SA’s Junk Rating: A Long Time in the Making

For the first time in 25 years South Africa does not have an investment-grade rating. On 27 March 2020, Moody’s downgraded South Africa’s sovereign credit rating to sub-investment grade — which means all three major international rating agencies have now given the country ‘junk’ status. Many people knew this was coming. Yet many others ignored the signs, and ignored the reality of what pursuing socialist policies would mean. Ideas have consequences. We are now witnessing the inevitable result of the wrong ideas and principles, and all South Africans will suffer because of those ideas.

The African National Congress, the Economic Freedom Fighters, their supporters, and those who have pushed and advocated for the government to take control of more of the economy over the last 25 years, should pat themselves on the back for their achievement. South Africa had a great chance after the socialism of Apartheid to reform, to try something truly radical, to free people to pursue their individual desires and goals. But progressively more areas of the economy, and of everyday life, have fallen under the control of the state. The path of banal socialism was chosen instead.

Alongside long-standing structural labour market rigidities and the abysmal state of the South Africa’s state-owned enterprises stands out amongst Moody’s reasons for the downgrade. Furthermore, “Unreliable electricity supply, persistent weak business confidence and investment” are also cited. While there have been hints of hope over the last year or two, nothing of substance has been done. President Cyril Ramaphosa has not forced through any serious reforms, despite all the lofty rhetoric he has offered. Eskom and South African Airways have been allowed to ‘operate,’ and have been granted bailout after bailout, despite persistent warnings from all quarters that they are serious, potentially deadly, risks for South Africa’s fiscus.

Government’s labour policies are some of the most restrictive in the world. Racial thinking permeates all discussions around labour in this country. The concept of individual merit has long been discarded as the requirement for hiring and promoting. Furthermore, the implementation of higher and higher taxes over the years shows that the state views growth and achievement as undesirable. Ours is not an environment which encourages and rewards those who seek to rise above, who want to build wealth.

The downgrade should also not be confined to just those factors cited above. Free higher education was a massive blow to any notion of sensible government spending. The growing powers of the Competition Commission, along with the persistently aggressive implementation of Black Economic Empowerment, have greatly discouraged the formation and growth of new businesses. Logically, this makes perfect sense: The more reasons there are for you to not take a risk on a new business, the more hurdles over which you must jump, the less motivation you have to try and take a chance on a new endeavour.

What does this all mean, practically speaking? South African now falls out of the FTSE World Government Bond Index. While we have seen capital outflows over the last few years, this latest announcement by Moody’s will very probably see them increase rapidly. South Africa desperately needs foreign capital investment — capital formation and accumulation. Without it, the ability to invest and form new businesses and to create jobs, greatly decreases. Do not be surprised if we see more people join South Africa’s more than ten million unemployed. Do not make the mistake of thinking this credit downgrade will only affect South Africa’s richest — they have the means to head overseas, to cushion the blow. Lower economic growth always affects poorer people the most, and that is exactly what will happen in South Africa.

The government will also have to pay more to service its ever-growing debt, and with an increasingly smaller tax base, one has to wonder where the state will turn next. Talk of prescribed assets will in all probability be ramped up, and indeed implemented at some point over the next few years. That the government will likely push ahead with yet more socialist policies — expropriation without compensation and the National Health Insurance the most serious and potentially destructive of said policies — will indicate that they are not serious about ditching the wrong ideas. Indeed, pursuing said policies will only exacerbate South Africa’s economic woes, and not prove to be any kind of real, moral solution to our social and economic ills.

Empty slogans will not help this country. If we don’t change course from the path of state control, things will only get worse. And yes, despite the fact that things are pretty bad right now, they most definitely can and will get worse. It won’t be enough to simply blame things such as ‘corruption’ and ‘state capture’. Those are the inevitable results of a government which sees its moral purpose as imposing full control over our lives. Bigger government, which socialism demands, will always and everywhere allow corruption on a massive level. Only a serious and committed change to the ideas of individual and economic freedom will help South Africa pull itself out of the quagmire. The wrong ideas have led us here — it is time for the right, moral ideas.

I suppose we should be happy that South Africa has reached this stage. The National Democratic Revolution and radical economic transformation are both premised on the redistribution of wealth, and the radical leveling down of all people in society. Given South Africa’s current non-existent economic growth trajectory, shot through with socialist policies, we will all be equally poor soon enough, and the glorious socialist revolution will have reached its logical and desired conclusion.