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SA suffers business credit risk downgrade

Jan 31 2017 20:19
Carin Smith

Cape Town - The international trade credit insurance company Coface has changed its business credit risk assessment of South Africa from B (fairly high) to C (high).

There are only two assessments in its range that are worse than a C, namely D (very high) and E (extremely high).

"Political risks in emerging countries are higher than ever, driven by social discontent and heightened security risks," Coface said in its latest business credit risk assessment.

"The rise of political and social frustrations in South Africa is partly to blame for the downgrade of its assessment to C (high risk) within a climate of very poor growth," stated Coface.

READ: SA one of top 10 risks to the world in 2017 - Time

Smaller countries in sub-Saharan Africa are faring better than the larger economies, according to a Coface report. One of the best performers in in the region, according to Coface is Ghana, which it rates as a B (fairly high) in terms of risk assessment. Coface points out that Ghana passed its "democratic maturity test" in December, and now has a good level of public finance management.

Kenya - rated as A4 (reasonable level) is the other best performer in the region for Coface. The country has seen a boost in tourism and increased public investment, for instance.

In its latest report it was the first time since the mid-2015 that Coface has made more upgrades than downgrades in its country risk assessments covering business credit risk. At its recent annual country risks conference in Paris, Coface said that, despite the recent economic upturn, uncertainties will continue to dominate global economic climate this year.

Threat of protectionism

"Following two consecutive years of slower world growth, the outlook should improve marginally in 2017 (from 2.5% in 2016 to 2.7% in 2017). This will be driven by a rebound in business in emerging countries (4.1% growth) due to recoveries in Brazil and Russia offsetting the slowdown in China. Advanced countries will see stable growth of 1.6%," Coface said in a statement issued on Tuesday.

"The lacklustre development in world trade (forecast at +2.4% for 2017, compared to an average of 2.2% between 2008 and 2015 and an average of 7.0% between 2002 and 2007) could be further compounded by the resurgence of protectionist measures following the election of Donald Trump."

In the short term, these measures will have a lesser effect on America’s economy in 2017 (+1.8% growth) than they will have on other countries that export heavily to the US and some Asian countries, in the view of Coface.

Global political risks at a record high

Political risks will continue to be a major concern in 2017, according to Coface.

"Among advanced economies, it is Europe that is facing the greatest political uncertainty as it awaits the outcome of a number of decisive electoral battles as well as details on the exact terms of Brexit," it said.

Furthermore, high levels of company debt are a threat to the banking sector in emerging countries.

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business  |  ratings  |  sa economy  |  credit


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