New data worsen eco­nomic outlook

De­spite an un­changed rat­ing from Moody’s, the risk of a credit rat­ing down­grade looms large

CityPress - - Business - JUSTIN BROWN justin.brown@city­ SoorCe: KPMG COUN­TRY Nige­ria Egypt So’th Africa Al­ge­ria Morocco An­gola St­dan Ethiopia Kenya Tan­za­nia 44.9

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

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