Foreign investment‚ capital flow‚ government bonds‚ currency depreciation and ratings downgrades – it all seems a bit technical and difficult to understand, writes Kyle Cowan.
But when presidents fire finance ministers‚ headlines are dominated by these terms and it all leads to the same thing – citizens worry about their homes‚ jobs and income.
This week‚ South Africa’s sovereign credit rating was downgraded to “junk status” by two ratings agencies‚ Standard and Poor’s as well as Fitch.
The third‚ Moody’s‚ has placed SA under review for a possible downgrade. So what does this mean for your employment?
According to economist Dawie Roodt‚ not much.
“The reason why is the ratings agencies simply confirmed the conditions. The downgrades don’t change things‚ they are simply saying things are bad and you need to get a downgrade‚” he said.
Roodt said the downgrades affirmed the bad news that local and international investors were certainly already thinking about.
“Still‚ having said that‚ of course what we have seen is the rand take a bit of a knock and the bond market is a little bit weaker. So certainly there will be a minor impact. It’s likely to lead to less investments‚ it’s likely therefore to lead to weaker economic growth and so on‚ but not dramatically so.”
“It’s not as if we are suddenly going to go into a recession.”
Roodt said other issues‚ such as rigid labour legislation‚ a lack of skills and technological advancements‚ were more likely to affect the local labour market.
“The rating itself is unlikely to have much of an impact.”
His comments come on the back of the release of employment figures by Stats South Africa for the final quarter of 2016 on Friday.
The statistics say employment increased to 9.69 million at the end of December‚ 18‚000 jobs more than the figure captured at the end of the third quarter in September.
This‚ Stats SA said‚ was largely due to increases of 3.3% (68‚000 jobs) in the trade industry‚ 1.6% (33‚000) in business services and 1.1% (13 000) in manufacturing.
There were‚ however‚ decreases in community services of 3% (81‚000)‚ 1.8% (11‚000) in construction while mining lost 0.7% (3‚000) and transport 0.2% (1‚000).
When compared to the same period last year‚ employment is up by 0.9% or 90‚000 jobs year-on-year between December 2015 and 2016.
As far as investment is concerned‚ foreign direct investment (FDI)‚ which former finance minister Pravin Gordhan was in the UK to lobby for amongst other things‚ is defined in SA as when a foreigner buys more than 10% of a company.
“South Africa is very much dependent on foreign capital‚ and I think that’s more important than saying we are dependent on FDI‚” Roodt said.
He explained that if a foreigner buys‚ for example‚ government bonds‚ the money does not necessarily go to a specific business‚ but rather flows into the country‚ resulting in lower interest rates and making it easier for other local people to invest.
“So instead of saying we are dependent of FDI‚ I would say we are more dependent on foreign capital inflow‚ which may go to either FDI or something else and eventually in a roundabout way end up in investment‚” he said.
“The biggest inflow of cash into the country is in two asset classes‚ one is the bond market which is government debt instruments‚ and the other is the equity market‚ the Johannesburg Stock Exchange‚ that’s where the bulk of the money goes. That’s also where the money flows out and that is why the currency takes a knock if something goes wrong‚” he concluded.