South Africa Can Make Case to Avoid Downgrade, Governor Says

JOHANNESBURG (Capital Markets in Africa) – The attempts of the new leaders of South Africa’s ruling party to root out corruption and boost the ailing economy may mean the nation can avert another downgrade by rating companies, central bank Governor Lesetja Kganyago said.

“Without pre-empting what the ratings agencies would say, South Africa is in a much better space now than where it was when previous ratings actions took place,” he said in an interview with Bloomberg TV at the World Economic Forum in Davos, Switzerland, on Wednesday. “We have got a good case to make.”

S&P Global Ratings and Fitch Ratings Ltd. cut the country’s debt to junk in 2017 after the removal of Pravin Gordhan as finance minister increased political and policy uncertainty. Moody’s Investors Service put the nation on review for a downgrade in November. A reduction of the local-currency bond rating, which may take place in March, would trigger an exclusion of the country’s rand debt from Citigroup Inc.’s World Government Bond Index.

Optimism that President Jacob Zuma’s era of scandal-ridden government may soon come to an end has boosted the rand to the strongest level since 2015. His departure may pave the way for Cyril Ramaphosa, whom the African National Congress elected its new leader in December, to take over the presidency and allow him to try and rescue an economy battling to recover from a recession.

Improving Governance
Ramaphosa has already taken steps to improve governance at state-owned companies, including the appointment of a new board for the cash-strapped power utility Eskom Holdings SOC Ltd. at the weekend. Lawmakers on the public enterprises committee, including Gordhan, are grilling current and former executives of the company in their inquiry into the mismanagement of funds.

“Corruption and misrule will soon be history,” Kganyago said. “You’ve actually seen a reassertion by the parliament of the Republic of South Africa to hold the executive to account, to hold the public servants to account. Parliament is finally playing the role that it’s supposed to be playing. When those actions are taking place, you cannot construe that as misrule.”

The Reserve Bank kept its benchmark lending rate unchanged for a third consecutive meeting last week as downgrade risks, and their potential effect on the rand, persist. It increased its 2017 economic growth forecast to 0.9 percent from 0.7 percent and raised the 2018 estimate to 1.4 percent from 1.2 percent.

Africa’s most-industrialized economy went through its second recession in almost a decade last year.

“A cyclical recovery is under way,’’ Kganyago said. Potential investors are asking “where are the opportunities lying? South Africa is reasserting itself,” he said.

Source: Bloomberg Business News