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SA policy paralysis likely to continue after Ramaphosa election - Fitch

Dec 20 2017 11:09
Carin Smith

Cape Town - Political uncertainty in South Africa is likely to continue following the election of Deputy President Cyril Ramaphosa as leader of the ANC, Fitch Ratings said on Wednesday.

The ratings agency pointed to the closeness of the voting result and likely challenges in agreeing and implementing changes to existing economic and fiscal policy. It suspects what it calls the "policy paralysis" that existed in the run-up to the ANC election will likely not be resolved quickly.

ANC delegates chose Ramaphosa as president instead of Nkosazana Dlamini-Zuma by 2 440 votes to 2 261.

"The full repercussions of his victory will be far-reaching, but they are likely to remain unpredictable ahead of the 2019 elections," Fitch said in a statement on Wednesday.

"The rise in the rand in anticipation of Ramaphosa's victory reflects his public commitment to tackle corruption and revive the economy. If businesses and consumers view the outcome favourably, this could give a near-term boost to growth."

At the same time, the ratings agency regards political uncertainty and policy challenges as remaining significant. It anticipates division in the ANC could increase inefficiencies in policy-making.

"As long as growth is too weak to significantly reduce inequality, pressure will remain for redistributive policies, even if they weaken SA's growth potential," said Fitch.

Economic and fiscal policy uncertainty could, therefore, remain high in 2018. In its most recent Global Economic Outlook, Fitch forecast growth to increase to 1.6% in 2018 and 2.0% in 2019 - significantly higher than in the preceding two years - but still lower than the 'BB' rating category median.

Fitch affirmed SA's 'BB+'/Stable sovereign rating in November. At the time the ratings agency raised a number of issues, which indicated a weaker fiscal outlook.

"Whether fiscal measures, stronger gross domestic product (GDP) growth and improvements in standards of governance that may emerge in the wake of the ANC's national conference can mitigate those trends, remain a key element of our sovereign credit assessment," said Fitch.

On Tuesday ratings agency Moody's said the election of Ramaphosa opens up a tentative possibility of a "credit positive" shift in SA policy and an increase in business confidence. This could reverse the gradual deterioration in the country's credit fundamentals, it said.  

Moody's pointed out that, as a former businessman, Ramaphosa was seen as the more market-orientated of the two main candidates for the ANC's leadership.

In November Moody's placed South Africa's sovereign debt, which has a Baa3 rating, on review for downgrade. Unlike its rival ratings agency S&P Global, however, it did not downgrade it.

The Baa3 rating for SA's long-term issuer and senior unsecured bond ratings indicates the debt is still rated as investment grade, at one notch above junk status.

In its latest report Moody's said its South African rating review period is expected to run until after the announcement of the 2018 budget in February.

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