Silke: Rating agencies ‘catch-22’. Will SA get another ‘Window of Opportunity’?

All eyes are reverting back to the rating agencies as the next window of review approaches. South Africa’s growth surprised in the second quarter but there are still major concerns over the long term targets. Official joblessness is at 8.9 million people, and a minimum requirement of 5 percent growth is needed to dent this tide, which was last seen in 2007. But the biggest concern is political stability. Nenegate threw the toys and the baby out the cot, while calm has been restored with Pravin Gordhan in the hotseat not before ‘Weekend Special’ Des van Rooyen made an appearance. And while Zuma refutes a battle with Gordhan, the writing is clearly on the wall. Gordhan is seen as the wall preventing the ‘junk’ dam from bursting. And given all this political analyst Daniel Silke says Moody’s seems to be willing to present South Africa with a window of opportunity, which will hopefully allow Gordhan and the country to build on the progress already made. And we can hope that the others will follow suit. – Stuart Lowman


By Daniel Silke*

Rating agency Moody’s seems to be willing to cut South Africa some slack as they once again review the country’s investment grade status over the next few months.

Clearly, the very serious way in which Pravin Gordhan – and others in Cabinet – has grasped the severity of a potential downgrade has assisted Moody’s in realistically assessing prospects for recovery.

Rating agencies now have huge impact on countries they assess. And that in itself poses an internal dilemma to themselves.

Political analyst Daniel Silke
Political analyst Daniel Silke

In understanding their influence on millions of ordinary citizens, an agency like Moody’s is confronted with an existential dilemma – if it downgrades a nation, it retards a country from making the necessary economic progress to uplift the lives of its citizens.

Moody’s (and S&P and Fitch) therefore face a ‘catch-22’ in their modus operandi – clearly they wish to see a country avoid a downgrade yet by lowering the investment grade level, they themselves contribute to economic hardship and suffering further exacerbating stalling growth.

In the South African case, if you desire rising GDP levels – as Moody’s say they do – any downgrade would simply lead to the opposite as capital flight, a weak currency and investor sentiment take a severe beating. For this reason, a considered approach seems to be their current option – and it is to be welcomed.

And it’s here that Moody’s (and the others) can play a role as a global watchdog – looking down on Pretoria constantly as it moves to three annual updates on our domestic position. Such close scrutiny of our political economy bears out the heightened importance of ratings agencies – and their ability to influence domestic policy and deeds more than ever before.

To South Africa’s credit, the Gordhan-ites in cabinet have largely welcomed the watchdog role of the rating agencies. Unlike PW Botha in the early 1980’s who wagged his finger at the outside world as pressures on the Apartheid state mounted, Minister Gordhan and his allies have sought to justify the urgency for policy and performance reform on the back of what the rating agencies are suggesting.

There has been precious little – if any – public dissent from Cabinet over the many demands that touch on some very deep ideological fissures within the ruling alliance. Indeed, this is a positive for a country on the economic ropes as it attempts to claw back growth, credibility and economic integrity.

In addition, Minister Gordhan can use the macro-framework outlined by Moody’s as ammunition in his own fight against factionalised institutions of the state who act as obstructionist to his own tenure as Finance Minister.

The more Gordhan can show success with the ratings agencies, the greater strength he has to withstand any political onslaught against him – and the better it all is for both domestic and foreign investor sentiment who view a positive relationship as an essential pre-cursor to economic stabilisation and possible revival.


So South Africa enters a phase in which it is now on a short leash – given Moody’s repeated reviews of the state of our nation. And reward for better governance – staving off the downgrade is important to boost those pragmatists like Gordhan who remain politically fragile.

Clearly, though, political risk remains at heightened levels. Public battles between Gordhan and Eskom, SAA and even Denel are an important fillip to show how serious (and brave) the Finance Minister is in tackling deficiencies. Any reversal of this through politically inspired efforts to oust Gordhan will be quickly punished.

There is now a positive, yet symbiotic relationship between Pravin Gordhan and his supporters and Moody’s that should not be broken for short-term political ends.

For all of this, South Africa still treads water. Whilst it might stave off a downgrade this year, deep-rooted political factionalism, leadership weakness and an increasingly dysfunctional governing Alliance continue to perpetuate policy inertia.

There are therefore two battles underway in our political economy. Keeping the doors to affordable capital open through doing just enough to placate the ratings agencies is priority number one. But, it’s simply not enough.

Ultimately, you can’t just put a Band-Aid on flagging growth rates of an expected 0.2% GDP when your population grows at 1.7% per annum. You can’t just hold your head above water when 8.9 million South Africans are unemployed with little sign of a lowering of this figure.

And, when the national airline loses R5.5bn of taxpayers’ money in the last year alone, you can’t succeed by rewarding the incumbent Chairwomen with a longer spell at the helm.

Should Moody’s hold our ratings firm, there might be a sigh of relief at Christmas. But it really begs the question, is this all good news – or just a reprieve as the core political issues of rebooting the economy through new and pragmatic policies remain illusive to a government at war with itself over leadership and policy issues?

Still, in our current tense atmosphere, victories are few. Let’s hope that by November we can indeed claim stability in our investment grade as a little step towards something more meaningful. Moody’s can offer us a window of opportunity to build on ratings stability. Let’s not forgo this one.

  • Daniel Silke is director of the Political Futures Consultancy and is a noted keynote speaker and commentator. Views expressed are his own. Follow him on Twitter at @DanielSilke or visit his website.
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