Rating downgrade ‘not a foregone conclusion’

Time of article published May 16, 2013

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Banele Ginindza

The current labour unrest and consequent production stoppages in the mining sector would not, in isolation, be sufficient to trigger a downgrade of South Africa’s credit rating, unless it resulted in the loss of export competitiveness, Moody’s Investors Service said yesterday.

Speaking at the eighth annual Sub-Saharan Africa Credit Risk Conference held at the Hilton Hotel in Sandton, Kristin Lindow, a senior vice-president at the agency, said although South Africa’s rating was on a downward trend, Moody’s had confidence in the government’s policy framework and record in maintaining economic stability.

“Although the balance is tilted towards the downside, it is not a foregone conclusion that another rating downgrade is to be effected,” she said.

In November last year, Moody’s revised the sovereign credit rating from A3 to Baa1 in the aftermath of protracted labour tensions that hit minerals production and cost mining companies about R29 billion in lost revenue and output.

A pervading sense of déjà vu has gripped the country in the past fortnight as fresh tensions have erupted due to a fight for supremacy between the Association of Mineworkers and Construction Union and the Cosatu-affiliated National Union of Mineworkers.

Investor confidence took a hit last week and mining stocks tumbled as Anglo American Platinum backtracked on a plan to close four unprofitable shafts and dismiss 14 000 workers. Investor apprehension stemmed from the perceived pressure exerted on the company by the government and organised labour, after it announced a reversal that involved dismissing 6 000 workers and closing three shafts.

Lindow said yesterday there were concerns about the start to this year’s wage negotiations, in which it seemed the parties were “talking past each other and not to each other”. This was in reference to the stated intention of unions to demand double-digit wage increases regardless of the status of companies.

Lindow said yesterday the outlook remained negative because of uncertainty on whether government policies would be helpful or detrimental to the country’s growth and competitiveness challenges.

Key drivers that informed the 2012 downgrading of the country were the rule of law, government effectiveness, political stability, regulatory ability and control of corruption, as well as citizens’ ability to raise their concerns and the accountability of the government.

Lindow said some developments since the downgrade offered some solace. These included South Africa’s entry into the Citi world government bond index; the October 2012 medium-term budget policy statement, which committed to existing nominal expenditure; the rejection of nationalisation and the endorsement of the National Development Plan at the ANC’s Mangaung conference; the economy holding up against the dip in mining output in late 2012; and the energy regulator holding Eskom back from higher tariff raises.

The factors that pulled the country’s rating downward included continued growth of public debt and liabilities outpacing nominal gross domestic product and revenue; signs of populism driving macropolicy decisions to the detriment of long-term social and economic sustainability; and the poor outcomes of education and skills expansion. page 18

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