Fitch revises S.Africa outlook to negative, affirms at BBB

Fitch ratings agency on Friday revised the outlook on South Africa to negative from stable and affirmed its credit rating at ‘BBB’, near the bottom of the investment-grade scale.

The ratings agency said the outlook revision was partly due to a strike at platinum mines, the country’s longest-ever mining stoppages that began in January when workers downed tools.

On Thursday, the world’s three top platinum producers — Anglo American Platinum, Impala Platinum and Lonmin — said they had “in principle” reached a deal to end the 21-week deadlock over pay.

Fitch said South Africa’s outlook for growth had deteriorated after a 0.6-percent contraction in the first quarter of this year, and it revised its 2014 GDP growth forecast down to 1.7 percent from the 2.8 percent that it issued during the last country review in December 2013.

The agency said that the government “faces a challenging task to raise the country’s growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption.”

“This will require an acceleration of structural reforms,” it said.

The agency also voiced concern over President Jacob Zuma’s new cabinet, appointed after general elections last month returned his African National Congress to power and secured him a second term in office.

“In Fitch’s view, the track record of some key ministerial appointments and shortcomings in administrative capacity mean this is subject to downside risks.”

The country’s Treasury noted that the government is aware of the “challenges South Africa faces.”

It said the government has “prioritised” an ambitious National Development Plan which will kickstart the economy and reduce poverty by 2030, notably through major infrastructure projects.

The programme was approved in 2012, but implementation has been piecemeal in the face of fierce opposition of left-leaning government allies, which brand it too neoliberal.

The mining strike helped push the economy into its first contraction since the global economic crisis five years ago in the first quarter of this year, raising the spectre of recession.

South Africa holds around 80 percent of the world’s known platinum reserves, and platinum group metals raked in 9.0 percent of export earnings last year.