Chances of an upgrade from Moody’s seem slim after it issues list of concerns
SA’s chances of getting an improved sovereign credit rating from Moody’s when it announces its next verdict on October 12 look bleak, judging from a "issuer comment" it released on Tuesday.
Concerns raised by Moody’s included President Cyril Ramaphosa scaring away foreign investment with his support of land expropriation without compensation.
"Ramaphosa has stated his intentions to implement it without harming the economy, but uncertainty over how this will be achieved continues to limit near-term investment, and could ultimately lead to a more pronounced fall in investment should the final terms of land reform be particularly onerous to businesses," Moody’s said in its report.
"We believe it is unlikely there will be meaningful progress on this issue before the 2019 presidential election."
Moody’s said while consumer and business confidence improved in the first quarter of the year, investment weakened during that period.
"Tepid business confidence and subdued investment highlight the business community’s continued caution in anticipating effective change. A recovery in business confidence and investment remains crucial to unlocking growth in SA."
Business confidence took a knock in the second quarter of 2018. The RMB/BER business confidence index fell to 39 in the second quarter from 45 in first quarter of 2018, remaining below the neutral 50 mark.
Despite a 2.2% contraction in economic growth in the first quarter of the year, Moody’s expects growth to accelerate to 1.6% in 2018 and 2.1% in 2019.
"Our forecast is based on further progress on the government’s reform agenda through the year, particularly negotiations over the Mining Charter with a view to a final agreement by the end of the year, and further progress in improving state-owned-enterprises governance and overall public finance governance," said Moody’s.
At the end of March, Moody’s affirmed SA’s investment-grade credit rating and revised its credit outlook to stable from negative, saying the previous weakening of national institutions was gradually reversing, which supported an economic recovery.