SA business chamber warns of ‘lengthy’ downgrade

·9 Nov 2016

Should the GDP growth outlook remain weak, South Africa could be downgraded by the ratings agencies for a lengthy period, warns the South African Chamber of Commerce and Industry (SACCI).

The chamber noted on Wednesday that business confidence recovered in October, having slumping to its lowest level in three decades in September – boosted by a rise in export volumes and a firmer currency.

SACCI’s monthly business index rose to 93.0 in October, its highest reading in three months, from 90.3 in September.

The business chamber noted that the recovery was “against the odds of slow domestic and global economic performance and local socio-political distractions”.

“An investment downgrade to junk status could make the process of economic recovery more cumbersome and costly,” SACCI said.

Reuters reported that credit ratings agencies are due to visit the country in the coming weeks and publish their reviews by year-end.

SACCI noted that apart from subdued economic global growth, the economy has virtually stalled. It said that that the Minister of Finance, Pravin Gordhan, held up a solemn picture of South Africa’s economy over the medium-term in his recent budget speech.

“Apart from lower growth of 0.5% for 2016, the minister indicated that there are serious impediments holding back the economy,” SACCI said.

“Notwithstanding political differences between and within certain political formations, the lack of business and investor confidence is amongst the most contemporary matters to deal with. The lack of political direction, economic policy uncertainty and some
serious public sector malpractices must be dealt with speedily,” it said.

SACCI said that the three main reasons for an increasingly negative assessment of South Africa are prolonged weak economic growth, rising cost of serving growing government debt, and protracted current account deficits.

“Much hinges on economic growth over the next two to three years. Should the GDP growth outlook remain weak, South Africa could be downgraded by the ratings agencies for a lengthy period,” Sacci said.