South Africa continues its slide. Last year Africa’s largest economy saw its sovereign debt rating downgraded by Moody’s and Standard & Poor’s after widespread mining strikes undermined investor confidence. Yesterday Fitch followed suit, following a new outbreak of strikes by grape farmers. South Africa’s economy has now received a vote of no confidence from all three major ratings agencies. The Financial Times reports:
Fitch, the rating agency, has downgraded South Africa’s sovereign credit rating, citing a deterioration of the country’s economic prospects, which it said had affected public finances and exacerbated social and political tensions.
The decision by Fitch to downgrade the long-term foreign currency rating to BBB from BBB+ follows similar moves by Moody’s and Standard & Poor’s late last year as Africa’s largest economy battled against a wave of violent wildcat strikes in its crucial mining sector.
The South African Treasury is blaming the Eurozone crisis for this most recent downgrade. With roughly one-third of South Africa’s exports heading to Europe, its economy is one of the most exposed emerging markets to the crisis.
Unfortunately, the country’s problems extend well beyond its exposure to Europe. Fractious labor disputes that have spilled over into the new year continue to undermine investor confidence. Poor governance by President Zuma and the ANC has failed to meaningfully address deep-seated economic and social malaises.
Still, there is reason for hope. In the same article, the Financial Times went on to say:
[Fitch,] the rating agency, which has the country on a stable outlook, added that South Africa’s investment grade rating was underpinned by a “generally sound banking system” and a “deep local bond market”. It also said South Africa outscores the BBB range median on all six of the World Bank’s governance indicators.
And waiting in the wings is the ANC’s new Deputy President Cyril Ramaphosa. A former businessman, Ramaphosa has a background seemingly well suited to address South Africa’s economic shortcomings. This is a foundation to build on, but South Africa still has a lot of work to do to turn things around. Generating the economic growth that can raise living standards for the majority of South Africans while reducing unemployment is a monumental job; the deputy president has no shortage of files in his in-box.