29 January 2008
South Africa’s electricity shortage and resultant power cuts are not an immediate threat to the country’s investment-grade credit rating, say analysts from two of the top international ratings agencies.
Business Day and Business Report both got on the phone to Fitch and Standard & Poor’s on Monday after a wave of power cuts across South Africa culminated, on Friday, in the shutting of a number of the country’s mines.
According to Business Day’s Mariam Isa, the energy crisis is “not seen as an immediate threat to SA’s investment-grade credit rating, but could become an issue if electricity outages sharply curb economic growth.”
Remy Salters, Standard & Poor’s sovereign credit analyst for South Africa, told Business Day that the country’s electricity shortage was “a temporary issue which will last for the next two to five years. It adds to factors restraining SA’s rating but is not something we consider is putting downward pressure on the rating.”
Business Report confirmed that neither Standard & Poor’s nor Fitch were planning to review the country’s credit rating.
Veronica Kalema, a director in Fitch’s Africa department, told Business Report that this would depend on how long the shutdown lasted, but added that the South African government was working on solutions, involving both short-term measures to reduce demand and longer-term measures to build new power capacity.
“Power shortages are common in developing countries due to fast growth running ahead of capacity,” Kalema told Business Report.
Sovereign credit ratings are a measure of a government’s creditworthiness, with higher ratings implying less risk for investors, effectively making it cheaper for a country and its companies to borrow on local and international capital markets.
South Africa’s credit ratings have steadily improved since 1994, with the last upgrade from Standard & Poor’s, Moody’s and Fitch all coming in 2005. And last year, Moody’s and Fitch indicated that the upward trend was likely to continue, revising the outlook on SA’s ratings from stable to positive.
“The change in outlook reflects South Africa’s improved growth performance and prospects as a result of rapidly rising public and private investment and ongoing micro-reforms in the economy,” Kalema said at the time.
“In addition, the country has seen a substantial improvement in its already sound public finances and strong external balance sheet.”