Moody's downgrade could hamper prospects of positive investment sentiment towards
Economy / 10 October 2019, 08:00am / Siphelele Dludla
JOHANNESBURG – South Africa desperately has to avoid a credit rating downgrade by Moody’s in November, as this would harm the country, the World Bank has warned.
In the 20th edition of its Africa’s Pulse report, released yesterday, the Washington-based institution cautioned that low investment sentiment was weighing heavily on South Africa’s economic activity, advising that the country needed to diversify the economy and adopt value-addition to resources to create jobs.
“The downgrade will certainly further deteriorate investment sentiment and make it more difficult for the country to grow above 1 percent,” warned Albert Zeufack, chief economist for Africa at the World Bank.
South Africa’s economy – hampered by uncertain energy supply by Eskom, state-owned entities milking the National Treasury and high unemployment – has grown at less than 1 percent, while the rest of Africa is growing at about 4 percent, and domestic growth is forecast to stagnate about 0.6 percent.
Zeufack said the slight recovery in Nigeria, South Africa and Angola – the region’s three largest economies – had remained weak.
Excluding Nigeria, South Africa, and Angola, growth in the rest of the subcontinent was expected to remain robust, although slower in some countries.
“Africa’s economies are not immune to what is happening in the rest of the world, and this is reflected in the subdued growth rates across the region. In South Africa, low investment sentiment is weighing on economic activity,” Zeufack said.
Africa’s Pulse, the biannual analysis of the near-term macroeconomic outlook for the region, highlighted that global trade wars were negatively affecting trade and investment growth across Africa.
Senior dealer at TreasuryONE, Andre Botha, said the escalating trade war rhetoric and tit-for-tat actions between the US and China had cast doubts on there being any constructive outcome at the upcoming talks.
“This has caused markets to become jittery, as the upcoming trade talks will certainly start off on the back foot, and the situation will be monitored closely as this could cause a shift in sentiment at the drop of a hat,” Botha said.
The World Bank said growth in sub-Saharan Africa was projected to rise to 2.6 percent in 2019 from 2.5 percent in 2018, which is 0.2 percentage points lower than the April forecast. For the fourth consecutive year, average growth in sub-Saharan Africa will be less than 3 percent.
“We are starting to see investment growth slowing down in non-commodity exporters in Africa.
“Remember, the economies that are powering growth in Africa tend to be more diversified and less commodity dependent, and have been growing at more than 5 percent,” Zeufack said.
Zeufack noted that very slow economic growth was a reflection of the deepening trade tensions at the global level, the slow pace of domestic reforms, particularly in the areas of debt management and efficiency of public sector institutions.
“The third factor explaining this anaemic growth in sub-Saharan Africa is climate and conflict shocks such as those we experienced earlier this year, the cyclones affecting Mozambique, Malawi and Zimbabwe, and alternating cycles of droughts and floods, are reducing agricultural output across the continent,” he said.
“All this is translating into a decline in exports and investments, therefore slowing down growth.”