S&P has doubled its growth forecast for South Africa this year but the rating agency warned that it was a long way from lifting the continent’s most industrialised nation out of junk status.
Gardner Rusike, an analyst at the credit rating agency, told a conference on Tuesday that the economy is forecast to expand by 2 per cent in 2018 as investor confidence has improved since Cyril Ramaphosa replaced Jacob Zuma as president.
Mr Ramaphosa, who took over as head of state in February after the ruling African National Congress forced Mr Zuma to resign, has vowed to fight corruption and appointed technocrats to important financial ministries and state entities.
But Mr Rusike said the government still had to do more to accelerate growth in a country blighted by 27 per cent unemployment and widespread poverty.
“We are now probably in a good situation that supports our stable outlook, but we are not yet anywhere near going upwards as far as the rating is concerned,” said Mr Rusike. “It is up to South Africa to continue with reforms that have been initiated, and the realisation of those reforms is what can be supportive to a higher rating path.”
S&P and Fitch downgraded South Africa to junk status last year after Mr Zuma shocked markets by sacking Pravin Gordhan, his then-finance minister, in a move widely interpreted as the former president seeking a more pliable hand in charge of the state’s coffers. S&P rates South Africa’s foreign currency debt at BB, two notches below investment grade.
Mr Zuma’s eight years in office were characterised by scandals, corruption allegations and stagnant growth. The economy grew 1.3 per cent last year as it exited its second recession in almost a decade.
“After four years of zero per capita GDP growth, a pick-up to 1 per cent is not hard to achieve,” said Charles Robertson, global chief economist at Renaissance Capital. “It will be driven by investment as corporate confidence grows now that Zuma is gone, and domestic demand supported by a stronger rand.”
Mr Ramaphosa has appointed Mr Gordhan to his cabinet to oversee state companies, and named Nhlanhla Nene, another respected finance minister fired by Mr Zuma, as his Treasury chief.
But analysts caution that the president faces a daunting task in his efforts to boost economic growth to the levels needed to address yawning inequalities in the country. He also has to manage bitter divisions within his own party as he attempts to push through urgent restructuring of state-owned companies, such as Eskom, the power monopoly, whose finances were badly mismanaged during Mr Zuma’s presidency.
Many Zuma allies retain senior positions in the cabinet and in the party, and the ANC is desperate to put on a united front ahead of parliamentary elections in 2019.
Mr Nene said this week that South Africa was in a “honeymoon phase” with international investors. “It is for that reason that we cannot be complacent about it,” he said.
Moody’s, the last of the main three rating agencies to retain South Africa above junk, said last week it would maintain its rating and raised its outlook for the country to stable. A downgrade by Moody’s would have pushed South Africa’s bonds out of widely-followed investment indices, raising its borrowing costs.
Mr Ramaphosa said the Moody’s rating reprieve was a “shot in the arm” for investment and that his government would seek to convince other agencies to raise their outlook.