South Africa’s Economy Just A Level Above Junk Rating

By Kevin Mwanza Published: December 7, 2015, 9:24 am
African sovereign debtAFP PHOTO/Mauricio LIMA

Global rating agencies Fitch and Standards & Poor’s (S&P) cut South Africa’s Economy credit standings to just a level above junk status as the country struggles with an array of both external and internal factors.

In reaching its decision Fitch cited slowing growth, declining business confidence and a stretched debt position, while S&P raised the same concerns but added that it was unlikely the South African government to turn things around in the near future.

The country’s economy is edged towards a first recession since the apartheid regime ended and was at one time described by President Jacob Zuma as “sick”.

The Africa’s  second largest economy after Nigeria, is faced with lethargic energy crisis due to its aging power grid, labor unrest in the mining industry which has been hurt by lower commodity prices on the international market and other contagion side-effect from an economic slowdown in china and strengthening US market.

“Since 2008, South Africa has posted average annual GDP growth of just 1.8 percent, less than half the growth rate experienced from 2004 to 2007,” consulting firm McKinsey said in a recent report that sighted five sector that can revive the South African economy.

“The nation’s unemployment rate remains among the highest in the world, at 25 percent. Youth unemployment stands at 52 percent, diminishing prospects for the next generation of South Africans.”

Fitch has cut the country’s economic growth projection for this year from 2.1 percent to 1.4 percent. For 2016, they estimate GDP to grow only 1.7 percent, down from their initial forecast of 2.3 percent.

While the country’s ranking globally has rating and growth forecast has fallen,  it is still the most attractive market for foreign investors seeking opportunities among Africa’s 54 nations, according to the 2015-16 RMB Where to Invest in Africa report.

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