As we all know, there was some celebration that South Africa dodged a downgrade to junk status by Moody’s.  That is a little bit of a surprise and the Rand actually rallied a little bit on Monday, 4 November, after that news, because Moody’s did exactly what had been expected. 

Consensus has been clear that Moody’s would not downgrade South Africa at that point, but would, as they normally do, change their long-term outlook. That change means that a downgrade is likely to come somewhere between the budget at the end of February 2020 and June 2021.  It may come sooner than people think but the belief of most of the media in South Africa seems to be that it is about 12 to 18 months away.

The real question is, are there steps we can take to avoid that downgrade and will the government take those steps?  Tito Mboweni said, “It is now or never – government, labour, business and civil society – we need each other more than ever before.”  The problems lie all over, but have obviously been exaggerated by Eskom and its massive debt and the fact that so many people do not even pay for their electricity in South Africa. It is important to understand that if Moody’s does cut our rating, it will fall somewhere between $10 billion to $15 billion of bond funds to automatically be sold, which would in turn increase borrowing costs for the government and put the government in a worse position than they are now.  We now need to hope that we can keep that Moody’s rating and not be downgraded.