SA�s credit downgrade seen affecting Botswana
Isaac Pinielo | Friday April 7, 2017 17:06
The rating agency this week downgraded SA to BB+, otherwise known as junk status, from BBB-, citing the latest changes to that country’s cabinet as a contributing factor.
According to experts, this credit rating places the rating below investment grade.
They say the downgrade has affected the value of the rand, considering that the rand has a 45% weight in the value of the pula, noting that the importance of a globally balanced portfolio of investments is firmly underlined.
Kwabena Antwi, an investment analyst at Kgori Capital said the downgrade would most likely result in a weakening of the rand against world currencies.
“The pula is 45% weighted to the rand, hence a weakening in the rand against world currencies will result in the weakening in the pula against world currencies,” he said.
He also noted that the price of imports might increase as a result of the pula weakening against world currencies, adding, however, that the pula should also strengthen against the rand and reduce some of the price pass-through from South Africa.
However, Antwi acknowledged that Botswana is the highest rated African country and hence the downgrade of South Africa’s debt rating may actually result in more investor interest in Botswana.
“The rating downgrade was specific to South Africa. It should not affect neighbours of South Africa,” he said.
Development macroeconomist, Keith Jefferis said South Africa’s neighbours would be affected by the erratic and unstable political and economic situation in that country, which he said are causing slow growth in the region.
He further stated that there would also be an impact through the exchange rate, adding that a weak rand may cause other currencies such as the pula to appreciate against the rand, which will cause a problem for some Botswana exporters.
“The impact will be small in any case, the problem is not the downgrade but the underlying reasons for it,” said Jefferis.
He is of the view that since many of the borrowers in southern Africa access funding in South Africa as an economic powerhouse in the region, it will become more expensive for them to fund capital projects.
“Perhaps, slightly, but the cost of capital depends mainly on the credit risk of the final borrower, which will not be affected by the downgrade,” he said.
He stated that the downgrade might see investors turning away from the region, which could indirectly affect Botswana, as it is likely to cause them to turn away from Botswana itself. The rand lost three percent on the day South Africa was downgraded.