S&P Global cut South Africa’s sovereign credit rating to junk status yesterday.
The country was previously rated by S&P at BBB- with a negative outlook, the lowest investment-grade rating.
Chris Malikane, an associate economics professor at Wits University, said although “there is a lot of hype about the ratings agencies, the fact of the matter is that the average South African will not be much affected in the short term [by a downgrading]”.
But in the longer term the downgrading would lead to higher interest rates, making it harder for families to pay for vehicles and loans.
Households with capital sunk in investments and assets will be the most affected. There will be a decrease in their net worth.
But, Malikane noted, “most households in South Africa don’t have the assets to be affected”.
The rising cost of credit will affect most households, he said.
The rand will depreciate further, causing a rise in the price of imports.
Christie Viljoen, senior economist at KPMG, said the rating downgrade would result in an outflow of investment funds from bonds and equities.
“This, in turn, will adversely affect the value of the rand, increase the cost of imports, and keep inflation high for longer,” Viljoen said.
Economist Azar Jammine said the downgrade would mean foreign investors wanting to buy bonds would be less inclined to buy South Africa’s.
“This is bad news for the whole economy, including small business,” he said.
“If the rand goes into free-fall and reaches R16 or R17 to the dollar, inflation will rise . so will food prices and the petrol price. Households will suffer.”
Jammine said there was nothing new Finance Minister Malusi Gigaba could do to appease investors.
“He is seen as a Gupta acolyte,” the economist said.