Ratings agency Fitch says the South African government’s poor reputation for following through on promises means assurances on the energy crisis are having the opposite effect.<\/p>\n
If South Africa fails to address the load shedding issue within the medium term, there could be downward pressure on the country’s credit rating, it said.<\/p>\n
According to the international rating agency, the recent announcement of a national state of disaster over the energy crisis by President Cyril Ramaphosa, shows that the energy crisis has continued to deteriorate.<\/p>\n
And while it is possible for the state of disaster and the appointment of a minister of electricity to strengthen the government’s capacity to respond to the power shortage – the government’s generally poor track record on execution and Eskom governance problems will likely have the opposite effect<\/strong>, with Fitch suggesting that further delays are now possible.<\/p>\n Fitch Ratings is a global credit rating agency that provides credit ratings, research, and analytics to investors, issuers, and other market participants.<\/p>\n It is important for a country like South Africa to have a stronger credit rating because it can determine the country’s ability to access affordable credit, attract foreign investment, and maintain economic stability.<\/p>\n A positive credit rating can also signal confidence in the country’s financial management, potentially leading to improved business and consumer sentiment.<\/p>\n In November last year, the rating agency affirmed the ‘BB-‘ rating with a stable outlook – based on the assumption that the power shortage would slightly improve gradually into 2024.<\/p>\n Fitch said there is a little bit of headroom in the country’s ‘BB-‘ rating to absorb a temporary impact on economic metrics from load shedding, but continual decreases in growth expectations may negatively affect the country’s rating.<\/p>\n “The South African Reserve Bank (SARB) in January lowered its forecast for economic growth in 2023 to 0.3%, from 1.1% previously.”<\/p>\n “This partly reflected its revised estimate of 250 days of load-shedding in 2023, up from 100 previously, exerting a two percentage point drag on GDP growth in 2023, compared with an earlier estimate of 0.6 percentage points,” Fitch Ratings said.<\/p>\n Fitch estimated that the country’s low growth potential, at 1.2%, will remain a key credit weakness.<\/p>\n “The reserve bank expects load-shedding to decline but remain high in 2024 and 2025. The SARB now forecasts 150 days of load-shedding in 2024, up from 40 days previously, and it assumes 100 days in 2025,” added the agency.<\/p>\n Despite the power crisis being the most acute economic difficulty the country faces, other major challenges include growing problems at the state-owned freight and logistics company Transnet which is affecting the ability of mining companies to export bulk commodities.<\/p>\n The further deterioration of the electricity supply goes beyond the base case and presents downside risks for the country’s economic growth.<\/p>\n Should infrastructure problems cause a further decline in potential growth, that could eventually weigh on the sovereign rating, Fitch said.<\/p>\n
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