FILE – In this Thursday, March 17, 2016 file photo South African president Jacob Zuma, answers questions in parliament in Cape Town, South Africa. South Africa’s Constitutional Court ruled Thursdau, March 31, 2016 that President Jacob Zuma “failed to uphold” the law when he did not pay back some state funds used to upgrade his personal residence. (AP Photo/Schalk van Zuydam, File)
JOHANNESBURG – Political upheavals in South Africa pose a risk to its sovereign credit rating, ratings firm Standard & Poor’s said yesterday, a day after President Jacob Zuma survived an impeachment motion in parliament for ignoring the constitution.
S&P said last week’s constitutional court ruling that Zuma had breached the constitution by ignoring an order to repay some of the $16 million in state funds spent on renovating his home and the subsequent political fallout could divert government’s attention from implementing growth policies.
Zuma came through the impeachment move thanks to the African National Congress’s big majority in the 400-seat assembly.
“Recently we have seen focus shift to political issues in parliament and the Constitutional Court, and this could divert government’s attention from issues around policy implementation,” associate director for sovereign ratings at S&P Gardner Rusike said at a conference in Johannesburg.
The rand relinquished earliergains as investors cheered a court ruling that Zuma breached the constitution by ignoring a directive to pay for some of the state-funded upgrades to his home against the dollar, turning weaker after S&P said weak economic growth remained a pressure point on South Africa’s credit rating.
The currency hit a session low of 15.2800 to the greenback, down 1.1 percent from Tuesday’s New York close of 15.1050.
S&P currently rates the debt of Africa’s most industrialised economy just one notch above sub investment grade, the same level as fellow ratings agency Fitch. Moody’s has it two notches above junk, but on review for a downgrade.
S&P’s said South Africa needed to grow at much quicker rate if hoped to avoid a downgrade, and that state firms reliant on government funds remained a risk to the country’s rating.
Last month, the central bank trimmed its 2016 growth forecast to 0.8 percent from the 1.5 percent it forecast in November, saying that household debt, electricity shortages and weak global growth were persistent negative influences.
Ratings agencies are concerned the government might have to borrow more to provide funding for cash strapped state firms.
“Growth is important for the ratings agencies (and) the debt to GDP ratio is something they look at closely,” ETM market analyst Ricardo Da Camara said.
“Even if your debt stays constant but your growth is weakening that ratio will increase, it just means a greater burden on the government in terms of being able to repay its debt and service its debt.”
Meanwhile, Mark Lamberti, the chief executive officer of Imperial Holdings Ltd, the country’s sixth-largest company by revenue said South Africa’s political leadership needs to be more accountable and inspire confidence among business leaders to boost investment and economic growth.
The ruling African National Congress’s response to a court judgment that President Jacob Zuma failed to uphold the constitution “showed us that we are living in an environment which has got no accountability or consequence,” Mark Lamberti told Bloomberg this week.
“If you’ve got a country seeming to be run without accountability or consequence, it’s a problem,” Lamberti said. “If there was slightly more confidence that we’d be moving in the right direction, you’d get business prepared to take a slightly longer view on investment.”
Reuters/Bloomberg
