Risks loom for further credit rating downgrade in S. Africa: consultancy

A global risk consultancy, Control Risk predicted on Monday that South Africa's credit rating is likely to be downgraded to "junk" status this year owing to a number of risks the country faces.

South Africa faces a number of problems such as the stagnating economy and high levels of crimes, said George Nicholls, Managing Director of Control Risks in Southern Africa.

He was addressing the media in Johannesburg about the possible risks countries of the world are likely to face this year.

According to Control Risk, the depressed commodity prices will have negative impact on the country. How will South Africa respond to these risks is important, the consultancy said.

After downgrading by Fitch, Standard & Poor's and Moody's late last year, South Africa's credit rating stands at BBB- and Baa3 (a rating equivalent), respectively. That means the country is at very real risk of becoming a "junk" country, which has substantial implications for investment.

Standard & Poor's has warned that any deviation from the South African fiscal policy could lead to a credit downgrade.

Despite many positive indicators from the 2016 budget delivered by Finance Minister Pravin Gordhan last month, Control Risk believes the lack details around specific cost-cutting mechanism and populist pressures against significant restructuring of state-owned enterprises means that the downgrade risk will persist.

One of the thorny issues for South Africa would be the upcoming local government elections to be held between May and August this year which would put pressure on the government to increase salaries for public servants, according to Nicholls.

Nicholls said the government might be forced to make Treasury release more money for the salary increment, a move that might worsen the ailing economy.

He stated that bickering in the ruling African National Congress (ANC) also poses a serious risk to the country's economy.

Nicholls listed institution corruption, legislative stagnation and regulatory uncertainty as other factors that would increase the likelihood for South Africa to be downgraded.

But he said both South Africa's democratic institution and centre-left elements within the government and the ANC remain strong enough to resist populist proposals and uphold the Constitution and rule of law.

Nicholls suggested that South Africa, a target of cyber crime, should do more in fighting the scourge. The South African government needs to train law enforcement agents to investigate and prosecute criminals in cyber crime, he said.

Nicholls, however, told Xinhua that while there are many risks to drive away potential investors, some BRICS countries might continue to trade with South Africa.

BRICS countries like China, India and Russia might see opportunities in South Africa, Nicholls said.

"Some have been there and they know how it is and they can compare with South Africa in terms of cheap commodities," he said. Endit