Johannesburg - Economists have warned that investors would be eyeing the “risk narrative” as South Africa headed to the polls to vote in the local elections this week as the country battled to avoid a potential ratings downgrades in December amid slowing economic slowdown.
Emerging markets economist Peter Attard Montalto warned last Friday that the August 3 “local elections are crucial for South Africa and the risk narrative for investors”.
He said local elections were normally uninteresting and held every five years; with the odd, small municipality somewhere investors probably had never visited changing hands, a slow reduction in the national level of ANC support, but nothing dramatically new occurring either nationally or within the ANC as a product of the results.
But this time was different. Major metropolitan areas that investors know well are in close contention.
“Equally, the result will directly affect the ANC’s internal power dynamics between the tenderpreneur and anti-tenderpreneur factions and the succession struggle that is also occurring within the organisation.”
Maya Senussi of Roubini Global Economics said local government elections could worsen the dilemma for government before the general election in 2019.
“The big danger is that fears about the 2019 general election will prompt populist measures from the ANC, exerting more pressure on the stretched Treasury and further delaying much-needed reforms,” the economist said.
South Africa is on the brink of its first recession after contracting 1.2 percent in the first quarter as key sectors shrunk due to severe drought and falling commodity prices.
South Africa is in a fiscal bind, with government’s plan to boost growth to an annual 4 percent to tame widespread unemployment, poverty and the growing cost of borrowing facing a obstacles.
Fitch announced that it had downgraded South Africa’s local currency debt.
Fitch and S&P Global Ratings now both have South Africa’s local and foreign currency debt ratings a step away from subinvestment.
Finance Minister Pravin Gordhan, who has been battling to stave off a ratings downgrade to junk, last Friday warned state firms that they would have to live without state bailouts of about $35 billion (R486bn) as treasury focused on achieving the deep spending cuts it promised in the February budget.
“The key concern that ratings agencies and others would have is that as a result of levels of mismanagement, those guarantees shouldn’t be called out at any stage,” he said.
BUSINESS REPORT