No change in SA investment rating

SA’s dramatic political transition did not so far warrant a reassessment of its investment grade credit ratings, three top rating agencies said yesterday.

But they warned that President Thabo Mbeki’s abrupt departure had launched a prolonged period of uncertainty, which global investors might see as negative.

“I don’t see any upside at the moment as far as the South African credit story is concerned,” said Konrad Reuss, Standard & Poor’s MD for SA and southern Africa.

“I do see a number of potential downsides, but it’s too early to say exactly where this is going.

“We are monitoring events quite closely as we are definitely in for a prolonged period of uncertainty,” he said.

Kristin Lindow, senior vice-president of Moody’s Investors Service and its lead analyst for SA, made similar comments yesterday. “Moody’s expects to monitor developments closely in coming months to determine whether the latest developments warrant any revisions to its views on the likelihood of policy continuity in the coming years,” she said.

Local markets took the news of Mbeki’s departure in their stride yesterday.

African National Congress (ANC) president Jacob Zuma, who is likely to get SA’s top post after the election, moved quickly to reassure the business and investment community yesterday, saying economic policies would remain stable.

There is concern that Zuma’s left-wing allies would persuade a new government to abandon prudent fiscal policies and embark on an unsustainable spending spree as it redoubles its efforts to alleviate poverty.

Mbeki’s departure does not mean that this is on the cards, but analysts said the treasury’s medium-term budget policy statement next month would be scrutinised closely for any sign of a destabilising shift to the left.

Severe volatility in global markets mean that if SA’s political landscape starts to be seen as hostile to business any rise in risk aversion would punish local assets more severely than would otherwise be the case.

“The interim government has to manage the transition carefully to make it as smooth as possible,” said Veronica Kalema, a sovereign analyst at Fitch Ratings.

“The situation is still fluid ... it has added to political uncertainty, and SA is facing a challenging global and domestic backdrop at the same time.” For now any big shift in economic policies was seen as unlikely, she said.

Kalema and Lindow said reports that ANC deputy president Kgalema Motlanthe would replace Mbeki until the election were good news for markets as he was seen as an astute politician who would manage transition well. But Lindow said Zuma might have raised the expectations of SA’s poor majority to unrealistic levels. “Managing these overblown expectations downward will be required to maintain political stability.”

Reuss said that while there was some scope for more spending the main obstacle to improving the lives of poor people was service delivery. It was difficult to see how a new government would tackle that more successfully, given SA’s skills and capacity constraints.

Source: www.businessday.co.za

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