S & P retains S. Africa’s credit rating

South Africa’s BBB-/A-3 credit rating was affirmed by the global agency Standard & Poor s Friday giving the government some more time to get things right.

The outlook for the beleaguered economy remains negative on weak growth the agency said.

Standard & Poors highlighted growing concerns around falling GDP growth as well as rising political tensions which are accentuating vulnerabilities in the country’s sovereign credit profile.

The rating agency said “energy sector improvements will likely reduce some of the economic bottlenecks and pending finalization of labor and mining reforms could engender a positive confidence shock. On the fiscal side, the government is showing greater resolve to reduce fiscal deficits at a faster pace than we expected.”

It noted that South Africa’s weak economic growth, relative to that of peers in similar wealth categories, continues to be hurt by a combination of factors, in our

view.

“On the external side, adverse terms of trade and weak external demand have created headwinds. On the domestic side, drought and subdued mining and manufacturing output, coupled with structural constraints, remain key negative

factors. Largely due to some of these cyclical factors, we have revised down our real GDP growth assumptions for South Africa to 0.6% in 2016 from our 1.6% forecast published in December 2015. As weather patterns and terms of trade  revert to mean levels, economic growth should improve.”

However, S & P warned that to place South Africa’s economy on firmer footing and to maintain our investment-grade rating, “we see several structural measures as key. The first  is the provision of a reliable source of energy, where we have observed  progress.

Eskom, the state-owned power utility, has improved the energy supply through a better maintenance program, managing demand in peak periods, and by  additions from its new power plants and from independent power producers.

The  combined measures have helped eliminate load shedding, which was prevalent in  the last winter cycle and depressed overall 2015 economic growth. The second  is labor reform. Prolonged strikes, mainly in mining and some manufacturing sectors, combined with less flexible labor laws and high youth unemployment, continue to pose structural weaknesses to South Africa’s economy.

The third measure is the mining code, for which negotiations on Black Economic Empowerment are already sensitive. On these latter two points, we see risks that negotiations between the government, private sector, and unions could become protracted and, even if concluded, implementation could be nettlesome.“