‘SA needs growth of at least 2.7%’

Economic growth and stateowned enterprises must be prioritised to get ratings agencies off SA’s back – expert.

While the developments of the last two months have clearly demonstrated the strength of the Constitution, the rule of law and the robustness of the courts, the country hasn’t done enough to get the rating agencies off its back.

Adrian Saville, Gordon Institute of Business Science professor and CEO of Cannon Asset Managers, says there are at least two agenda items that need to be addressed to appease ratings agencies.

The first is fixing state-owned enterprises. “Balance sheets have to be repaired as part of the operational remedy. That is the one thing that we have to get right very quickly.”

The second is economic growth.

Saville says a rule of thumb suggests that ratings agencies require an economic growth rate that is at least one percentage point higher than the population growth rate. With population growth of 1.7%, the economy needs to grow by at least 2.7% to convince ratings agencies that it’s relatively healthy.

His comments follow president Jacob Zuma’s resignation late on Wednesday after the ANC recalled him. S&P Global Ratings downgraded SA’s local currency rating to junk in November after months of turmoil. Moody’s placed the country on review for a downgrade. The local equity market cheered Zuma’s resignation yesterday. The rand strengthened against major currencies.

Moody’s is expected to update the market on its ratings decision in March. The budget, which will provide insight into the country’s fiscal position, is scheduled for February 21.

In a statement issued yesterday, vice president for Moody’s South Africa, Zuzana Brixiova, said the agency was closely monitoring the developments in SA.

“The key point from a credit perspective will be the new leadership’s response to the country’s economic and fiscal challenges.”

Ramaphosa and his administration will require time to design and implement measures to improve economic growth and stabilise public finances, S&P Global Ratings said.

“Economic growth remains low. We think government will attempt to introduce offsetting measures in an effort to improve budgetary outcomes, but these may not be sufficient to stabilise public finances in the near term,” it said.

Ramaphosa previously said the economic growth target for 2018 should be 3%.

“I think we could get there by the end of the year,” Saville says.

On Tuesday, the MD of Goldman Sachs Sub-Sahara Africa, Colin Coleman, said the SA economy could grow by 2.3% in 2018 if the right steps are taken.

Local equity market cheered Zuma’s resignation.