JOHANNESBURG, Economists and manufacturers have urged the South African government to convey certainty to investors in the wake of the recent credit ratings downgrades because lower investor confidence and potential interest rate hikes following the downgrades will impact on jobs.
Two weeks ago, the rand was the best performing emerging market currency and the South African Reserve Bank had pencilled in an improved 1.2 per cent growth for the economy in 2017, and announced the end of the interest rate hike cycle but later that day, on March 30, news sunk in of a Cabinet reshuffle, and uncertainty kicked in.
The country was slapped into non-investment grade by two rating agencies, and there’s talk of interest rates rising again with the rand falling 10 per cent against the US dollar, slipping to the worst emerging market currency.
Some ministers like the Minister of Water and Sanitation Nomvula Mokonyane were less anxious about the currency’s dip. She addressed supporters at an African National Congress Youth League (ANCYL) rally, saying: “Let the rand fall. We will pick it up.”
But an economist like FNB’s Mamello Matikinca says it’s not just the weakening rand, but a cut in investment from uncertain investors that will hurt South Africans. “If you don’t have fixed capital investment coming from these investors, you can expect job shedding, and if the Rand declines, inflation goes up and people will have less disposable income to spend.”
The Manufacturing Circle, representing dozens of listed companies, is equally apprehensive about the impact on business and jobs. Manufacturing contributes 13 per cent to overall growth.
Philippa Rodseth, the chief executive of Manufacturing Circle, says: “Manufacturing is capital intensive; if the investors hold back and interest rates rise to unaffordable levels, companies will close and that will impact on jobs.”
Analysts say rising interest rates are inevitable if the Rand weakens further and inflation raises as a result. Even the head of the ANC’s sub-committee on economic transformation, Enoch Godongwana, warned this past weekend that a recession is likely.
Source: NAM NEWS NETWORK