If Gordhan goes, junk status will follow

According to Dr Conrad Beyers from the Department of Actuarial Science at the University of Pretoria, it is clear that credit rating agencies regard politically related risks as the single major factor that may influence their ratings decisions for South Africa. “If you scrutinise rating agency reports on South Africa, as well as public statements and assessments by rating agencies, political risk currently vastly overshadows all other risks”, Beyers says.

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On the positive side, the importance of political risks in South Africa implies that positive government action can contribute significantly to create confidence and to provide reassurance to the business community and rating agencies about South Africa’s economic prospects. Such positive action by deputy president, Cyril Ramaphosa, and Gordhan, in collaboration with prominent South African business figures - the so-called Team South Africa - indeed helped to avert a seemingly inevitable ratings downgrade earlier in 2016.

However, the opposite is also true. According to Beyers, a second major shock to the treasury will likely confirm rating agency fears that there is a willingness in key government circles to sacrifice the country’s economic well-being for ulterior motives.

“Team South Africa convinced credit ratings agencies that the chaotic exit of Nene in December 2015 was a once-off event that will not be repeated, and the rating agencies apparently gave South Africa the benefit of the doubt. However, a similar chaotic exit by Gordhan will illustrate that the ‘Nenegate’ event was not once-off and that more such shocks are likely in store for the future. In the light of the dominance of political risks in credit rating agency assessments of South Africa, a rating downgrade will most likely be a “no-brainer” in the case of a second irrational shock to the treasury.