With a potential credit rating downgrade looming, many South Africans are nervous about the impact
this will have on the economy – and particularly those who own small and medium sized enterprises.
During an event hosted by AlphaCode, chief economist at Investec Annabel Bishop shared some key
insights around the recent budget speech and what it means for entrepreneurs and small business
Firstly, there is a trend toward fiscal consolidation, notes Bishop. This means that South Africa is on
track for a potential downgrade.
“The worry there, besides the borrowing costs going up and the negative investor sentiment, is that it
also affects our corporates quite materially as well and our currency,” she explains.
What we need to remember adds Bishop, is that the budget is a plan, it’s not an actuality it’s
something that plans government expenditure going forward.
“Under the budget we saw the expenditure being reeled back in, particularly current expenditure – and
if you look at current expenditure, such as civil servant salaries and wages, there are two forms of
expenditure...whether it’s on social welfare or on civil servant remuneration. Basically, we don’t want to
pull back on the social welfare, as it’s really important for us as an economy and as an emerging
“On the other hand, when we see civil servants’ salaries and wage increases at 10% plus and inflation
is running at 3% to 6% that is quite substantially higher than we can afford.”
She points out that affordability is a key theme, and that credit ratings agencies are looking at the
affordability of government expenditure of its debt, in an economy that is seeing a substantial slowdown
from an economic growth perspective.
“If you had an economy that was running at above 3% growth in 2011, and in the last two quarters that
we have seen, economic growth of 0.2%...well, we’ve got a bit of a problem. And that slowdown has
been persistent over the years – it’s been a trend, it’s not a once off phenomenon.”
She notes that credit agencies are not sure how we will fund our expenditure plans if SA economic
growth continues to dwindle. Also, tax revenues will be negatively impacted.
Agencies, explains Bishop, are more concerned with how we will affect them, and how we will
materialise our plan especially in an environment characterised by weak economic growth.
She says that while we fall into the danger zone for emerging markets in terms of our debt levels, she
also points out that this is because we are so heavily influenced by what’s happening on the global
“Junk status is not the end of the world – although it makes things more difficult as the big debt we
already have makes it a lot more difficult to service already. From an SME perspective, currency
weakness does cause inflation to go up and raises the cost of doing business.”
She explains that foreign investors want stability, and the predominant uncertainty is undoubtedly going
to be factored in to key decisions in the coming year.
“We need to focus on policies which stimulate economic growth – or rather, business confidence.
Greater business confidence equals faster economic growth,” says Bishop.
There is a direct correlation between the two, she points out. At the end of the day, she says, we need
to ask ourselves what we can do to make businesses in South Africa ‘feel better.’
Visit our YouTube Channel for the full session.