Afrimat is expecting an up to 20% decline in headline earnings
ASSERTIONS by the government that South Africa would reclaim its investment grade credit ratings from S&P Global Ratings and Fitch Ratings within the next 18 to 24 months have been dismissed by a leading economist.
Azar Jammine, the chief economist at Econometrix, said on Friday that the key to South Africa getting back its investment grade credit rating was to improve the country’s public debt to gross domestic product (GDP) ratio, but the government was “not biting the bullet”.
Jammine was responding to reports that Finance Minister Malusi Gigaba had said South Africa would reclaim its investment grade credit ratings within 18 to 24 months.
He referred to an S&P presentation last week in which the credit rating agency provided details of a study of 10 countries, and what it took and the time it took for them to get back their investment grade rating.
Jammine said it took Indonesia 19 years, India 15 years, Colombia 10 years, Hungary four-and-a-half years and South Korea two years.
“The average in the studies that have been done is seven years,” he told a post-Budget briefing hosted by AfriSam on Friday.
Jammine said countries that had successfully reclaimed their investment grade credit rating had “cut back on excesses, caused austerity and hurt the people, resulting in protests, but these governments stuck to their guns”.
“We are not doing that. If you want to be positive, you could say next year is an election year, and maybe once that is out of the way, maybe they’ll be prepared to do it,” he said.
Jammine stressed that the increase in South Africa’s public debt to GDP was not entirely former president Jacob Zuma’s fault.
He said the government had decided to start spending during the major local recession in 2009 to try to make up for the fact that the private sector was collapsing.
Jammine said the government believed it had the scope to start spending, because former finance minister Trevor Manuel had reduced the country’s public debt to GDP ratio from 49 percent in 1998 to 22 percent.
But Jammine stressed the government had “climbed in the wrong way”, and instead of spending on roads, dams, bridges, ports and railways, it had increased the size of the public service by 4 percent a year and “paid them fancy salaries”.
Jammine said that process was continuing.
He said President Cyril Ramaphosa faced a huge challenge in restricting government spending by limiting growth in public sector remuneration in opposition to Cosatu, who were his major backers.
Jammine added there was not any cutback in public sector remuneration in the Budget, which was earmarked to carry on growing as fast as it had in recent years. AFRIMAT, the listed openpit mining group and industrial minerals and construction materials supplier, has warned that its headline earnings a share for the year to February could be up to 20 percent lower than the previous year.
The group said on Friday a number of factors had impacted on its financial results, including slow sales volumes in the fourth quarter of the calendar year last year, with this slowdown exacerbated in November and December in construc- tion material products and amplified by the political uncertainty of the last months of last year.
It said the impact of this slowdown was felt more strongly in KwaZulu-Natal and southern Gauteng, where the operations of Glen Douglas and Clinker experienced reduced volumes.
Afrimat said substantially increased expenses in line with the accelerated ramp-up of Demaneng mine, previously called Diro mine, had also impacted the group.
It decided to accelerate the ramp-up of the Demaneng mine, which is expected to reach its design production capacity of 1 million tons a year at the end of this month, because of much improved commodity prices.
Further exploration had proven additional reserves of iron ore at Demaneng, increasing the proven reserves to about 12 million tons from the 5.6 million tons initially announced when the mine was acquired.
Afrimat said it would provide specific guidance on earnings and headline earnings a share in April. Shares in Afrimat dropped 4.17 percent on the JSE on Friday to close at R28.99.