Page 37 - Cemair SkyNews Jun/Jul 2017
P. 37



 By: Chris Jordan

 ince the dismissal   connected to the ruling party”.   of their income offshore, so a   "PARADOXICALLY
 of Former Finance   Adding R1 trillion in debt to   weakening rand increases their
 Minister Nhlanhla Nene   fund a nuclear power plant will   earnings. The JSE All Share   THOSE PEOPLE
 Sin December 2015,   increase the interest payable by   Index has risen 2.05% since S&P
 there has been a great deal of   a further 9%, or possibly more   announced their downgrade on   WITH
 speculation that South Africa   depending on the prevailing   3 April 2017.
 was headed for a downgrade   interest rates.     INVESTMENTS,
 of its sovereign credit rating.   With regard to the exchange
 rate, since the rumours of
 However, through the formation   The unfortunate reality is   Gordhan’s removal first surfaced  GENERALLY
 of Team SA, Pravin Gordhan was   therefore that those who will
 successful in convincing the   suffer most from the downgrade   on Monday 27 March, the rand
 overseas investment community   to junk status and from fiscal   has depreciated from R12.30/$   THE MORE
 and the ratings agencies of   indiscipline are the poor and   to R13.83/$, so those people
 South Africa’s investment case.   the middle class, since the   with money invested offshore   AFFLUENT
 In doing so, he was able to stave   cost of borrowing will increase   are 12.4% better off in rand terms
 off the impending downgrade   and people in these income   than they were before Gordhan   MEMBERS OF
 for more than a year.   categories rely more heavily   was removed.
 on credit to subsidise their   SOCIETY,
 Gordhan’s dismissal earlier in   monthly living expenses. Plus, it   In the Concise Encyclopaedia of
 the year was perhaps linked   will also negatively impact the   Economics, Rob Norton states   WILL BENEFIT
 to the emphasis he placed on   government’s delivery of basic   that the law of unintended
 fiscal discipline, and in order to   services, health and education.   consequences is that the   FROM THE
 understand his intransigence   actions of people – especially
 on this issue, it is necessary to   In response debt should be   government – always have   DOWNGRADE."
 look at the current government   eliminated to reduce the impact   effects that are unintended or
 budget allocation. Of the   of rising interest rates.  unanticipated. The fact that
 R 1.14 trillion collected in taxes,   the more affluent members of
 13% was used to pay interest   Paradoxically those people   society will benefit from the
 on loans, 36% on public sector   with investments, generally   current government folly is
 wages, and 14% on government   the more affluent members of   surely a good example of this
 grants. This accounts for 63%   society, will benefit from the   phenomenon.
 of the total budget, before the   downgrade. Rising interest rates
 allocation of any funds to the   mean higher returns to those   Adam Smith, known as the
 provision of basic services.   who have cash in the bank,   father of economics, wrote in
 although property prices tend to   the 1700’s of this often quoted,
 In his first public appearance   be negatively affected by rising   but rarely defined, phenomenon.
 after his appointment as   rates.   Smith said that the actions of
 Minister of Finance, Malusi   people are always guided by an
 Gigaba casually introduced the   The biggest winners will be   invisible hand towards an end
 rhetoric of ‘radical economic   those who have investments   that was not part of their original
 transformation’. According to an   on stock exchanges, however,   intention, “… that end being the
 article from Fin24, this has been   either local or offshore. The top   public interest”.
 interpreted as the resumption   40 companies listed on the
 of spending with the proceeds   Johannesburg Stock Exchange
 being diverted “… to those   (JSE) earn in excess of 60%

 The JSE All Share Index has risen 2.05% since Standard & Poors announced their downgrade of SA on 3 April 2017

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