{"id":15542,"date":"2012-10-13T05:52:06","date_gmt":"2012-10-13T03:52:06","guid":{"rendered":"http:\/\/www.myza.co.za\/10\/text-sp-cuts-south-africas-foreign-currency-rating-to-bbb\/"},"modified":"2012-10-13T05:52:06","modified_gmt":"2012-10-13T03:52:06","slug":"text-sp-cuts-south-africas-foreign-currency-rating-to-bbb","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/text-sp-cuts-south-africas-foreign-currency-rating-to-bbb\/","title":{"rendered":"TEXT-S&P cuts South Africa’s foreign currency rating to ‘BBB’"},"content":{"rendered":"

\t\t<\/span><\/p>\n

Overview<\/span><\/p>\n

<\/span><\/p>\n

— In our view, the strikes in South Africa’s mining sector will likely
\nfeed into the political debate in the run-up to the 2014 elections, which may
\nincrease uncertainties related to the African National Congress’ (ANC’s)
\nfuture policy framework.<\/p>\n

<\/span><\/p>\n

— We also expect South Africa’s underlying social tensions to increase
\ngovernment spending pressure and reduce its fiscal flexibility.<\/p>\n

<\/span><\/p>\n

— We now expect GDP growth to soften to not more than 2.5% in 2012, and
\nthe current account deficit to increase to at least 5.1% of GDP.<\/p>\n

<\/span><\/p>\n

— We are therefore lowering the long-term foreign currency sovereign
\ncredit rating on South Africa to ‘BBB’ from ‘BBB+’, and the long-term local
\ncurrency rating to ‘A-‘ from ‘A’.<\/p>\n

<\/span><\/p>\n

— The negative outlook reflects our view that the medium-term political,
\neconomic, and fiscal ramifications of South Africa’s social tensions could
\ndeteriorate beyond our current expectations.<\/p>\n

<\/span><\/p>\n

Rating Action
\nOn Oct. 12, 2012, Standard Poor’s Ratings Services lowered the long-term
\nforeign currency sovereign credit rating on the Republic of South Africa
\n(South Africa) to ‘BBB’ from ‘BBB+’ and the long-term local currency rating to
\n‘A-‘ from ‘A’. We also lowered the short-term local currency rating to ‘A-2’
\nfrom ‘A-1’ and affirmed the short-term foreign currency rating at ‘A-2’. The
\noutlook remains negative.<\/p>\n

The transfer convertibility assessment is now ‘A-‘.
\nRationale
\nIn our view, the strikes in South Africa’s mining sector will likely feed into
\nthe political debate in the run-up to the 2014 elections, which may increase
\nuncertainties related to the African National Congress’ (ANC’s) future policy
\nframework. We also expect that South Africa’s underlying social tensions will
\nincrease spending pressures and reduce fiscal flexibility for the government.
\nDue to production losses, we now expect GDP growth to soften to not more than
\n2.5% in 2012 and the current account deficit to increase to at least 5.1% of
\nGDP. For 2013, we expect GDP growth of 3.0%.<\/p>\n

After a wage increase of 12%-22% was agreed at the Marikana mine in September
\n2012, strikes have beset the wider platinum and gold mining industry. Prior to
\nthe wage increase, 34 workers had died at Marikana after clashes between
\npolice and several thousand protesters. Strikes have mostly been wildcat, and
\nthe smaller and more radical Association of Mineworkers and Construction Union
\n(AMCU) has questioned the legitimacy of the established National Union of
\nMineworkers (NUM).<\/p>\n

We see an increased likelihood that the ANC will take on board more populist
\nelements for its policy framework in the lead-up to the 2014 presidential
\nelections. In our view, it may try to counter the perceived loss in legitimacy
\nof South Africa’s political and social institutions, as well as ensure the
\ncontinued support of the trade unions.<\/p>\n

The ANC is currently ruling in a tri-partite coalition, including the Congress
\nof South African Trade Unions (Cosatu), of which NUM is a member. The ANC will
\ndesignate the presidential candidate for the 2014 elections, as well as set
\nthe policy framework for the next tenure, at its National Conference in
\nMangaung in December 2012. We believe that support for incumbent president
\nJacob Zuma is still strong but may have weakened as result of perceptions
\nsurrounding his leadership. Although we do not expect that the designation of
\nan alternative presidential candidate such as Mr. Kgalema Motlanthe–currently
\nMr. Zuma’s deputy–would lead to a substantial policy shift, it could increase
\npolicy uncertainties in the year ahead of the election.<\/p>\n

We expect underlying social tensions may result in amplified spending
\npressures and reduce fiscal flexibility for the government. While we think
\nthat fiscal revenue for the financial year ending March 31, 2013, will not be
\nsubstantially affected by output losses in the mining industry–and that the
\nOctober 2012 medium-term budget policy statement will not indicate major
\nfiscal slippage–we believe the commitment to fiscal consolidation could be
\nchallenged in Mangaung. Consolidation could also be undermined by spending
\npressures building in the year before the elections.<\/p>\n

In addition to immediate output losses from the mining strikes, we consider
\nthat the weaker business and investment climate may drag on South Africa’s
\neconomic growth. We estimate that narrow net external debt will be equivalent
\nto a still-low 20% of current account receipts at year-end 2012. In our view,
\nlabor relations could become more tense and higher wage settlements may lower
\nthe competitiveness of South Africa’s labor-intensive mining industry.<\/p>\n

Outlook
\nThe negative outlook reflects our view that the medium-term political,
\neconomic, and fiscal ramifications of South Africa’s social tensions could
\ndeteriorate beyond our current expectations. The difficulty of addressing
\neconomic and social imbalances could be exacerbated by increasing external
\npressure in the context of sluggish global growth or investor risk aversion. <\/p>\n

We could lower the ratings if South Africa’s business and investment climate
\nweakens more than we currently expect, for instance as a result of production
\ncost increases, and if this then leads to lower growth rates and increased
\npressure on South Africa’s balance of payments.<\/p>\n

We could also lower the ratings if the diverging factions within the ANC
\nimpede the formulation of a policy framework that is conducive to growth and
\njob creation, or if the ANC congress in December 2012 sets a policy framework
\nthat we view as deviating from the path of fiscal consolidation. We could also
\nlower the local currency rating–potentially by more than one notch–if the
\ngovernment’s fiscal flexibility decreases, particularly if public sector wages
\nor debt service costs increase more than we currently expect.<\/p>\n

We could affirm the ratings at the current levels and revise the outlook to
\nstable if we were to see that the expected increase in public sector debt is
\noffset by an improvement in investment and economic growth prospects, and if
\nfiscal consolidation continues.<\/p>\n

Related Criteria And Research<\/p>\n

<\/span><\/p>\n

— Sovereign Government Rating Methodology And Assumptions, June 30, 2011<\/p>\n

<\/span><\/p>\n

— Criteria For Determining Transfer And Convertibility Assessments, May
\n18, 2009<\/p>\n

Ratings List
\nDowngraded; Ratings Affirmed<\/p>\n

<\/span><\/p>\n

To From
\nSouth Africa (Republic of)
\n Sovereign Credit Rating
\n Foreign Currency BBB\/Negative\/A-2 BBB+\/Negative\/A-2<\/p>\n

Downgraded<\/p>\n

<\/span><\/p>\n

To From
\nSouth Africa (Republic of)
\n Sovereign Credit Rating
\n Local Currency A-\/Negative\/A-2 A\/Negative\/A-1
\n Transfer Convertibility Assessment A- A
\n Senior Unsecured Foreign Currency BBB BBB+
\n Senior Unsecured Local Currency A- A<\/p>\n

Complete ratings information is available to subscribers of RatingsDirect on
\nthe Global Credit Portal at www.globalcreditportal.com. All ratings affected
\nby this rating action can be found on Standard Poor’s public Web site at
\nwww.standardandpoors.com. Use the Ratings search box located in the left
\ncolumn.<\/p>\n

<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Overview — In our view, the strikes in South Africa’s mining sector will likely feed into the political debate in the run-up to the 2014 elections, which may increase uncertainties related to the African National Congress’ (ANC’s) future policy framework. — We also expect South Africa’s underlying social tensions to increase government spending pressure and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[830,2370,183],"class_list":{"0":"post-15542","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-south-africa","7":"tag-news","8":"tag-reuters","9":"tag-south-africa-2","10":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/15542","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=15542"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/15542\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=15542"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=15542"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=15542"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}