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IOLProperty - South African Property For Sale
Thursday Oct 04, 2012

Downgrades set to hit property owners in pocket

Ratepayers had better get ready for a tough time after credit agency Moody's cut its rating on Eskom, Telkom and 12 municipalities.

The municipalities include the five major metros: Joburg, Ekurhuleni, Tshwane, Cape Town and Nelson Mandela Bay.

This comes just after Moody's announced a downgrade of SA's economy last week.

It's a move that could cause the economy to wobble and put further pressure on consumers, who are already facing petrol and food price increases, as well as the looming threat of tolls on some freeways.

The downgrade will mean that borrowing costs will increase, and the money can come from only one place: taxpayers.

Critics have blamed political inefficiency and bad management for the latest downgrades.

Economist Mike Schussler said Moody's findings would mean that companies would pay higher interest rates when borrowing. In the case of Eskom, this would mean electricity tariffs going up.

"We will feel the pinch, but consumers will only feel the effect of this in a year or two. "It means short-term relief is unlikely." Independent consumer activist Ina Wilken said the downgrades and the increases in the prices of consumer goods would usher in tougher times.

She said consumers had recently been hit by electricity hikes, fuel increases and commodity price rises.

Wilken said all people could do was tighten their belts, pay credit card arrears and make sure bills were paid on time, because if people fell behind it was unlikely they would be able to catch up.

She said it was unacceptable that the five major metros had been downgraded.

"The government is put in place to look after its people.

Municipalities being downgraded is bad news.

"We pay high bills, and rates have increased, so the least we can expect is for those metros to be run properly."

Chief economist at diversified financial services company Efficient Group, Dawie Roodt, said it was no surprise that 12 municipalities had been downgraded.

"They are a mess. You just need to read the auditor-general's report to see that.

"Forty percent of municipalities got a qualified audit, and parastatals saw 12 percent or 13 percent getting qualified audits.

"Let's put it this way: if the company you work for gets a qualified audit, it's a good idea to start looking for another job," he said.

Roodt said the financial mess at various municipalities was so bad that "it is one of the biggest threats to South Africa, a sign of the state collapsing because of its own incompetence".

He said the pay hike strike by miners at Gold Fields was caused partly by political leadership issues, and he would not be surprised if other mines were downgraded in the near future.

"We are dependent on the international environment, which is uncertain and volatile, but that makes it even more important for us to be politically stable," said Roodt.

"Bad international winds are simply being exacerbated by poor political leadership."

Moody's said the five main metros, which account for 25 percent of the country's population, continued to face a high demand for welfare benefits and economic infrastructure. They also had high debt levels. Smaller municipalities that had been affected were Breede Valley, KwaDukuza, George, Matlosana, Mbombela, Sol Plaatje and Swartland. The East Rand Water Care Company was also downgraded.

Cape Argus

 
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