. The country was‚ until March‚ rated by S&P at “BBB-”‚ with a negative outlook‚ the lowest possible investment-grade rating. The country had hoped that we still have time to turn the situation around since S&P had earlier promised to pay us a visit in June. After an emergency meeting over the weekend they decided to downgrade the country. This decision was followed by Moody’s credit ratings also downgrading South Africa citing same reasons as S&P Global, “political, popular outrage and state of SOE’s”. All this led to the serious backlash from economist and corporate executives alike with some even interpreting this event as catastrophic moment for the country (Nicky Newton-King), some saying that “the work of 14 months has now been wiped out” Steven Kossef ,the same sentiment is shared by Johan Burger, when saying \"This is particularly disappointing, given the efforts of the finance ministry, together with labour and business, to avert a negative outcome, Some have even called for the decision to have Malusi Gigaba appointed finance minister reviewed. Frans Cronje. . The country managed to stave off a downgrade throughout 2016, thanks to the CEO initiative, a joint venture between business, the government and labour which have a sole purpose of driving confidence and growth in the economy. But what is the real reason for this backlash? Economists say the decisions mean it’s going to be harder and more expensive for government to borrow money and that there will be less money for government services. \"If investors lose faith and trust in our economy, all citizens pay the price for this, in the form of higher inflation, decreased buying power as well as decimated savings, pensions and investments,\" says CEO initiative Katalytik Business Review Magazine: May 2017

To understand the real issues here, understanding how leadership decisions andapproaches impact the societal wellbeing. Katalytik Business Review as the Bellwetherof leadership and the vanguard of society’s wellbeing went out to find answers.The first person we contacted for answers was Ayabonga Cawe Development Economistand Executive content and research at power FM.Katalytik Business Review (KRB): There is a story of tough time ahead of us in the country, How does thisimpact the poor and the working class in the immediate term?Ayabonga Cawe: The ways are numerous : higher food price inflation (and things like transport as well) due to aweakening rand, higher cost of credit (especially if the response from the MPC to inflationary expectations is to hikerates).KBR: How will this affect the prospect of job seekers in finding employment?AC: well higher transport costs translate into higher search costs for many (due to Apartheid spatial planning ) whoare looking for work far from where they live.KBR: Does it matter?AC: It does matter. A great deal, especially in an economy wherein the relationship between survival andproductive work is often a vulnerable one, its a matter of life and death, and has a huge spillover in terms ofKBR: If there is not much impact for the poor in the short run as some of the economist have said, Is thereany truth in the statement that we are all waking up poorer this morning?.AC: Well, who is 'we'? if we accept that this is a sovereign downgrade (a downgrade of debt that is issued by agovernment that we all collectively own), then yes it means more money may need to go to 'debt-servicing' and lessmoney towards education, housing, healthcare and transport etc as part of a social wage. We are all the poorer forit, although not to the same extent because our stake in the 'system' isn't the same.KBR: Nicky newton King calls it catastrophe, Do you see it as being catastrophic for society at large andthe poor in particular?AC: Many of the poor are already living in a catastrophic normalisation of the social crisis of post Apartheid SouthAfrica, the real catastrophy I imagine, will be the segments of society which through debt access and stableincomes have insulated themselves from the crisis (the lower middle classes, blue collar segment etc.), who arenow increasingly vulnerableKBR: Does turning around this situation help the poor taking into account that even during the economicboom the poor are not sharing in the benefits?AC: we chase growth for growth's sake at our own peril. The silver lining here I guess, is that it presents anopportunity to change the driving basis of our growth away from exclusive focus on commodities, high level financeand other sectors, towards restructuring our economy through land reform, reform of urban property relations,financial inclusion and free education to ensure that when commodity prices rebound, structurally we have adifferent societyKBR: What impact does it have on the banking sector and how will that affect financial inclusion of thepoor?AC: Well the banks have been downgraded as well, meaning that its going to be more difficult to secure inter-bankloans (which might now cost LIBOR plus whatever our risk is quantified at by these agencies). But thebanks aren't the only stakeholder in the debate on inclusion, and this may be an opportunity for our regulators andinformal savings and landings vehicles to step up to meet the demand the commercial banks have either priced outof their market or just ignoreKBR: ANCWL and ANCYL are saying South Africa cannot be held to ransom by rating agencies that areserving certain political agenda, is there any merit in their statement?AC: Well if we want to make those statements (which are justified and true), we must understandthat we can't borrow in the manner we've been borrowing. We are at the 'mercy' of these discreditedagencies because we don't mobilise enough domestic savings, nor do we have any other meansbeyond the capital markets to finance our trade and budget deficits. Just like its nice to swear at thefurniture store, it won't give you a better credit score nor space, until you pay them, they'll continueto listen to Credit Bureau. Its as simple as that. Katalytik Business Review Magazine: May 2017