S&P says SA outlook marginally worse

Political and economic risks in South Africa are rising, Standard & Poor’s said but added that the country’s BBB+ sovereign credit rating remains safe for now.

The ratings agency said divisions within the African National Congress (ANC) as well as its slowing economy were sources of concern, although the country was making progress in addressing its energy crisis.

“On the margins, the outlook seems a little worse than it was last year but this isn’t something that will constrain the ratings beyond what we have seen,” Farouk Soussa, S&P sovereign ratings director, told Reuters late on Monday.

“We have South Africa on a stable outlook which implies we do not see any ratings movement in the foreseeable future. But its risk profile is changing.”

South Africa is rated BBB+ by S&P and its rival ratings agency Fitch Ratings. Moody’s rates it Baa1.

Soussa said the emergence of two power bases within the government—one led by President Thabo Mbeki, the other by the ANC’s newly-elected leader Jacob Zuma—could be less conducive to policy-making for the continent’s largest economy.
Zuma defeated presidential incumbent Mbeki to win the ANC leadership in December and is frontrunner to succeed Mbewki when his term in office expires in 2009. His trade union links have raised investor fears government policy could lurch to the left.

But Soussa said South African economic policy was likely to remain grounded in the centre even with Zuma’s election, as the ANC’s constituency was broad. Zuma is also facing trial for corruption, racketeering and fraud—charges he denies.

“That said, there are certain risks on the horizon such as the possibility of prolonged litigation and uncertainty over how contentious the presidential elections will be,” he added.

Soussa said South Africa had taken steps to deal with its power shortage, which had resulted in rolling blackouts that have in recent weeks hit key industries such as mining.

The country, which is moving away from its dependence on coal to explore nuclear power, has solved some short-term energy supply problems and was no longer experiencing large-scale blackouts seen earlier this year, Soussa said.

“The energy projects are in the pipeline and the question is how quickly those can be put in place,” he added.

“The energy crisis is a reminder of some of the constraints and vulnerabilities in South Africa. The weak point in the South African credit story is that its economic growth potential has always been limited by its energy and infrastructure as well as its skill shortages,” he said. - Reuters

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