On Saturday, March 28, South Africans woke up to the dark clouds gathered by Moody’s Investors Service’s downgrade of the country’s economy to “junk” status.This is not a good time for such news, especially when the world is grappling, largely in the dark, in its attempt to contain the ever-spreading Covid-19 coronavirus. Moody’s delivered the news as South Africa braced for the second day of lockdown.
The impact will be most felt in African countries if we consider that 89% of all of the sub-Saharan countries are commodity-dependent. Back to South Africa. The downgrading of the sovereign debt rating to “junk” status by Moody’s has been consequential, considering that President Cyril Ramaphosa has now agreed to structural reforms, invoking a “Hallelujah” from Minister of Finance Tito Mboweni.Typically, structural reforms focus on the supply side of the economy, including relaxing regulatory measures in the labour market , reforming the public sector and reforming product markets .
But the state of the nation at the moment, which is fundamentally different from what he told the nation in February, requires a disruptive heavy lift rather than incremental change. We should prepare for the second wave of economic crisis after the current economic dust, caused by Covid-19, settles. South African companies will do well to focus what remains of their budgets on research and development of new products and services or new delivery mechanisms.
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