Cape Town - The decision by the Fitch ratings agency to revise South Africa's outlook to negative from stable should serve as a warning, scenario planner Frans Cronje said on Friday.
He told the Cape Town Press Club Fitch's outlook was logical and not surprising.
“The macro indicators are all pointing in this direction in any case - low growth, difficult investment environment, a volatile domestic economy and labour market,” said Cronje, chief executive of the SA Institute of Race Relations.
Fitch's concerns about the deteriorating growth outlook stemmed partly from a marathon strike in the platinum mining sector.
Cronje said this strike was the beginning of a larger problem.
“I think if we settle at R12,500 in the platinum strike, that's the start of the labour unrest because that's going to spread to every industry in the country that relies on large numbers of relatively poorly skilled workers,” Cronje said.
“There's also the social problem that comes out of the settlement in the platinum strike. If they settle at R12,500 or near that it means that if you are a poorly skilled young South African, you are now a lot less likely to find a job in the South African formal sector.
Promoting his book: “A time traveller's guide to our next ten years”, Cronje sketches various scenarios for the country.
The recently announced Cabinet pointed to a doom and gloom scenario where South Africa was beginning to slide with regard to attracting investment, he said.
“If you spoke to us a few weeks ago, we were very keen on the idea of reform because it seemed so logical that a government under great social and political pressure would lead an economic reform exercise,” Cronje said.
“The more realistic assessment now is that if you look at the Cabinet selection... at the policy direction, this is not a government that believes reform should be high on its policy agenda.”
This would result in low levels of investment, which would drive down growth and create fewer jobs.
“The realistic, baseline scenario now is lower levels of economic growth, sustained high levels of unemployment, and great pressure on the triple deficits - the current account deficit, the budget deficit and... the household deficit,” said Cronje.
The lack of reform would be closely monitored by ratings agencies.
“I get the sense the rating agencies were also watching whether there would be clear sounds of reforms coming through in the run-up to and after the South African elections,” said Cronje.
“It has been clearly moving in the opposite direction and the rating agency's decision is absolutely logical.” - Sapa