Fin24

S&P cuts SA’s foreign currency rating

2012-10-12 19:37

Cape Town - International rating agency Standard & Poor’s on Friday lowered the long-term  foreign currency sovereign credit rating on South Africa to 'BBB' from 'BBB+' and the long-term local currency rating to  'A-' from 'A'.

S&P also lowered the short-term local currency rating to 'A-2'  from 'A-1' and affirmed the short-term foreign currency rating at 'A-2'. The  outlook remains negative.

The ratings agency said its downgrade follows ongoing labour unrest in South Africa.

"In our view, the strikes in South Africa's mining sector will likely feed into the political debate in the run-up to the 2014 elections, which may increase uncertainties related to the African National Congress’ (ANC’s) future policy framework.

"We also expect that South Africa’s underlying social tensions will increase spending pressures and reduce fiscal flexibility for the government," it said in a statement.

Due to production losses, S&P now expected GDP growth to soften to not more than 2.5% in 2012 and the current account deficit to increase to at least 5.1% of GDP.

"For 2013, we expect GDP growth of 3.0%."

S&P said the Lonmin's wage settlement at the Marikana mine in September had set a precedent for other mine workers striking for wage increases.

"After a wage increase of 12% to 22% was agreed at the Marikana mine in September  2012, strikes have beset the wider platinum and gold mining industry."

Before the wage deal, 34 workers were killed in clashes with police and several thousand protesters, taking the death toll at Marikana to almost 50.

"Strikes have mostly been wildcat, and the smaller and more radical Association of Mineworkers and Construction Union (Amcu) has questioned the legitimacy of the established National Union of  Mineworkers (NUM).

"We see an increased likelihood that the ANC will take on board more populist elements for its policy framework in the lead-up to the 2014 presidential elections. In our view, it may try to counter the perceived loss in legitimacy  of South Africa’s political and social institutions, as well as ensure the continued support of the trade unions," S&P said.

S&P said it expected underlying social tensions may result in amplified spending pressures and reduce fiscal flexibility for the government.

"In addition to immediate output losses from the mining strikes, we consider that the weaker business and investment climate may drag on South Africa’s economic growth."

S&P also warned that it could lower the ratings if South Africa’s business and investment climate  weakens more than it currently expected, for instance as a result of production cost increases, "and if this then leads to lower growth rates and increased pressure on South Africa’s balance of payments".

"We could also lower the ratings if the diverging factions within the ANC impede the formulation of a policy framework that is conducive to growth and job creation, or if the ANC congress in December 2012 sets a policy framework that we view as deviating from the path of fiscal consolidation."

- Fin24

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Comments
  • Gatvol Griet - 2012-10-12 19:50

    The whole world sees how inept the ANC government is, corruption and lack of governing skill is so deeply rooted within the ANC that not even a leadership change can save them. Those with savvy left it a long time ago.

      claudia.meads - 2012-10-12 20:09

      BBB is one cut away from BBB- that is essentially junk - iow the Rand will then be rubbish like the Zim Dollar is/was. SA is on the verge of hyper-inflation and all the sex-crazed buffoon that is the president of SA can do, is to meet with his black nationalist communist cronies, while Affirmative Action is at the very heart of SA fast collapsing economy. http://www.fin24.com/Economy/Zuma-to-host-dialogue-on-the-economy-20121012 SA is indeed on the verge of the abyss... http://www.fin24.com/Opinion/Columnists/Facing-the-abyss-20121011

      sean.bagley.50 - 2012-10-12 20:38

      All the ANC will do and say in reply to that is what Mugabe always says and does when suchlike things happens:"It's a Westernized Institution or a white man's thing". One thing I've realize on this webpage is that the ANC only bothers themselves with suchlike news items when Foreign Investments stops flowing into South Africa.In fact the ANC has become so pathetic that their support base on this forum will tell you to "move from South Africa if you don't like it here".Have you not seen suchlike comments before on here anytime you say something supposedly critical of them? They know they're destroying South Africa with everything they do,but they've become so brazenly pathetic in their don't care attitude that it's not even shameful anymore.

      loki.scribus - 2012-10-14 11:42

      I see a future where the government begs its western neighbours for aid...

  • marthinus.oosthuizen.7 - 2012-10-12 19:51

    Pity the majority of ANC leaders is basically illiterate and won't understand that there actions will eventually lead to just another Africa story. They will read this and hear this, but will not understand. Not that they care.

      a18nukem - 2012-10-13 04:24

      I don't believe the ANC leaders are stupid. They know exactly what they doing and that's enriching themselves. They don't care about the poor or the majority they are looking out for themselves. The ignorant and illiterate ones are their members, their voters. They have the power to stop this all, but they too stupid to even know what's happening right under their noses, so they vote like sheep for the same rubbish every election. The ANC leaders know this, and they prey off of this. That's that sad fact of current state of SA.

  • wwrer.ww - 2012-10-12 20:09

    All this started by the stupid strikers and their 11 kids.

      lacrimose.wolf - 2012-10-12 21:28

      All this started by a total lack of leadership and anyone at all in govt having a cooking clue as to what to do. As always, they allow things to get to the point of no return and then exhort the public to suffer the consequences but please vote for us again

  • herman.booysen2 - 2012-10-12 20:22

    Leadership ! LOL ! to them it means nice houses , multiple marriages, fancy luxury cars, big family trusts and farm grabs. not responsibility , fairness , hard work , to be a leading example, moral upliftment and to organize and serve not even school books !

      wwrer.ww - 2012-10-12 20:31

      hard work + .... self control.

  • J.Stephen.Whiteley - 2012-10-12 21:26

    Lonmin's wage settlement "set a precedent" for other mine workers. That is untrue. Lonmin's hand was forced by the violent deaths. Lonmin paid for years of neglect by the Tripartite Alliance and the authorities' panic reaction

  • sandy.langenstrass - 2012-10-12 21:57

    South Africa could not have chosen a worse time to prolong these strikes as they have...especially as there has been people killed and intimidated. The World at present is heading for serious financial woes with recession threatening...unfortunate the people involved with the striking, have no idea (generally speaking)what high interest rates and exchange rates can do to their every day buying power...EDUCATION is so vital...we will never come right if we have illiterates..if they knew the long term affects of this...they might not have gone on strike..

  • pieter0827006294 - 2012-10-12 23:04

    What I don't get is that the people in this forum predicted just that, even before the settlement at Marikana was reached. How intelligent business leaders could fall into that Marikana trap is beyond my comprehension.

  • cliff.slabbert - 2012-10-12 23:17

    "The rest is yet to come and babe won't that be down".......

  • jacob.molife - 2012-10-13 04:57

    Only malema's granny will live a comfortable life, because her grandson is a millionaire.

      rocky.bell.927 - 2012-10-13 05:19

      ".....grandson is a millionaire" ........not for very long, jacob.

  • SarelJBotha - 2012-10-13 14:59

    Slowly but surely the world is realizing they created a monster.

  • emmanuel.roodt - 2012-10-14 10:48

    The pop group QUEEN said it best: " Another one Bites the Dust". Down and down She(South Africa)goes! Mmmmm, let me think does "Titanic" come to mind? You decide.

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