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South Africa's credit rating at risk - Moody's

Rene Vollgraaff, Paul Burkhardt

Moody's rating agency has warned that the country's credit rating is at risk as the 220 000-strong Numsa strike enters its fifth day.

Striking Numsa workers in Cape Town march to parliament. (David Harrison, M&G)

South Africa’s credit rating is at risk as strikes by miners and metalworkers threaten economic growth and the government’s ability to rein in debt, Moody’s Investors Service said.

A walkout by 220 000 metalworkers that began on July 1 may curb a third of output in manufacturing, Moody’s said in an emailed report on Thursday. It follows a five-month strike in the platinum industry that ended last week, which caused the economy to contract in the first three months of the year.

“Continued weak investment, exports and overall growth will pose serious challenges to the government’s efforts to rein in its budget deficit and stabilise its debt metrics, a credit negative for the economically troubled country,” Moody’s said.

Moody’s has had a negative outlook on South Africa’s Baa1 credit rating since November 2011. That’s two levels above Standard & Poor’s, which downgraded the nation’s debt on June 13 to BBB-, the lowest investment grade level.

The strikes are making it difficult for South Africa to take advantage of a recovery in growth in its main trading partners, such as Europe, Moody’s said. Finance Minister Nhlanhla Nene said on July 1 the economy will probably miss the government’s 2.7% growth target this year because of the stoppages.

The National Union of Metalworkers of South Africa (Numsa) will resume wage talks on Thursday night with the employers’ group, the Steel and Engineering Industries Federation of Southern Africa, Castro Ngobese, a spokesperson for the union, said in a text message on Wednesday. The strike over wages affects more than 10 000 companies.

Power plants

The walkout has disrupted the construction of two power plants—Medupi and Kusile—that will each generate about 4 800 megawatts to a grid under strain. About 30% of contract workers haven’t reported for work at the sites since the strike started, Andrew Etzinger, a spokesperson for Eskom Holdings, which provides about 95% of South Africa’s electricity, said in a phone interview.

“Eskom has made an undertaking to respond to our demands within 48 hours,” Ngobese said. Numsa wants increases of 12% in metals and engineering, as well as at Eskom. – Bloomberg

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