Small business representative organisation AHI says ratings agency Fitch’s decision to downgrade South Africa’s credit rating to junk status, will lead to lower economic growth, with some expecting billions of rands in outflows and a doubling of the current account deficit for South Africa.
In addition, it will put more pressure on the rand, significantly raise inflation and increase the difficulty in servicing government debt.
“It will take us years to recover,” AHI president Bernard Swanepoel said in a statement on Monday.
Fitch's downgrade to BB+ from BBB- on both foreign and local currency debt follows that of Standard & Poor’s, which also cut South African foreign debt to junk status earlier this month.
The agencies’ moves follow the dismissal of former Finance Minister Pravin Gordhan and his deputy Mcebisi Jonas.
With two out of three rating agencies having downgraded South Africa to junk status, Swanepoel noted that the country was likely to drop off a number of global bond indices.
He pointed out that this would force international funds that track such indices to sell.
“Funds and other institutional investors prohibited from holding subinvestment grade securities are also likely to join the exodus out of South African bonds,” he said.
Swanepoel highlighted that AHI is warning its members that a weaker rand and other factors resulting from the downgrade are almost certain to lead to a rise in the cost of servicing government debt.
This will mean less money for critical services such as health, education, housing and sanitation, hitting the poorest and most vulnerable, hardest.
He added that fewer infrastructure projects will mean that procurement from small, medium-sized and microenterprises will decline.
“From a business point of view, it is going to make it difficult to hedge currency exposure and it’s going to make borrowing money more expensive. We will certainly see higher prices at a time when many consumers are already struggling with high levels of debt and input costs are rising,” he said.
He added that AHI’s advice to its members is to take precautionary measures where possible to ensure that they, their staff and their businesses are ready and able to survive whatever challenges may come their way in the next few years.