Why Rating Agencies Feel Positive For South Africa


Colin Coleman speaking at the Thomson Reuters Africa Summit in Cape Town, he said that while South Africa has been on a roller-coaster ride this year, it has demonstrated that it can sustain political tensions.

“Rating agencies are feeling positive about South Africa despite the political upheaval currently unfolding in the country” Goldman Sachs sub-Saharan Africa MD Colin Coleman said on Thursday.

Standard & Poor’s (S&P) and Fitch Ratings both have South Africa’s credit rating at BBB- with a negative outlook, which is one notch above junk status. Moody’s rating is slightly better at Baa2 with negative outlook. S&P is set to deliver its next ratings review on December 2.

His message of hope came moments before an address by S&P sub-Saharan Africa MD Konrad Reuss, who warned that any attempt to undermine South Africa’s institutions would be “a negative” for the agency.

Identifying key institutions like Treasury, the SA Reserve Bank and the courts, he said “any attempts to undermine these institutions will be a negative from the ratings agencies”.

Coleman is cognisant of these types of challenges. “The noise caused by the constant warring of the factions doesn’t help,” he said, but said: “Africa is the long-term fundamental opportunity. It is going to be a choppy ride. It’s not for sissies.”

Coleman was part of the road show delegation that went to New York last month with government to woo investors and allay rating agencies worried about South Africa.

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Rating agencies impressed with SA stability

He said the agencies were impressed with how South Africa had remained stable despite the upheaval occurring due to the faction fighting occurring within the ANC and tensions around “state capture”.

This week, Finance Minister Pravin Gordhan was summoned by the National Prosecuting Authority over the early retirement of former Sars deputy commissioner Ivan Pillay.

Coleman said there “has been a muted response” from the markets regarding this decision. “It tells you quite a bit about the progress we’re making in terms of a democracy sustaining itself,” he explained

He said 2016 was an evidential year of South Africa’s institutions working, citing the courts, the Public Protector and the Independent Electoral Commission.

It was a year that showed the “absolute strength and independence” of the SA Reserve Bank and Treasury – “notwithstanding the attempts on them”.

“Rating agencies believe this is a very robust example of democracy,” he said. “Last week in Washington, having spoken to the rating agencies, we are in a very constructive space.”

He cited South Africa’s low levels of foreign debt, the strength of institutions and the fact that South Africa has bottomed out of its economic slump. He said 3% should be the country’s minimal growth rate. “Zero percent is not acceptable,” he said.

Team effort is crucial for SA

Coleman believes government “led structural reforms and a new way of doing business” in 2016, in conjunction with business and labour organisations.

S&P’s Reuss said this team effort was crucial to avoid a downgrade. He said South Africa must sustain its current fiscal discipline and retain a team effort in its fast-tracked reform of state-owned enterprises (SOEs).

“It is critical at this juncture that the budget objectives from February are achieved,” he said. “The minister and his team are targeting a faster and consolidated reform. It hinges on a team.”

Reuss was more concerned about the political upheavals, explaining that politics has started threatening policies in South Africa, which is credit negative.

“What has (changed) … is that political tension and turmoil has come to the fore,” he said. “It is a game changer from South Africa 10 years ago.

“There is politics and then there are policies,” he said, explaining that in South Africa you could always rely on the policies. “We are not in that situation now,” he said. “It is more than just political noise.”

Referring to S&P’s June review of SA, he said: “For the first time ever, we felt obliged to highlight political risk and tension. This is not about political noise. Here we have political tension that can undermine structural reforms that can become a serious risk to South Africa’s credit story.”

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