Johannesburg, South Africa — 28 September 2012 – South Africa’s credit rating has been cut by Moody’s Investors Service because of the government’s inability to deal with economic and political challenges amid the worst mining violence since the end of apartheid.
Bloomberg News reports that Moody’s said in an e-mailed statement that the rating had been lowered by one level to Baa1, with the outlook remaining negative. That puts South Africa in line with Mexico, Russia and Thailand. Moody’s rates South African debt at the third-lowest investment-grade level, the same as Fitch Ratings and Standard & Poor’s.
“The revision reflects Moody’s view of the South African authorities’ reduced capacity to handle the current political and economic situation, and to implement effective strategies that could place the economy on a path to faster and more inclusive growth,” the ratings company said.
The downgrade comes after six weeks of labour unrest that left at least 46 people dead and shut mines owned by Lonmin plc , Anglo American Platinum Limited and AngloGold Ashanti Limited. Growth in Africa’s biggest economy is also under pressure as a debt crisis in Europe cuts export demand from a region that buys about a third of South Africa’s manufactured goods.
“Recent events have heightened investors’ concerns of socio-economic challenges, in particular the high unemployment rate,” Moody’s sovereign analyst Kristin Lindow said in a phone interview from New York. “The government has a moderate level of institutional capacity to deal with the pressures.”
She declined to say why the downgrade was made before the October 24 medium-term budget or comment on the nature of its discussions with the government.
“President Jacob Zuma needs to take charge of the country’s economic direction,” head of economic research at Standard Bank Group Limited Thabi Leoka said in a phone interview from Johannesburg. “There hasn’t been much in terms of leadership, especially in terms of economic development.”
Finance minister Pravin Gordhan is set to lower his growth forecasts next month. In February, he predicted the economy will expand 2.7%, the slowest pace since the 2009 recession. The government estimates it needs annual expansion of 7% in order to meet a goal of reducing the jobless rate to 14% by 2020. The unemployment rate of 24.9% is the highest of more than 60 nations tracked by Bloomberg
“Moody’s lowered its forecast for this year’s economic growth to 2.5% from 2.9%, and cut the projection for 2013 to 3.3% from 4%,” Lindow said.
Source: Bloomberg News. For more information, click here.