Fitch drops S Africa out­look to neg­a­tive Moody’s keep credit rat­ing un­changed

Kuwait Times - - BUSINESS -

In­ter­na­tional credit rat­ing firm Fitch dropped its out­look for South Africa from sta­ble to neg­a­tive on Fri­day, cit­ing the coun­try’s re­cent po­lit­i­cal tur­moil un­der Pres­i­dent Ja­cob Zuma.

Zuma has been en­gulfed by graft scan­dals and a power strug­gle with Fi­nance Min­is­ter Pravin Gord­han, while eco­nomic growth has fallen to 0.5 per­cent and un­em­ploy­ment hit a 13year high. “Po­lit­i­cal risks to stan­dards of gov­er­nance and pol­icy-mak­ing have in­creased,” Fitch said in a state­ment, con­firm­ing that it kept South Africa’s credit rat­ing at one notch above “junk” sta­tus.

Moody’s had been ex­pected to is­sue its up­dated grad­ing later Fri­day, but made no an­nounce­ment by mid­night (2200 GMT). Stan­dard & Poor’s makes its key an­nounce­ment on De­cem­ber 2.

Like Fitch, S&P cur­rently has South Africa-the con­ti­nent’s most de­vel­oped econ­omy-rated at the low­est in­vest­ment grade. The credit re­views could fur­ther drain in­vestor con­fi­dence in the coun­try’s prospects un­der Zuma and the ANC party, which has ruled since the end of apartheid. “The in-fight­ing within the ANC and the govern­ment is likely to con­tinue over the next year,” Fitch said.

“This will dis­tract pol­i­cy­mak­ers and lead to mixed mes­sages that will con­tinue to un­der­mine the in­vest­ment cli­mate, thereby con­strain­ing GDP growth.” Ef­forts to avoid junk sta­tus have been at the cen­tre of po­lit­i­cal drama for months, with Zuma loy­al­ists at log­ger­heads with Gord­han, who is widely re­spected among in­ter­na­tional in­vestors.

“Zuma has fo­cused on re­mov­ing Gord­han and main­tain­ing his grip on power, while Gord­han (has) been work­ing very hard to avert a rat­ings down­grade,” the Eura­sia con­sul­tancy group said.

A junk rat­ing by S&P could trig­ger bond sell­ing by for­eign in­vestors, as well as raise bor­row­ing costs. Some in­vest­ment funds have rules that al­low them to only hold bonds that have in­vest­ment-grade rat­ings. “Ef­forts made by South Africa to keep the coun­try on an in­vest­ment grade have paid off,” the trea­sury said af­ter the Fitch an­nounce­ment, while ac­knowl­edg­ing the con­cerns over po­lit­i­cal un­cer­tainty.

Pravin Gord­han had been due to ap­pear in court ear­lier this month on graft charges that many an­a­lysts saw as an at­tempt by Zuma as­so­ciates to oust him. The charges were dropped at the last minute, ex­pos­ing deep ten­sions in the ANC as sev­eral min­is­ters came out in his sup­port.

Gord­han was ap­pointed only last year to calm pan­icked in­vestors when Zuma sacked two fi­nance min­is­ters within four days. Gord­han and deputy pres­i­dent Cyril Ramaphosa have been push­ing for re­form of loss-mak­ing state com­pa­nies, in­clud­ing power com­pany Eskom and na­tional air­line South African Air­ways.

A re­cent watch­dog re­port in­cluded al­le­ga­tions that Zuma en­sured one busi­ness fam­ily won huge pref­er­en­tial con­tracts to sup­ply Eskom with coal. Zuma said on Fri­day he would launch a court chal­lenge to the re­port and its or­der to set up a ju­di­cial in­quiry.

“Busi­ness con­fi­dence re­mains de­pressed and in­vest­ment has con­tin­ued to con­tract,” Fitch added.

“The econ­omy had been hit in 2015 and 2016 by elec­tric­ity short­ages, the worst drought in decades, a sharp fall in in­ter­na­tional prices for some of South Africa’s main min­ing com­modi­ties and ris­ing pol­icy un­cer­tainty.” The ANC is due to elect a new leader at the end of next year, ahead of the 2019 gen­eral elec­tion when Zuma must stand down af­ter serv­ing two terms.

South Africa this week un­veiled the pro­posed fig­ure for its first min­i­mum wage — 3,500 rand ($242) a month-in a move that could im­prove la­bor re­la­tions. Fitch, which said South Africa’s bank­ing sec­tor “re­mains a rat­ing strength”, fore­cast GDP growth of 1.3 per­cent in 2017 and 2.1 per­cent in 2018.

Moody’s rat­ing

In­ter­na­tional credit rat­ing firm Moody’s has left South Africa’s sov­er­eign debt grad­ing un­changed two notches above junk sta­tus, but warned yes­ter­day of a pos­si­ble fu­ture down­grade if re­forms to sup­port growth fail to ma­te­ri­al­ize. Moody’s rates Africa’s most de­vel­oped econ­omy as Baa2 — mean­ing it is of in­vest­ment grade for banks-al­beit with a neg­a­tive out­look.

In­stead of the much an­tic­i­pated for­mal re­view of South Africa’s credit rat­ing, Moody’s is­sued an up­dated credit opin­ion overnight, warn­ing that the neg­a­tive out­look re­mained be­cause of po­lit­i­cal ten­sions and weak growth. “The neg­a­tive out­look on South Africa’s Baa2 govern­ment bond rat­ing re­flects risks re­lated to the im­ple­men­ta­tion of struc­tural re­forms aimed at restor­ing con­fi­dence and en­cour­ag­ing in­vest­ment,” it said in a state­ment re­leased early yes­ter­day. It added that the coun­try’s po­lit­i­cal scene con­tin­ued to be “noisy” but that key in­sti­tu­tions re­mained re­silient. One of the credit chal­lenges for South Africa is “pro­tracted po­lit­i­cal in­fight­ing that gen­er­ates pol­icy un­cer­tainty and im­pedes struc­tural re­forms,” it said.

On Fri­day, an­other in­ter­na­tional credit rat­ing firm, Fitch, dropped its out­look for South Africa from sta­ble to neg­a­tive, cit­ing the coun­try’s re­cent po­lit­i­cal tur­moil un­der Pres­i­dent Ja­cob Zuma. Zuma has been en­gulfed by graft scan­dals and a power strug­gle with Fi­nance Min­is­ter Pravin Gord­han, while eco­nomic growth has fallen to 0.5 per­cent and un­em­ploy­ment hit a 13year high.

Moody’s warned that South Africa’s rat­ing “would likely be down­graded in the ab­sence of fun­da­men­tal struc­tural re­forms sup­port­ing higher and sus­tain­able medium term growth”.

It also hinted that a rat­ing up­grade was un­likely. Stan­dard & Poor’s is ex­pected to make its key an­nounce­ment on South Africa’s in­vest­ment grad­ing on De­cem­ber 2. Like Fitch, S&P cur­rently has South Africa rated at the low­est in­vest­ment grade. A junk rat­ing by S&P could trig­ger a bond sell-off by for­eign in­vestors, as well as hik­ing Pre­to­ria’s bor­row­ing costs. — AFP

JO­HAN­NES­BURG: This file photo taken on March 20, 2015 shows men walk­ing past the Jo­han­nes­burg Stock Ex­change (JSE) build­ing in Jo­han­nes­burg. — AFP

Newspapers in English

Newspapers from Kuwait

© PressReader. All rights reserved.