Does anybody want junk? I am sure not, except, of course if they are in the junk business, such as recycling or waste management. It also depends how one defines junk. What is junk to one man may be treasure to another!
Remember Junk Mail? Many years ago a friend of mine got arrested for stealing a copy of Junk Mail from CNA. Junk Mail was a publication in which people selling various belongings could advertise them for free! My friend had placed an advertisement to sell something so he walked into CNA, grabbed a copy of Junk Mail and walked away until a duty bound security guard arrested him and called cops. My friend was laboring under the mistaken belief that Junk Mail was free, just like the suburban magazine that gets dropped on your door step. After a few inconvenient court appearances, he was eventually acquitted, ironically, he had about R500 in his pocket on the day of the arrest and happened to be a Dispatch Manager for a large electronic goods company.
So much for Junk Mail, what about Junk Status? So that little understood term is back to dominate our headlines, with talk of another possible downgrade of our investment status by the rating agencies. What does this actually mean in layman’s terms? Government as well as state owned enterprises often need to borrow money (called sovereign debt) for various purposes both locally and internationally. Lenders are interested in the country’s credit rating in order to assess the risk or ability of the country to pay back the debt, remember the debt of state owned enterprises is guaranteed by the government. Much like being blacklisted as an individual, which means one cannot access credit, government should also be concerned about its credit rating. If a country does not have a good credit rating, it has difficulty attracting investment and raising debt funding both locally and internationally. Investment is important to stimulate growth and employment in the economy. Junk status also costs the country more in interest repayments, lenders have to charge higher interest rates for loans in order to compensate for the increased risk of non-payment.
Junk status can be likened to being in the intensive care unit of a hospital. When relatives and friends come to visit, they hope and pray for improvement in the health of their loved one. It is a great relief to be out of the ICU and into a normal ward, but the ultimate objective is to be discharged from hospital altogether.
Ordinary people are affected by credit ratings on a daily basis. Banks conduct credit scoring whenever one applies for credit, people with good credit ratings get granted credit generally at lower interest rates while those with poor credit records are either declined or get charged more to compensate for the risk of non-payment. The sad reality is that nobody wants junk, unless they are in the junk business! Unfortunately, even people that have the most brilliant business ideas that are necessary to create jobs, sometimes cannot access finance to implement their ideas because of poor credit ratings. Even at this level, poor credit ratings are detrimental to economic growth.
Rating agencies are like doctors doing rounds in the ICU, they will keep coming back to assess the progress of their patients and in South Africa, they have always done so, perhaps quietly in the past. The reason they get so much publicity now is because the country is in sub-investment grade or junk status and every interested person is eager to find out when the patient is likely to be moved from ICU and, of course eventually discharged from the hospital altogether.
The issue of junk status should of concern to every citizen. As a nation, every individual and organization, including employers, Trade Unions NGOs and especially government should understand the implications of junk status and work together to extricate the country from its intricate web of challenges, which together have caused its relegation to junk status. The country needs to reset its priorities and national agenda and show commitment and discipline to implement agreed plans.
The overall objective of every citizen should be to restore the country to its former glory and pride, for the economy to grow, perform well and everyone to be employed in order to reduce crime, boost tourism and make international headlines but only for the right reasons. As one of the largest economies on the continent, we need to show leadership and inspire others in the process, perhaps this might spill over to better performance even in sporting activities.
The South African economy once rode on the crest of the wave soon after the democratic dispensation as there was a lot of positive sentiments and goodwill towards the country, the politics were stable and investments were flowing in, even the IMF and World Bank were begging to lend us money but we said no thanks! The nation was on solid ground and the governance in SOEs was excellent and they could access credit whenever they needed it and on their own terms. The situation is quite the opposite now with some SOEs reportedly without sufficient working capital to meet operational costs.
So at periodic intervals the doctors (rating agencies) will be doing their periodic assessments, under normal circumstances, we would be anticipating a clean bill of health and a discharge for our patient, but alas, the patient has neither been eating nor taking their medication, so, confined to the ICU they shall be!
In concluding, we ask again, does anybody want junk? Definitely not, unless they are in the business of junk!
By Lawrence Fengu, November 25, 2017
Independent Business Consultant
Johannesburg, South Africa
