Fitch speaks on S.A's rating

Ratings agency Fitch recently affirmed South Africa's sovereign international credit rating at investment grade but revised the rating outlook from neutral to negative, citing increasing political risks to standards of governance and policy-making. In a recent interview with CNBC Africa, Fitch Senior Director Jan Fredrik explained the decision-making process behind the agency's outlook change. Fredrik highlighted three main channels through which political risks could impact South Africa's rating. Firstly, there is a concern that social or political pressures could affect the commitment to fiscal consolidation, although this has not materialized yet. Secondly, political influences could impact the management of state-owned enterprises (SOEs), potentially leading to increased financial burdens on the sovereign balance sheet. The state capture report has raised questions in this regard. Lastly, internal government infighting could distract from addressing economic growth and fiscal challenges, weakening the country's ability to tackle these issues effectively. The current political landscape in South Africa is marked by uncertainties, with President Jacob Zuma facing a possible vote of no confidence and calls for his resignation from within his own party. Should a leadership change occur, Fitch is concerned about how it would affect fiscal commitments, SOE management, and the overall stability necessary for addressing economic challenges. While initiatives like the CEO initiative and efforts to improve the business environment are commendable, Fitch suggests that they are more akin to fine-tuning measures rather than transformative changes. The impact of these initiatives, such as the SME fund and improvements in electricity supply, may not be significant enough to drive substantial economic growth. Although these efforts are expected to support a gradual recovery, Fitch anticipates that South Africa's growth rate will not return to pre-financial crisis levels anytime soon. Overall, Fitch warns that while recent initiatives may assist in bolstering the economy, more substantial measures may be needed to address the challenges facing South Africa.