Real Estate Investor Magazine South Africa Real Estate Investor Magazine - Dec/Jan 2018 | Page 56

CURRENCY
The Coming Storm for
South Africa, and Your Rands
JAMES PAYNTER
Director and Head Analyst at
Dynamic Outcomes Inc.
F
or a long time, the storm has been
coming. A winter storm. A nasty
winter storm.
And now it seems it is just about here.
It is time to take action to protect
yourself from the coming blizzard.
The past year has seen the South Af-
rican economy take a pounding from all
quarters, stumbling from one crisis to
the next, whether political, social or eco-
nomic - be it Cabinet reshuffles, rating
downgrades, negative growth, #Gup-
taLeaks, #StateCapture, social unrest,
and of course, several failed oustings of
Zuma.
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And then, exacerbating the situation
is a once-in-a-century drought that has
not only created crisis-level water short-
ages in many sectors of the country, but
driven an already dangerous (official)
unemployment rate to its worst levels
in 13 years.
Despite the compounding of these
negative events, somehow the SA econ-
omy has kept on its wobbly feet - and
kept at bay a feared implosion brought
on by being downgraded to #JunkStatus.
For far too long, sadly, the Govern-
ment’s inability (and lack of inclination
or resolve) to accept responsibility and
address this dire situation - coupled
with the lack of will to cut back on
expenditure and debt - has resulted in
investor confidence sinking further by
the day.
What really felt like the final straw,
was Gigaba’s mid-term mini budget
speech.
While it was difficult to fault the tell-
it-like-it-is attitude from Gigaba, there
was one crucial flaw:
No meaningful plan to improve the
situation. Nada. Zip.
And this is what caused the post-
speech negative reaction from South
Africans and foreign Investors.
DECEMBER 2017/JANUARY 2018 SA Real Estate Investor Magazine
And more importantly, from ratings
agency Moody’s, who have been watch-
ing the situation closely since Gigaba’s
#GordhanGate appointment in March.
They desperately needed to hear the
right things - fiscal discipline, a trim-
ming back of the budget deficit and of
the national debt.
They didn’t.
Instead, we got a fully flavoured so-
cialist budget. With radical economic
transformation gravy poured over the
top...
Net Result: #JunkStatus has now
happened from 2 out of 3 agencies.
With only one rating agency left to
throw SA to the dogs, it seems that the
inevitable has been staved off until after
February’s budget.
A downgrade by Moody’s would be
the final nail in the coffin. This will
result in SA being removed from the
World Government Bond Index and
lead to an immediate disinvestment of
at least R100 billion by foreign inves-
tors, plus significant long-term damage
to the economy.
So, it is probably best to count down
the days to that decision post the Feb-
ruary budget.
Severe recession, business downturn,