African countries to feel effect of SA credit downgrade

The ripple effect of the South African credit downgrade by the American credit agency, Standard and Poor’s (S&P) to below-investors grade or junk status, is to impact African countries and their agricultural sectors.

According to Wessel Lemmer, senior economist at Absa Agribusiness, the sovereign downgrade by international credit agencies will lead to a further weakening of the South African currency, the rand.

Tinashe Kapuya, agricultural economist at Agbiz, says the currencies of the Southern African Customs Union (SACU) countries (Botswana, Lesotho, Namibia and Swaziland) which are pegged against the rand, are likely to depreciate. This means increased food inflation pressure, as well as a general increase in the price of other goods.

Several African countries outside of the SADC region import South African agricultural goods and the weaker rand will decrease costs.

Lemmer says African countries will in turn have difficulty exporting their commodities and products to South Africa. They will face fierce competition with South African exports in their markets.

“So it might be positive that they can buy more South African agricultural goods, but negative because it means their local industries become less competitive relative to South Africa,” Kapuya says.

For South Africa this means there is scope for further growth into Africa, should the rand weaken further.

The rest of the continent is the leading market for South African agricultural products – R55 billion (43%) go into the continent already, says Kapuya.

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