Tag: economy

Moody’s deals SA another blow

Moody’s has downgraded the credit ratings of South Africa’s top five banks, three development finance institutions, certain City Power and Sanral credit ratings, and 10 regional and local governments.

In addition, the company downgraded Eskom, Sasol, MTN, ACSA and eight other South African corporates.

The downgrades follow “the weakening of the South African government’s credit profile”, it said in a statement on Monday after the markets closed.

On Friday, rating agency Moody’s downgraded both South Africa’s local and foreign currency rating to Baa3 from Baa2 and maintained a negative outlook.

The five banks – Standard Bank, FirstRand, Absa, Nedbank and Investec – have now all been downgraded to the same level as the country with the same negative outlook.

Reacting to the latest downgrades, Democratic Alliance finance spokesperson David Maynier told Fin24 that “the negative effects of President Jacob Zuma’s ‘midnight cabinet reshuffle’ are spreading like a disease throughout the economy and have now resulted in the downgrade of the five largest banks in SA”.

The rand was not affected by the downgrades and was trading 0.92% stronger against the dollar at 20:40 on Monday. The banks had mixed runs by the close of business and before the Moody’s announcement. Barclays Africa (Absa) was up 1.71%, Nedbank was down 1.95%, Standard Bank was up 0.77%, FirstRand (FNB) was up 0.7% and Investec was down 0.68%.

Regarding the development finance institutions, Moody’s downgraded the long-term foreign-currency issuer ratings of the Development Bank of Southern Africa (DBSA), the Industrial Development Corporation of South Africa (IDC) and the long term local- and foreign-currency issuer ratings of the Land and Agricultural Development Bank of South Africa (Land Bank) to Baa3 from Baa2.

Land Bank’s local- and foreign-currency and DBSA’s foreign-currency short-term issuer ratings were also downgraded to Prime-3 from Prime-2. The outlook on all long-term global scale ratings is negative. At the same time, the rating agency affirmed the Aa1.za/P-1.za national-scale issuer ratings (NSRs) assigned to DBSA and Land Bank.

Regarding the downgrading of the banks, Moody’s said the primary driver is the challenging operating environment in South Africa, characterised by a pronounced economic slowdown, and weakening institutional strength that has led Moody’s to lower South Africa’s macro profile score to “moderate-” from “moderate”.

“The lower macro profile exerts pressure on the individual factors on banks’ scorecards, and implies that the country’s banks need stronger loss-absorption and liquidity buffers to withstand the headwinds and in order to remain at the same rating levels,” it said.

“The rating agency expects GDP growth of only 0.8% in 2017 and 1.5% in 2018, from 0.3% in 2016, levels significantly below the government’s target growth.

“These challenging economic conditions, combined with potentially weaker investor confidence, volatility in asset prices, and higher funding costs will likely pressure banks’ earnings and asset quality metrics going forward, and challenge their resilient financial performance so far.

“In addition, the banks’ high sovereign exposure, mainly in the form of government debt securities held as part of their liquid assets requirement, links their credit profile to that of the government. The top five banks’ overall sovereign exposure, including loans to state-related entities, averages more than 150% of their capital bases, according to South African Reserve Bank’s regulatory returns as of March 2017.”

List of 13 South African sub-sovereigns that were affected (including Sanral and City Power):

Downgrades

Issuer: City Power Johannesburg

LT Issuer Rating, Downgraded to Baa3 from Baa2

Issuer: East Rand Water Care Company

LT Issuer Rating, Downgraded to Ba1 from Baa3

Issuer: The South African National Roads Ag Ltd

ST Issuer Rating, Downgraded to NP from P-3

LT Issuer Rating, Downgraded to Ba1 from Baa3

Issuer: District Municipality of Amathole

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Municipality of Breede Valley

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: City of Cape Town

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: Metropolitan Municipality of Ekurhuleni

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: City of Johannesburg

LT Issuer Rating, Downgraded to Baa3 from Baa2

ST Issuer Rating, Downgraded to P-3 from P-2

Senior Unsecured MTN, Downgraded to (P)Baa3 from (P)Baa2

Senior Unsecured Regular Bond/Debenture, Downgraded to Baa3 from Baa2

Issuer: Metropolitan Municipality Mangaung

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Municipality of Mbombela

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: Metropolitan Municipality Nelson Mandela

LT Issuer Rating, Downgraded to Baa3 from Baa2

Issuer: Municipality of Rustenburg

LT Issuer Rating, Downgraded to Ba2 from Ba1

Issuer: City of Tshwane

LT Issuer Rating, Downgraded to Ba2 from Ba1
Affirmations

Issuer: City Power Johannesburg

LT Issuer Rating, Affirmed Aa1za

Issuer: East Rand Water Care Company

LT Issuer Rating, Affirmed Aa3za

Issuer: The South African National Roads Ag Ltd

LT Issuer Rating, Affirmed Aa3za

ST Issuer Rating, Affirmed P-1za

Issuer: District Municipality of Amathole

LT Issuer Rating, Affirmed A2za

Issuer: Municipality of Bergrivier

LT Issuer Rating, Affirmed Ba3

Issuer: Municipality of Breede Valley

LT Issuer Rating, Affirmed A2za

ST Issuer Rating, Affirmed P-1za

Issuer: City of Cape Town

ST Issuer Rating, Affirmed P-1za

LT Issuer Rating, Affirmed Aaaza

Senior unsecured MTN, Affirmed Aaaza

Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza

Issuer: Metropolitan Municipality of Ekurhuleni

ST Issuer Rating, Affirmed P-1za

LT Issuer Rating, Affirmed Aaaza

Senior Unsecured MTN, Affirmed Aaaza

Senior Unsecured Regular Bond/Debenture, Affirmed Aaaza

Issuer: City of Johannesburg

ST Issuer Rating Affirmed P-1za

LT Issuer Rating, Affirmed Aa1za

Senior Unsecured MTN, Affirmed Aa1za

Senior Unsecured Regular Bond/Debenture, Affirmed Aa1za

Issuer: Metropolitan Municipality Mangaung

LT Issuer Rating, Affirmed A1za

ST Issuer Rating, Affirmed P-1za

Issuer: Municipality of Mbombela

LT Issuer Rating, Affirmed A2za

Issuer: Metropolitan Municipality Nelson Mandela

LT Issuer Rating, Affirmed Aa1za

Issuer: Municipality of Rustenburg

LT Issuer Rating, Affirmed A1za

Issuer: City of Tshwane

LT Issuer Rating, Affirmed A1za

ST Issuer Rating, Affirmed P-1za
Upgrades

Issuer: Municipality of Bergrivier

LT Issuer Rating, Upgraded to Baa1za from Baa2za

ST Issuer Rating, Upgraded to P-2za from P-3za

Outlook Actions:

Issuer: City Power Johannesburg

Outlook, Changed To Negative From Rating Under Review

Issuer: East Rand Water Care Company

Outlook, Changed To Negative From Rating Under Review

Issuer: The South African National Roads Ag Ltd

Outlook, Changed To Negative From Rating Under Review

Issuer: District Municipality of Amathole

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Bergrivier

Outlook, Changed To Negative From Stable

Issuer: Municipality of Breede Valley

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Cape Town

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality of Ekurhuleni

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Johannesburg

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality Mangaung

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Mbombela

Outlook, Changed To Negative From Rating Under Review

Issuer: Metropolitan Municipality Nelson Mandela

Outlook, Changed To Negative From Rating Under Review

Issuer: Municipality of Rustenburg

Outlook, Changed To Negative From Rating Under Review

Issuer: City of Tshwane

Outlook, Changed To Negative From Rating Under Review

Ratings not affected:

Issuer: City of Tshwane

ST Issuer Rating, NP

Issuer: Metropolitan Municipality Mangaung

ST Issuer Rating, NP

Issuer: Municipality of Breede Valley

ST Issuer Rating, NP

Issuer: Municipality of Bergrivier

ST Issuer Rating, NP

By Matthew le Cordeur for Fin24

 

South Africa enters a recession

Gross domestic product contracted 0.7% for the first quarter of 2017, indicating that the country has entered into a recession, according to deputy director general of Economic Statistics at Statistics South Africa (Stats SA) Joe de Beer.

The latest GDP data was released by Stats SA on Tuesday.

For South Africans, this means:

  • The value of the rand is weaker, driving the price of commodities and imports up

  • Food and petrol prices are likely to increase

  • Foreign investment will slow

  • Local job creation will slow

  • The unemployment rate will continue to rise as companies contract and lay people off

The contraction follows the GDP decline of 0.3% in the fourth quarter of 2016. In 2016, the economy grew only 0.3% for the year.

Compared to the previous year, GDP growth came to 1%. “Over the last four years there were instances of negative economic growth prior to the last two quarters,” said De Beer.

The main contributors to the contraction were the trade and manufacturing industries. Trade declined 5.9% and manufacturing contracted 3.7%.

The agriculture and mining industries were the only sectors which made positive contributions. Agriculture increased growth by 22.2% on the back of the drought recovery, and mining grew by 12.8%.

However, expenditure on GDP contracted by 0.8% in the first quarter.

Household consumption declined 2.3%, with spend of food and non-alcoholic beverages, clothing and footware and transport the major contributors to negative growth.

Gross fixed capital formation grew by 1%, mainly due to machinery and equipment which grew by 7.9%.

Net exports contributed negatively to growth and expenditure on GDP, while goods and services contributed negatively to growth in exports. Exports of mineral products and vehicles and transport equipment were largely responsible for the decrease in goods, according to Stats SA.

Imports, which increased 3.2%, were driven by imports of mineral products.

Government consumption expenditure contracted 1%.

Recently the World Bank projected low growth for the following two years. The World Bank expects growth of 0.6% for 2017, 1.1% for 2018 and 2% for 2019. The projections for 2017 and 2018 are 0.5 and 0.7 percentage points less respectively than its January 2017 figures, Fin24 reported. data

The Reserve Bank also revised down growth forecasts. At the monetary policy committee rates announcement in May, Reserve Bank governor Lesetja Kganyago said political tensions and the sovereign downgrades to junk status have presented risks to growth.

The Reserve Bank’s growth forecast for 2017 is now 1%, down from 1.2%. Growth projections for 2018 were cut down from 1.7% to 1.5%. Similarly, the 2% growth forecast for 2019 was revised to 1.7%.

At its recent credit review, ratings agency Standard and Poor’s (S&P) emphasised that low growth remained a concern. S&P explained political risks would weigh heavily on growth priorities and this would slow fiscal consolidation.

“We believe the current political environment could result in the private sector delaying business investment decisions, thereby restraining GDP growth,” said S&P.

S&P projects growth to rebound to 1% in 2017 and average at 1.5% between 2017 and 2020.

By Lameez Omarjeev for News24

Rand yo-yos as Zuma survives chopping block

Markets have reacted to events at the African National Congress National Executive Committee meeting in Johannesburg over the weekend.

The rand gained considerable strength when news emerged that a vote of no confidence had been tabled.

But it quickly retreated when the motion failed.

Economist Dawie Roodt says the rand is inextricably linked with President Jacob Zuma’s fate.

“It is interesting to watch financial markets because quite often, one can actually see how Jacob Zuma is doing by simply watching the exchange rate of the country.

“What has happened though over the weekend, as soon as it became clear that there would be a debate on the future of Zuma, the rand actually appreciates very strongly against most other currencies.”

Meanwhile, Zuma has come out swinging following the failure of a motion of no confidence in him.

The motion was tabled at the ANC NEC meeting over the weekend.

It failed to garner the necessary support to carry.

Zuma attacked his critics in the NEC in his closing address, saying he knows those who want him to step down are pushing an agenda of foreign forces and he’s warned them to stop.

Three sources in the ANC NEC have told Eyewitness News that Zuma was hard-hitting and furious when he gave his closing remarks at the NEC meeting, responding to those who called on him to step down.

It is understood that the president told the NEC meeting that those who wanted him to resign are pushing an agenda of foreign forces.

The sources say the furious president told the meeting that he was poisoned with the intention of being killed and warned that he knows who is plotting against him and where they get the money from.

It’s understood he also told the meeting that he can’t be blamed for the party’s loss of key metros, saying it was the ANC’s failure to manage regional dynamics that resulted in the poor showing at last year’s polls.

By Clement Manyathela for www.ewn.co.za

South Africa’s tough retail environment ate into Mr Price earnings over the past year, as consumers kept a firm hold on their wallets due to the current economic climate.

The group on Tuesday reported a decrease of 10.4% in its diluted headline earnings for the year to 1 April 2017 compared to the previous year.

Mr Price’s poor year corresponded with competitors Truworths, Woolworths and Foschini’s weak sales numbers, highlighting the struggles of the sector.

“This was the group’s first earnings decrease in 16 years during a very difficult trading period,” said CEO Stuart Bird.

Total revenue rose 0.7% to R19.8bn, with retail sales decreasing 0.5% to R18.6bn.

The results were not unexpected, as the Durban-based retailer’s pre-Christmas performance had been dismal. Mr Price attributed the losses at the time due to last year’s unseasonably warm winter as well as promotional markdowns by competitors to clear stock. Foreign retailers such as H&M and Cotton On also ate into the retailer’s market share.

Despite its retail woes Mr Price remained cash generative, providing a good return on average equity to shareholders. Free cash flow increased 131% to R1.8bn and cash resources at period end were R1.8bn. The annual dividend per share stayed at 667c, with the final dividend of 438.8c per share up 4.7%.

Annual dividends of the group have not declined in the last 31 years.

The group said its cash-based business model has enabled it to maintain its dividend track record. It also used the model to fund capital expenditure of R2bn in the last two years to build the necessary infrastructure to support growth plans.

The no-frills retailer said the year proved to be exceptionally challenging for the retail sector.

“Consumer confidence remained low as a result of the poor state of the local economy and a lack of faith in the current political leadership’s ability to set high standards of governance and deliver inclusive growth.”

It also blamed the Cabinet reshuffle and credit ratings downgrades for causing exchange rate volatility, which led to higher prices the consumer ultimately had to absorb.

“As a result, the retail environment has become more competitive, with any growth in a stagnant market coming from increased market share,” Mr Price said.

“This has led to retailers in our sector increasing their promotional activity to drive sales and manage stock levels.”

The merchandise gross profit margin decreased by 1.3% to 40.6%, mainly due to higher markdowns in MRP Apparel, the group’s largest chain. The apparel division, which accounts for around 70% of group sales, has struggled to attract sales.

However Mr Price’s sales growth in the fourth quarter improved, buoyed by sales in the Easter school holidays. Local online sales also continued to perform well and were 13.0% higher than last year.

MRP Sport increased its sales by 7.7% to R1.4bn, performing strongly in the first half with sales gaining 13.3%.

Mr Price singled out MRP Apparel and Miladys as its underperforming units, but added that the new financial year presented new hope, with the best sales performances coming from these two units.

MRP Apparel’s performance, with a decline in operating profits, was an especial cause for concern with sales of R10.9bn 1.7% lower. In the first quarter its product offerings did not resonate with customers, Mr Price said.

Miladys sales of R1.3bn were 5.3% lower. Operating profit increased in the second half, but fell on an annual basis despite a higher gross profit percentage and good cost control.

Although there was limited overhead growth below the inflation rate, it was not sufficient to counter the decline in sales and gross profit.

The retailer said any improvement in the consumer environment is likely to be gradual. Its recovery plans centres on regaining its lost market share, which it believes is the most significant near-term opportunity.

Mr Price’s share price jumped 5.28% to R153.91 at 11:20 on the JSE.

By Yolandi Groenewald for Fin24

Rand weakens in volatile trade

The rand was slightly weaker against the dollar on Tuesday afternoon, in volatile trade.

The local currency weakened to R13.71 to the dollar in earlier sessions, but improved to R13.58 in intraday trade.

Local political uncertainty and a ratings review by ratings agency Moody’s were the main risks the rand was facing.

In April‚ Fitch Ratings and S&P Global Ratings downgraded SA’s debt to “junk” status after President Jacob Zuma fired Pravin Gordhan as the finance minister in a Cabinet reshuffle.

Moody’s was expected to visit SA in May, before announcing its country rating in the weeks thereafter.

At 3.33pm‚ the rand was at R13.6367 to the dollar from Monday’s R13.6135‚ at R14.8489 to the euro from R14.8805 and at R17.6230 to pound from R17.6191.

The euro was at $1.0889 from $1.0931.

By Reitumetse Pitso for www.businesslive.co.za

SA extends trade surplus

South Africa recorded an R11,4-billion trade surplus in March, continuing the trend of strong net inflows into SA.
The rand closed weaker on Friday despite the surplus, as fears mounted of a US Government shutdown.

As expected, US lawmakers reached a $1-trillion budget deal, which will keep the economy ticking until September.

The agreement should give the rand breathing room for strength today. It’s a busy 4-day week, with the US Fed statement and local manufacturing data out tomorrow and US job numbers the highlight out on Friday.

The mystery of the rallying rand 

After then finance minister Nhlanhla Nene was axed in December 2015, the rand weakened dramatically. This time around, however, despite the even worse news of Pravin Gordhan’s axing and SA’s downgrade to junk status, the rand has proved remarkably resilient.
How do we square this? Are the markets getting so used to bad news coming out of SA that they have stopped reacting to it? Or is there some other factor at play?
Before President Jacob Zuma’s cabinet reshuffle on March 30 the rand was trading at R12.40/$. In the following two weeks it weakened by roughly R1.50 against the dollar. But at the time of writing, it had reversed almost one-third of its losses, firming by 50c to trade at R13.40/$.

What is evident is that the local news flow — dominated by mass protests against Zuma and a growing clamour for his resignation — certainly doesn’t justify the biggest rand rally in six months.
“Total rand losses of a mere R1 seem remarkably limited given all that has happened,” says Rand Merchant Bank (RMB) currency strategist John Cairns.
Dollar weakness and better Chinese trade data appear to have triggered the latest rand gains, but far more interesting is the currency’s longer-term outlook.
Surprisingly, given how much SA’s prospects have darkened, Cairns has not downgraded his rand forecast of R13/$ for the year end. Of course, the situation remains in flux and RMB could still change its rand forecast. But for now, Cairns says there are two positive factors RMB believes might offset the negatives.
First is the significant narrowing of SA’s current account deficit. This has been caused mainly by slowing imports due to falling domestic demand and firmer exports following the recovery in commodity prices.
RMB expects the deficit to average 2.8% this year compared with an average of 3.3% in 2016 and 4.4% in 2015. This will take significant pressure off the rand.
Second, a more positive growth outlook in advanced economies has contributed to a more favourable environment for emerging markets and commodity currencies as a whole. As a result, foreign capital inflows into SA’s bond market have held up remarkably well.
The favourable external backdrop helps to explain why the market reaction to SA’s recent downgrades has been more benign than experienced by other countries when they lost their investment-grade status.
“We continue to feel that the external backdrop is restricting far bigger losses on our local markets,” says Cairns, “It seems a rising tide lifts even half-submerged boats.”
Efficient Group chief economist Dawie Roodt is also sticking to his year-end rand forecast of R13/$.
Both Roodt and Cairns are assuming that Zuma will stay on as president this year and that there will be no further dramatic political negatives or further downgrades to SA’s local currency rating.

Like Cairns, Roodt made this forecast many months before Zuma reshuffled his cabinet and caused many to wonder if SA’s democratic project had permanently run aground. So the fact that he hasn’t lowered his forecast also bears scrutiny.
Roodt has a remarkably successful track record in correctly predicting the rand, having won the 2016 Sake24 economist of the year award for the accuracy of his forecasting against that of more than 30 other economists.
His forecast that the currency would average R13/$ in the final quarter of 2015 was the closest to the actual figure of R13.09/$.
Roodt looks set to be closest to the pin again this year, with a forecast of R14/$ for the final quarter of 2016 compared with the actual figure of R13.91/$.
In January 2016, when he made this forecast, the rand rose to a new record high of almost R18/$ during intraday trading as the markets battled to digest the axing of Nene.
“Everyone said I was crazy,” chuckles Roodt. “Some said the rand would be R20/$ by the year end.”
He bases his rand forecasts on the observation that on a 35-year view (1980-2015), the rand has on average been roughly 50% undervalued against the US dollar on a purchasing power parity (PPP) basis (see graph).
The easiest way to understand the theory of PPP is to use The Economist’s Big Mac index. It was invented as a light-hearted tool to make it easier to compare the misalignment of exchange rates between countries. It was never intended as a precise gauge, explains the magazine, but rather a fun way of explaining PPP.
In January 2017, the price of a Big Mac burger in the US was $5.06. In SA it was R26.32. At the prevailing exchange rate of R13.95/$ at the time, a Big Mac in SA cost only $1.89.
So according to the “raw” Big Mac index, the rand was undervalued by almost 63% against the US dollar on a PPP basis.
This made the rand the fourth most undervalued currency against the US dollar among 44 countries surveyed, after Malaysia (64.6% undervalued), the Ukraine (-69.5%) and Egypt (-71.1%)
Roodt bases his study of PPP not just on the Big Mac, but on a more representative basket of goods published as a series by Oxford Economics, one of the world’s largest data providers.
By this yardstick, the rand at R13/$ would be 54% undervalued, making Roodt fairly confident the currency will move back towards this level over time.
“I’m pretty sure the rand will come back. It always does, very strongly, but it never resets to purchasing power parity. It is always about 50% undervalued on average. So if it stays at R14/$, and inflation remains where it is now, then this would be an exception,” says Roodt.
Roodt, in fact, considers the rand at R14/$ to be a “screaming buy”, given that SA’s 10-year bond yield is highly attractive at 9% and that SA’s bond market is exceptionally liquid and well-integrated, so investors can get out quickly.
“Where can you get such an attractive yield with an undervalued currency at the same time?” he asks.
This explains foreign investors’ continued appetite for SA bonds, despite the highly uncertain political environment.
Based on Roodt’s PPP estimates, the rand has fared remarkably well during the current crisis compared with previous episodes.
In nominal terms, the rand dropped by just 12% in the first two weeks after Gordhan’s axing before pulling back sharply. In PPP terms the rand at its recent worst of R13.95/$ was just 56% weaker than parity.
By comparison, in 1985 after then president PW Botha’s famous “Rubicon” speech, in which he failed to announce the dismantling of apartheid, the rand nose-dived by 66% in nominal terms. It was the sharpest nominal decline in the history of the currency.
At its worst, the rand was 72% undervalued against the dollar but it recovered shortly thereafter, mostly because inflation accelerated.
During the 2002 rand crisis, contagion from the Asian financial crisis caused the rand to collapse by 47% in nominal terms. It reached an undervaluation low of 73% but again bounced back quickly, mostly because of a nominal exchange-rate correction, helped by some inflation.
The rand suffered another huge blow when Nene was axed. At its worst level of R18/$ it was 69% weaker than parity. The reasons for the rand’s fall were mostly political but, unlike now, unfavourable international forces were also at play.
At the time, fears were growing that China was heading for a hard landing. The deteriorating growth prospects of emerging markets, particularly for commodity-producing countries such as SA, caused persistent capital outflows from these markets.
Had the same global conditions been in place now, there is little doubt that the fallout from Gordhan’s axing and SA’s downgrade to junk would have been far more severe. This doesn’t mean the political and economic implications aren’t deeply worrying — only that Zuma’s timing was excellent.

By Claire Bisseker for www.businessday.co.za

Motorists one of junk’s first victims

A fuel price increase will be the first major expense to hit South Africans as a result of a weaker rand‚ the Automobile Association of SA (AA) has warned.

The AA’s mid-month data forecasts that petrol will rise 55c a litre in May‚ while diesel will cost about 30c a litre more. Illuminating paraffin will cost an estimated 41c a litre extra.

The fuel-hike predictions are based on unaudited mid-month fuel price data released by the Central Energy Fund.

“The loss of confidence by investors and the sovereign ratings downgrades by ratings agencies Fitch and S&P‚ have led to the rand slipping against the US dollar‚ down from around R12.35 at the beginning of the month to its current position of around R13.40‚” said the AA’s Layton Beard.

The AA said the rand’s weakness largely contributed to the expected fuel price increase‚ with hikes in international petroleum prices accounting for the balance.

“However, there is no certainty that the impact of the downgrades has been fully priced into the economy. The picture for May could be substantially different‚” Beard said.

By Suthentira Govender for www.businesslive.co.za

Fraud, dishonesty on the up as economy faulters

First Standard & Poor, now Fitch have rated the South African economy “junk” with huge ramifications for South African citizens, with the poorest of the poor being the worst affected, economists agree.
Manie van Schalkwyk, executive director, of the South African Fraud Prevention unit said there would be much less money going around, a severe lack of international investment and potential job losses.

Continue reading

The seven year ditch: climbing out of junk

While it is well documented that junk status has a number of dire consequences for both South Africa, and its people, more important is to consider how long the country can expect to be stuck with a junk rating say Lullu Krugel and Christie Viljoen, economists at KPMG.

On Monday, ratings agency S&P Global lowered South Africa’s sovereign debt to below investment grade, with Fitch and Moody’s likely to follow.

Hours after S&P announced that it would be downgrading South Africa to junk status, Moody’s confirmed that it would also be placing the country on review for downgrade, though the group has now delayed its report for at least 30 days as it assesses the country.

Economists have warned that the downgrade to junk is likely to trigger a recession as its effects spread to the wider economy.

“The downgrade greatly complicates the prospects for South Africa being able to stage an economic recovery. Without a growth recovery, employment growth and revenue collection will stagnate and may even decline,” said CEO of the South African Institute of Race Relations, Frans Cronje.

Research by KPMG into the sovereign ratings assigned by the three largest rating agencies – S&P, Fitch Ratings and Moody’s Investors Service – over the past three decades indicates that 15 countries have seen their investment-grade ratings revoked but were then able – over time – to regain this status.

These countries include Colombia, Croatia, Hungary, Iceland, India (twice), Indonesia, Ireland, Korea Republic, Latvia, Romania, Slovakia, Slovenia, Thailand, Turkey and Uruguay.

Of these countries, Krugel and Viljoen noted that the rating downgrades were broadly grouped into four categories:

Economic deterioration (Colombia, Hungary, India, Latvia and Romania);
Unsustainable macroeconomic imbalances (India, Slovakia and Slovenia);
A domestic currency, financial or banking crisis (Croatia, Iceland, Ireland, Thailand, Turkey and Uruguay); and
A currency, financial or banking crisis resulting directly from neighbouring or regional influences (Indonesia and the Korea Republic).
“These countries’ diverse experiences show that it takes, on average, seven years to again graduate to the investment-grade club.”

The economists said that countries like Croatia, Iceland, Ireland, Korea Republic, Latvia and Slovenia were able to do so in three years or less. At the opposite end of the spectrum, and depending on which rating agency was involved, there were instances where it took Colombia, India, Indonesia, Turkey and Uruguay more than a decade.

Strategies used to return to investment-grade

In addition to an analysis of why countries had historically been downgraded to junk, Krugel and Viljoen also released a report detailing how these countries typically managed to return to an investment-grade rating.

“Strategies and narratives on countries that recovered their investment-grade ratings are broadly grouped into six categories,” noted the duo.

These include:

Fiscal consolidation and/or austerity (Hungary, Ireland, Latvia, Romania and Slovenia);
Significant economic and political reforms (Colombia, India, Indonesia, Turkey and Uruguay);
Declining external and fiscal vulnerabilities (India and Thailand);
Debt restructuring and economic policy reform (Korea Republic);
Privatisation of the sovereign’s holdings in private/semi-state companies (Croatia); and
Active intervention by a newly elected government (Iceland and Slovakia).

South Africa
South Africa is most closely associated with the countries experiencing economic deterioration and, possibly, those having unsustainable macroeconomic imbalances, said Krugel and Viljoen.

“On the issue of how South Africa will be able to return to its former investment-grade rating, the key element in a recovery process is that admission that a problem exists and that work is needed to rectify this,” Krugel and Viljoen said.

However the economists noted that following the downgrade announcement by S&P, the National Treasury appeared far from concerned with the development

“The commitment to fiscal consolidation was reiterated, coupled with a rebuttal that South Africa is committed to a predictable and consistent policy framework and that open debate on policy matters should not be a cause for concern.”

  • 1
  • 2
  • 6

Follow us on social media: 

               

View our magazine archives: 

                       


My Office News Ⓒ 2017 - Designed by A Collective


SUBSCRIBE TO OUR NEWSLETTER
Top