Agencies expected to downgrade SA’s rating

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IOL pic jun6 rsa bank notes Reuters File picture: Siphiwe Sibeko

Johannesburg - In seven days, international rating agencies Standard & Poor (S&P) and Fitch are expected to downgrade South Africa’s local currency rating.

According to a note by Morgan Stanley, the agencies are expected to downgrade South Africa’s sovereign rating to BBB+ from A- next Friday.

“A downgrade to the local currency rating would not be a major surprise to the market, but should the outlook be left at negative then pressure on assets would likely materialise,” the report said.

It said labour tensions in the mining sector had “deteriorated significantly” since S&P affirmed the international rating in December last year. This would have a “meaningful impact” on exports in the future.

This was likely to exacerbate an already depressed economy which had all the hallmarks of an approaching recession as most figures released recently indicated a downturn in growth.

However, Reserve Bank governor Gill Marcus and Finance Minister Nhlanhla Nene have rejected the notion of an impending recession, saying the downturn was not dramatic enough to cause one.

But a threatened protracted strike by the National Union of Metalworkers of SA will add fuel to the fire as it will hit power utility Eskom, itself battling to keep the lights on.

The likelihood of a downgrade comes as the Mineral Resources Minister Ngoako Ramatlhodi goes into overdrive to try and break the strike in the platinum sector that entered its 20th week yesterday and was largely responsible for the 24.7 percent decline in mining output in the first quarter.

While Ramatlhodi met platinum chief executives yesterday in Pretoria as part of the continuing government-sponsored effort to end the strike, the legal bid by the Chamber of Mines to prevent a strike in the gold sector was being heard in the Labour Court.

The chamber, which represents Harmony Gold, Sibanye Gold and AngloGold Ashanti, wants the court to declare the interim order, prohibiting members of the Association of Mineworkers and Construction Union (Amcu) from striking, to be made permanent.

The gold sector has argued that Amcu already benefited from an 8 percent wage increase, reached with majority unions in the sector last year and backdated to last July .

Amcu argued that the sections of the Labour Relations Act used by the chamber to prohibit the strike were unconstitutional.

Elize Strydom, the chief negotiator for the chamber, said a strike would be devastating.

“We would not be able to sustain the strike action we are looking at in platinum. Our margins are much finer.”

Speaking on the sidelines of the court case Amcu president Joseph Mathunjwa said of Ramatlhodi’s intervention in the platinum strike: “There was Judge Hilary Rubkin-Naicker’s intervention where the R800 increase was tabled and it was rejected. The R800 increase proposal is a repackaging of an offer by employers that was made two months ago, there is nothing new in that. Amcu is steadfast on R12 500.”

Justin Floor, an investment analyst at Kagiso Asset Management, said a downgrade was “unlikely to cut off access to capital markets, although it might increase the cost of doing so. Credit ratings of corporates might also be put under review.” - Business Report


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