The Civil Engineering Contractor May 2018 | Page 3

COMMENT Dodging the bullet – again I The coup de grâce, though, was suspending Tom Moyane and appointing Mark Kingon as acting commissioner of SARS — once one of the most competent public entities under Pravin Gordhan during the 10 years that he spent there, but which has since fallen into a shambolic, lacklustre department, with Ramaphosa saying in a letter to Moyane that under his leadership, there had been a deterioration in public confidence in the entity and th at public finances had been “compromised”. Moody’s was further optimistic that in 2017, the South African economy grew by 1.3%, exceeding Treasury’s forecasts of 0.7–1% growth, spurring the ratings agency to describe the growth as being cyclical and partly owing to one-off factors such as the end of the drought. (Where and when exactly the drought ended remains unclear.) The agency is also confident that the improvement in the business climate can be sustained and it sees progress in structural reforms taking place in mining, state-owned companies (SOCs), and energy — the sectors from where it believes future growth will come. We can only hope that the recent emergence of land grabs and the extensive media coverage over Australia voicing concern of a ‘White genocide’ taking place in our farming communities do not unravel the thin fabric of confidence that has prevented us from the full assault of a downgrade by the international ratings agencies. For the record, obligations-rated Baa3 are subject to moderate credit risk. They are considered medium grade and as such may possess certain speculative characteristics. However, a bond is considered investment grade, or IG; if its credit rating is BBB or higher by Standard & Poor’s, or Baa3 or higher by Moody’s. Generally, they are bonds that are considered by the rating agency as likely enough to meet payment obligations to the banks that invest in them. nn Kim Kemp - editor [email protected] t seems that South Africa has once again dodged the ratings bullet by Moody’s Investor Services, who, in its recent ratings review, declared South Africa’s long- term foreign and local currency debt ratings to be ‘Baa3’, revising the outlook from negative to stable. Following the Medium-Term Budget Policy Statement (MTBPS) last year and the breach of the fiscal ceiling — to the tune of R3.9-billion — Moody’s revelation ended three months of waiting after the country was placed on a 90-day review for a downgrade in November. For the first time since the budget expenditure ceiling was introduced in the 2014 fiscal year, it was breached, mainly because of bailouts for South African Airways and the South African Post Office. Should Moody’s have downgraded South Africa to sub-investment grade (junk status), this would have resulted in the country being removed from the Citi World Government Bond Index. The roll-on effect of this would have forced many asset managers and pension funds to sell South African bonds, escalating the cost of debt — and we all know that South Africans are deep in debt. So, what has changed the mood? Yes, Ramaphoria is running high and business confidence appears to have lifted since his election, in addition to the promise of infrastructure spend heartening the almost dead construction sector. But, Ramaphosa’s masterstroke it seems was replacing key positions, namely reshuffling Eskom’s board and replacing Malusi Gigaba with Nhlanhla Nene as finance minister, followed by two more major key-player changes in his cabinet: Lynne Brown with Pravin Gordhan as public enterprises minister and Mosebenzi Zwane with Gwede Mantashe as mineral resources minister.  South Africa has dodged the junk-status bullet by ratings agency Moody’s. Will it be sustainable, given the present climate? CEC May 2018 - 1