Western Cape business owners have noticed a “clear and disturbing” trend of foreign investors pulling back from doing business with local firms‚ following South Africa’s recent credit downgrades.
The Cape Chamber of Commerce and Industry conducted a survey with its members and said the credit downgrade “has already had a major impact” on business in the province.
“Many of the respondents stressed that ‘it is still early days’ but the picture is both clear and disturbing‚” the chamber said.
The chamber has not indicated how many of its members responded in the survey.
The survey found that 36.78% of those surveyed were “aware of decisions to cancel or postpone new investments in South Africa” while 20.69% of respondents said “overseas partners and associates had withdrawn from joint ventures or scaled down projects” with SA companies.
As a result of the recent downgrades‚ 41.38% of those who responded to the survey said they had “already changed company strategy to increase their investments on their operations outside of South Africa”. These findings come as ratings agency Moody’s Investor Services is expected to make an announcement on South Africa. Moodys is currently reviewing South Africa and is the final of the three major credit ratings agencies to update projections following former finance minister Pravin Gordhan’s controversial firing.
Earlier this month‚ S&P Global Ratings and Fitch reduced South Africa’s sovereign investment rating to junk status. A downgrade from Moody’s would be a major blow to South Africa‚ according to Lumkile Mondi‚ chief economist at the Industrial Development Corporation‚ because Moody’s has consistently been the most supportive of all the credit agencies.
“This economy requires leadership and action that focuses on growth. Unless the South Africa government comes out with a strategy to deal with the economy‚ South Africa will continue to be vulnerable‚” Mondi said. Last weekend‚ the Sunday Times reported on the first major deal that had to be scuttled because of the credit downgrades from S&P and Fitch: Pioneer Foods‚ the second largest fast-moving consumer goods group‚ announced the collapse of a deal over uncertainty about South Africa’s economic outlook moving forward.
Western Cape business owners are both angry and concerned. “This is the point of no return‚” said one respondent.
“There will be no further investment in South Africa of any time. I have had enough.”
“What we have found is very disturbing‚” said Janine Myburgh‚ the president of the Chamber. “It shows that many of those involved in the decisions that lead to the downgrade had very little understanding of what would happen in the real world of business and jobs.”
Alan Mukoki‚ CEO of South African Chamber of Commerce and Industry (SACCI)‚ said that while a downgrade from Moody’s is “likely‚” the SA Chamber is confident the country is still in a good place.
“We continue to tell [investors] there is a very strong case for investment in South Africa‚” he said. Mukoki concedes there will be ramification if Moody’s cuts the credit rating of South Africa - some financiers are not permitted to put money into junk status entities‚ meaning South Africa will simply not be an option for many institutional investors.