Gordhan 'surprised' by ratings cut

Oct 15 2012 10:52

Finance Minister Pravin Gordhan

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Johannesburg - Finance Minister on Monday said Standard & Poor’s decision to cut the sovereign rating came as a “surprise”, especially since strikes in the mining sector were not yet having a major impact on government revenue and spending plans.

Pravin Gordhan also said in an interview with a national radio broadcaster he expected Fitch - the one ratings agency that has not weighed in on South Africa in the past few weeks -  to revisit its outlook at around the start of the new year.

Standard & Poor’s cut South Africa’s credit rating one notch last Friday, saying mining strikes and social tensions could reduce fiscal flexibility and hurt growth.

“It was a surprise,” Gordhan told Talk Radio 702.

Months of often violent wildcat strikes have paralysed production at many mines in the world’s largest producer of platinum, and have spilled over to hurt gold and iron ore.

“There is no evidence that this will throw us off course,” Gordhan said of the strikes. He did, however, acknowledge that more needs to be done to improve the living conditions of mine workers.

Gordhan said he expected a Fitch review to come after the ANC holds a policy meeting from December 16-20 where it will also elect party leaders.

“They will wait for the ANC conference to be completed and then they will make their judgment call,” Gordhan said.

S&P and Moody’s, which downgraded South African bonds a notch in September, both cited a lack of political leadership in the current labour crisis, indicating the ANC is having trouble managing an increasingly complex economy.

But analysts feel Fitch might be pressured to move before the conference, at which President Jacob Zuma is seeking re-election as party leader, an eventuality that set him up to remain state president until 2019.

“Given the moves by the other rating agencies, we would not be surprised if Fitch also decided to move in the next few months,” Absa Capital said in a note.

Strikes in the platinum and gold industry are rumbling on, week with fresh bouts of violence at the weekend leading to the arrest more than 70 miners at a Gold Fields [JSE:GFI] mine and four others at an Anglo Platinum [JSE:AMS] mine.

At Kumba Iron Ore [JSE:KIO], striking mine workers who seized R3.3bn of equipment have ignored company pleas to end their protest for higher wages. The company has threatened to have them arrested.

Truck drivers signed a wage deal last week for hefty raises, ending a three-week strike that squeezed deliveries of fuel, cash and consumer goods.

With all the wage disputes being settled with increases more than double inflation, the South African Reserve Bank last week warned wage growth could pose a risk to the inflation outlook.

Deputy Governor Daniel Mminele indicated that the central bank’s growth forecasts of 2.6% for 2012 and 3.4% for 2013 will “need to be revisited”.

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