South Africa's sovereign credit rating has been downgraded to junk status by two rating agencies, S&P Global Ratings and Fitch. The agencies have cited the sacking of respected Finance Minister Pravin Gordhan by President Jacob Zuma as one of the reasons for the downgrade.
The rating is likely to impact the country's ability to borrow as well as discourage investors. According to Chris Malikane, an associate professor of economics at Wits University, the rating will not affect the average South African in the short-term. However, it will lead to higher interest rates in the longer-term.
Malikane pointed out that the main thing the downgrade would bring is:
[…] an increase in the risk premium‚ meaning lenders increase interest rates because of a perceived greater risk in default. The result is households with capital in investments and assets are going to be mostly affected.
South Africans have responded to the news, blaming President Zuma for the downgrade, questioning the credibility of the rating agencies and pointing out the inequality that exists in the country.
Twitter user Dabesa summarised the potential effects of the downgrade:
Consequences of #junkstatus
1.Inflation will increase
2.Assets will lose value.
3.The rand will weaken more.
4.SA. will lose investors ??
— Dabesa??? (@Ps_Mthimkulu) April 3, 2017
Another user, chloé, mocked President Zuma for the rating:
President Zuma finally accomplished something #junkstatus
— chloé (@heyitsmechloe) April 3, 2017
Former editor at South Africa's Financial Mail, Barney Mthombothi, remarked:
#junkstatus Nothing short of Zuma's immediate recall can save SA
— Barney Mthombothi (@mthombothi) April 3, 2017
We're renaming South Africa to Southern Zimbabwe #junkstatus
— Nandi?Cakes (@nandicakes) April 3, 2017
Zimbabwe is currently experiencing severe financial crisis.
“African Snake Doctor” shared a graph showing credit ratings under different post-Apartheid South Africa's presidents:
— africansnakedoctor (@africansnakedoc) April 8, 2017
Moses Mothebe directed his tweet to Zuma supporters:
Watch Zuma supporters blame whites for #junkstatus
— Moses Mothebe (@moses_mothebe) April 3, 2017
However, Duncan Wa Muvenda noted:
Blacks had lived a #junkstatus life since 1652! Investment is benefited the selected blacks and privileged whites! Stop this nonsense!
— Duncan Wa Muvenda (@TheeVintage) April 3, 2017
1652 is the year the first European settlement was established by the Dutch in South Africa.
Another user shared a photo of a shanty town with the following observation:
— African (@ali_naka) April 3, 2017
AAA is the highest possible rating to be assigned to a country by credit rating agencies.
While Phelelani Mpanza doubted the rating agencies:
We must question the credibility of these rating agencies #Junkstatus
— Phelelani Mpanza (@PhelelaniMpanza) April 3, 2017
Another user wondered:
How did Apartheid regime survive for more than 40yrs without these criminal “ratings agencies”
— M||o (@MxolisiBob) April 3, 2017
Mpumelelo Mbatha speculated that the downgrade is an attack on emerging BRICS economies:
— Mpumelelo Mbatha (@SkhuluM) April 4, 2017
BRICS is an association of five major emerging national economies (Brazil, Russia, India, China and South Africa).
Vuyo Ro echoed Mbatha's sentiments:
Brazil was downgraded so that people can impeach their president with force. South Africans are not stupid. #junkstatus
— Vuyo Ro (@sleam19) April 4, 2017
Last year, BRICS announced that it would set up credit rating agency to rival Fitch and others.