New data worsen economic outlook
Despite an unchanged rating from Moody’s, the risk of a credit rating downgrade looms large
After the hope provided by the move by Moody’s Investors Service to keep South Africa’s credit rating unchanged, local economic news this week was depressing and, in some cases, quite jolting. At a government conference this week, Finance Minister Pravin Gordhan said Moody’s decision was a “very impressive achievement for Team South Africa”.
However, the risk of a credit rating downgrade looms large again, with analysts from Standard & Poor’s set to visit the country this week.
Last week started with a shock when the Stats SA Quarterly Labour Force Survey showed that the country had lost 355 000 jobs in the first quarter of the year.
This meant that the number of unemployed increased to 26.7% – equal to 5.7 million people.
In a statement on behalf of 53 independent unions, National Union of Metalworkers of SA spokesperson Patrick Craven said: “This is not a passing crisis but a deepening calamity ... That crisis is getting worse by the day.”
Cosatu spokesperson Sizwe Pamla said: “The latest alarming and disheartening unemployment figures, which show that there has been a massive rise in the unemployment rate in the country, demand immediate action from all social partners to avert a looming catastrophe.”
A bit of hope came out of a late-night meeting this week at the Union Buildings between President Jacob Zuma and much of his Cabinet, top businesspeople and representatives of the country’s major unions.
This meeting was a follow-on from earlier meetings that have drawn together the state, business and labour to try to avoid a credit downgrade, and to attempt to boost economic growth and create jobs.
In affirming the sovereign credit rating, Moody’s noted that South Africa was approaching a turning point after years of weak growth, said President Zuma.
“This is confirmation that our collaborative approach has been successful,” he said.
President Zuma also announced a few new initiatives, including a joint private and public sector fund for small business support that will be set up with roughly 50-50 contributions by both parties.
“The focus is to provide venture capitalstyle funding and mentoring to the target groups, especially black entrepreneurs,” he explained.
Discovery CEO Adrian Gore said the private sector had raised R1 billion towards a joint private and state fund.
Deputy President Cyril Ramaphosa said the aim was to grow the fund to R10 billion.
“The fund will provide high-potential entrepreneurs and enterprises with access to a robust ecosystem of accredited funders, best-of-breed of mentors, professional services firms and guaranteed debtor-financing mechanisms,” a document distributed after the Union Buildings meeting showed. Another initiative would be to accelerate the launch of coal and gas independent power producers (IPPs), Zuma said.
Preferred bidders for the first 900-megawatt tranche of coal IPP would be announced in July and the project information memorandum for the gas IPP would be issued by June, the meeting document showed.
“We are exploring appropriate mechanisms of strengthening our stateowned enterprises so that we reduce the risk they pose to the fiscus so that they can play a stronger role in driving development,” Zuma said.
“The credit ratings work stream will identify potential areas of reforms and interventions to avert further credit ratings downgrades,” he said.
Business Unity SA president Jabu Mabuza said the report of 355 000 job losses increased the urgency to reduce “unacceptable” unemployment. Mabuza said government, business and labour would impress on Standard & Poor’s and Fitch how serious they were about the country as a collective.
It emerged this week that South Africa had slid further down the ranks among the largest economies in Africa.
In early 2014, Nigeria rebased its gross domestic product, resulting in that country becoming the continent’s largest economy, shifting South Africa to second place.
In 2015, the significant depreciation of the Sotrce: International Monetary Ftnd rand relative to the Egyptian pound and, to a lesser extent, South Africa’s slow rate of growth, resulted in the size of Egypt’s economy surpassing the local economy.
“Were it not for the rand’s slump, South Africa would not have surrendered its second place during 2015,” said Christie Viljoen, a KPMG financial risk manager.
Business Monitor International had made some exchange rate assumptions and its data pointed to South Africa being unable to retake the continent’s second-place position