S&P stable outlook based on ANC continuing policy reforms after election

By Colleen Goko

(Bloomberg) – S&P Global Ratings expects South Africa’s ruling party to continue with policy reforms after the May 8 election, and that’s why it has a stable outlook on the nation’s credit rating.

“The best-case scenario” is that the African National Congress wins and continues with the reforms that it started, sovereign analyst Gardner Rusike said Tuesday at a conference in Johannesburg. “Reforms will encourage investment.”

S&P cut South Africa’s debt assessment to sub-investment grade in April 2017 after former President Jacob Zuma changed the cabinet and appointed a new finance minister and deputy minister. After Cyril Ramaphosa replaced Zuma as leader of the ANC and the country, he has taken steps to root out mismanagement at state firms such as power utility Eskom Holdings SOC Ltd. and pledged policy reforms to boost economic growth and lure investment.

S&P has in the past highlighted slow growth and rising government debt as risks to the credit rating. While the pace of expansion still remains a concern, the company sees the growth rate doubling to 1.6% this year on improved terms of trade, Rusike said. Investment remains South Africa’s “Achilles’ heel” and if that changes, the economy could expand by more than 2% in coming years, he said.

S&P rates South Africa’s foreign-currency debt at BB, two levels below investment grade, and its rand-denominated obligations one step higher. The central bank’s role in anchoring inflation, the flexible exchange rate and the role of an independent judiciary help to support the current rating, Rusike said.

Land expropriation

One of the policies the ANC has pursued since the December 2017 congress that voted in Ramaphosa as its leader is to change the constitution to make it easier for the government to expropriate land without paying for it. Ownership patterns in the country are still skewed along racial lines after land reform programs implemented in the past 25 years failed to transfer meaningful tracts of farmland to black people.

“If land reform is pursued in a different way than the conservative path we have seen, it undermines property rights and that will weaken investment and growth,” Rusike said.

Speaking to wine farmers and business people in Stellenbosch, near Cape Town, on Tuesday, Ramaphosa welcomed S&P’s comments about the economy and said the ANC was determined to continue with economic reforms.

“I am only slightly disappointed that they have have not improved our rating, but they will soon have reason to do so,” he said.