It is important to understand the significance of a rating of “junk” for South Africa. The global financial markets, especially the credit market, depend heavily on statistical rating organizations. The Big Three credit rating agencies — S&P, Moody’s and Fitch — have dominated the market for years. They provide liquidity in the credit market by giving their stamp of approval to sovereign, municipal and corporate debt. They also provide ratings for other types of credit instruments across international markets. What they do is assess how likely a borrower is to be able to repay its debts and help those trading debt contracts in the secondary market.
Junk means that these entities consider S. Africa as a high investment risk because any return is not likely to be possible. Without investments and even loans, S. Africa is even in a higher financial crisis. Why did S. Africa’s rating drop? Already a financial risk, the final nail was when Zuma removed the Finance Minsiter Pravin Gordhan.
The impact of Gordhan’s departure is affecting not just the financial market but his authority as president, his allies and opponents and created splinters in the ruling party – African National Congress (ANC) who has governed since 1994. The ANC has supported and is still trying to support Zuma since he was elected democratically.
Thousands of protestors are pushing for Zuma to step down because he is no longer an effective leader and it is time for a change. “It’s not simply a question of his removal. It is about the renewal of the ANC and democracy,” said Gerrald Ray, 56, a business strategist. Protests are not violent just public voicing of non-support but there are also counter-protests waving support Zuma placards.
The ANC is reluctant to act aggressively against Zuma because of potential political opposition in future elections. “They are free to march freely but not to try and remove a government that was elected democratically,” said Kebby Maphatsoe, the head of the veterans group and also Deputy Minister of Defence and Military Veterans.
The downgrading of S. Africa to junk is a strong indicator of the financial crisis in S. Africa and this rating is further pressure on Zuma to step down as well as the ANC to step up and push for reform. Deemed junk just makes it significantly harder financially wise.
Time will tell as to when Zuma retires and how he retires.