Pravin Gordhan. Picture: ALON SKUY/THE TIMES
Pravin Gordhan. Picture: ALON SKUY/THE TIMES

FINANCE Minister Pravin Gordhan and a small army of business and trade union leaders have just returned from an international road show. Operation Avert the Downgrade was the reason, and usually warring battalions lined up behind him to fight for the country. It’s a marvel.

Whether the credit ratings agencies are convinced by the show of unity will soon become apparent, but it is clear that the days of leaving everything to the Treasury to sort out are over, because our problems are not about fiscal management, but about politics.

There are those who sneer at this entire enterprise, accusing Gordhan et al of travelling all that way to pander to the whims of imperialists who want to suck more blood out of us wretched Africans. Instead, they argue, he should spend more time here, tending to the needs of the poor.

Here’s the thing. The road show was much less about us, and more about the people who buy our government bonds. They’ll listen to the credit ratings agencies, even if we choose not to. They’ll continue to lend us money, but won’t do so cheaply, which means taking money meant for the poor to pay higher interest.

Granted, much of our debt is domestic, a good and a bad thing. It is a good thing, because it is far less vulnerable to exchange rate fluctuations. It is a bad thing, because the local holders of government bonds are our pension funds and banks. If the government were to default, they’d suffer, so it doesn’t help not to care.

Domestic banks wouldn’t escape the carnage either. Junk status for the country means junk status for the banks — the guys who keep our savings, finance houses and cars.

In any case, it appears our falling into junk investment grade has already been partially priced in by the market. From about August last year, the yield on South African bonds has been increasing, and they spiked when President Jacob Zuma decided to send former finance minister Nhlanhla Nene on extended gardening leave.

As a consequence of that change, we now have an additional debt interest burden of R15.3bn in the next three years.

I’m not making this figure up. The Treasury put it in this year’s budget review. That’s a lot of money that could, for instance, have made the university students very happy. Political mistakes have a price.

It is hard to believe it now, but in October 1998, the prime lending rate was 24.5%. Right now it is 10.25%, so it was more than double what it is now. If we get downgraded, and we do not show an ability to dig ourselves out of it, things may get that bad again. But what does all this mean in practice?

Assuming their interest rate is exactly the same as prime, someone wanting to own a three-bedroom home of R700,000 needs a minimum monthly income of about R30,000 to pay R6,872 a month on a mortgage. At 20.5%, less than the rate in 1998, their monthly payments would amount to R12,167, and they’d need a minimum monthly income of R60,000. Add to this a hatchback or small sedan costing R240,000. At a 12% interest rate, the monthly repayments amount to R5,800. At 21%, these jump to R7,000. People are already stretched, so you can imagine what will happen if we don’t get our house in order.

Our conundrum is economic growth. It needs a significant reorientation in policy thinking to achieve. The first thing we must do is to forego the nice-to-haves and see some real sacrifices. Higher taxes on high-income earners, sure, but we have to think about the effect of a single minimum wage. You remember that family struggling with a house and a car? They’ll cancel DStv, eat out less and so on, but the jobs bloodbath will follow when they let the domestic worker go.

That will not be a good thing.

• Zibi is a former editor of Business Day