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Downgrades could impact infrastructure development

Apr 11 2017 15:49
Carin Smith

Cape Town - The two recent ratings agency downgrades of SA will have a ripple effect on the built environment sector and the cost of infrastructure development.

That’s the view of TC Chetty, South Africa country manager of the Royal Institution of Chartered Surveyors (RICS).

Last week Fitch Ratings downgraded the government’s long-term foreign and local currency debt to a non-investment grade rating after S&P had earlier downgraded SA's long-term foreign currency rating to sub-investment "junk status". Moody’s has put the country on review for downgrade, with a decision expected in about one to three months' time.

“SA’s downgrade to sub-investment or ‘junk’ status is a setback the economy can ill-afford, especially in this already low growth environment. SA joins the majority of African countries currently rated below investment grade, including Nigeria, which in September 2016 was downgraded by S&P further into junk status, with a B rating, five levels below investment grade. Fitch also revised its outlook for Nigeria to negative in January this year,” said Chetty.

SA and Nigeria account for about half of Africa’s GDP. Therefore, with SA and Nigeria being Africa’s two biggest economies, the downgrades will negatively affect both nations and hit Africa’s overall economic growth, he emphasised. Besides expected capital outflows from SA as a result of the downgrade, the country’s debt servicing costs are set to increase.

READ: Treasury on second downgrade blow: Stay positive!

“SA finds itself in uncertain territory, having been above investment grade for 17 years. We cannot underestimate the impact, especially because SA has a well-developed financial and investment sector compared to the rest of Africa," said Chetty.

"While Nigeria has always been rated below investment grade, its ratings have deteriorated since 2012 and last year its economy contracted. These downgrades are not good, not just for SA and Nigeria, but for Africa’s overall gross domestic product (GDP) growth prospects."

At the recent RICS Africa Summit, Amanda Clack, president of RICS, and head of infrastructure advisory for EY in the UK and Ireland, said collaboration was key to meeting the demands of Africa’s rapid urbanisation and growth. At the same time she sees policy uncertainty as a major threat to infrastructure investment in Africa.

“RICS is collaborating with construction and property organisations from across Africa. We are working together to accelerate the professionalism of land, construction, property and infrastructure in the region,” said Clark.

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