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Economic, political forces harm South Africa’s rating

Tracey Samuelson Dec 11, 2015
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Economic, political forces harm South Africa’s rating

Tracey Samuelson Dec 11, 2015
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South Africa has a great deal going for it — it’s an advanced, largely industrialized economy on land loaded with minerals.

Yet Africa’s second-largest economy is teetering just above a junk credit rating. Fitch Ratings has cut the country’s credit rating to its lowest investment-grade level and Standard and Poor’s lowered its outlook for the country to negative. That was before President Jacob Zuma abruptly fired the country’s finance minister this week, which may further undermine investors’ confidence.

“Last year, they had platinum strikes for a long period of time, over five months,” said Ravi Bhatia, director of sovereign ratings at Standard and Poor’s. “This year, now they’ve had electricity shortages and very poor growth.”

Commodity prices have plummeted and economic slowdowns in China and Europe have decreased demand for exports.

Additionally, the government has struggled to put a sound economic policy in place, said Daniel Silke, director of the Political Futures Consultancy, based in Cape Town.

The finance minister’s removal “points to disagreements at the highest level over the way forward for the South African economy,” he said, noting it was the shortest term of office for a finance minister in recent history.

In other words, some of South Africa’s headwinds are international and largely out of its control, but others are of its own making. 

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