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What SA could learn from Brazil's downgrade to junk status

Minister of Finance, Pravin Gordhan is reportedly going abroad to strengthen investor ties. In light of talks of South Africa fighting to avoid a downgrade to junk status, Xolani Gwala explores the effects of a downgrade on Brazil and what possible lessons can be learnt from this.

Xolani Gwala spoke to Brazilian businessman, Mario Braga; as well as Director at the Centre for dynamic markets at GIBS, Dr Lyle White.

Effects of the downgrade to junk status in Brazil:

A sharp rise in cost of capital – private funding and risk investment. Banking costs have gone up sharply over the past 12-18 months.

Mario Braga, Brazilian businessman

Reduction on foreign investment in Brazil. Mainly institutions that are traded in the international finance markets. They are withdrawing their investment plans in Brazil.

Mario Braga, Brazilian businessman

In the past, unemployment rate was bordering on 4%, now the overall unemployment rate is about 7.5% and going up. 18 – 24 years group getting above 14-15% unemployment which is painful for Brazil.

Mario Braga, Brazilian businessman

Brazil as a comparison is one we should look at closely in SA. Remember that these ratings agencies do issue a warning and these things will be absorbed by the market.

Dr Lyle White, Director at the Centre for dynamic markets at GIBS

Listen to the conversation below:


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