Xola Potelwa
SOUTH Africa’s credit risk is climbing relative to emerging-market peers after a wave of violence against foreigners soured investor sentiment already dimmed by power shortages, according to Nedbank.
Credit-default swaps (CDS) to protect against non-payment of South Africa’s dollar debt over the next five years climbed 19 basis points this year to 208, compared with a 10-point rise to 149 for Colombia, which has a similar Baa2 credit rating at Moody’s Investors Service. The average for 10 developing nations in the Markit CDX Emerging Markets index is 91.
At least seven people have died since March 30 in Durban, Johannesburg and other towns as South Africans attacked foreigners they accused of taking jobs and business opportunities. While the government said last week violence against foreigners had ended, the clashes focused attention on South Africa’s economic shortcomings at a time when Eskom is rationing electricity and thereby constraining production and economic growth.
“South Africa’s CDS spreads have widened quite substantially and they’re underperforming emerging-market peers,” Robert Price, a market analyst at ETM Analytics, said last week.
“That’s a reflection of global market sentiment regarding South African risks. Eskom and those xenophobic attacks have had an impact there.”
The last major anti-immigrant attacks flared up in 2008, leaving about 60 people dead and 50 000 displaced. In January, five deaths were recorded in a country that hosts about 65 000 refugees and 295 000 asylum seekers, and has 1.7 million immigrants, according to the 2011 census.
A fifth of the South African population of 54 million live on less than R335 a month and 24 percent of the workforce are without jobs.
Slow growth
Africa’s most-industrialised economy expanded 1.5 percent last year, the slowest pace since a 2009 recession, and will probably grow 2 percent this year, according to government estimates. Manufacturing output, which makes up about 13 percent of the economy, contracted 0.5 percent in February from a year earlier as a power shortage forced Eskom to cut supply.
“Investors worry about South Africa over the longer term because some of these issues are very deeply rooted,” Nigel Rendell, a senior analyst at Medley Global Advisors, said from London.
“Growth is soft. It’s not going to do anything to ease any of the longer-term tensions about social policy or poverty.”
Dawie Roodt, the chief economist of Efficient Group, estimates the electricity crunch since 2007 has cost the economy more than R300 billion in lost output.
“South Africa has experienced negative media coverage regarding a surge in violent activity, along with the worsening electricity situation,” Mohammed Nalla, the head of strategic research at Nedbank, said in a client note last week. – Bloomberg