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Getting all Moody over South Africa

By Staff Writer

 

Paul Beadle, Justmoney.co.za - 25th October

Moody’s, the US based ratings agency used by investors to gauge the health of individual global economies, has given South Africa a qualified thumbs up. In its annual report on SA, Moody's Investors Service said its Baa1 foreign-currency and A2 domestic-currency government bond ratings reflect “sound public finances, strengthening external resiliency, and a healthy financial system”.

Moody's Vice President, Kristin Lindow, who wrote the report, said: "South Africa's foreign exchange reserves have strengthened markedly since our last upgrade in 2005, which helps provide positive momentum for the foreign-currency ratings. In addition, the current economic upswing -- already in its eighth year -- might be extended for another few years, though at a somewhat slower pace in the near term."


There are concerns, with Moody’s citing the continued demand for credit, the large trade and current account deficits, and rising inflation as contributing factors to an overall overheating of the economy, although the company expects the National Credit Act to cool growth.


Political and social issues are more of a concern, according to Moody’s. Lindow said: "South Africa faces particularly steep socio-economic challenges, including the prevalence of HIV/AIDS, high un- and under-employment, wide income disparities, and crime. Left unaddressed, these problems would pose concerns for longer-term economic and political stability."

Although these problems are being addressed, Lindow warned that “differences of opinion over how to best address these challenges have contributed to strife within the government's tripartite coalition for years, and have recently exacerbated an already controversial ANC leadership transition."


What’s interesting is how the different media in SA have interpreted these comments and the data behind them.


Tonny Mafu, in Business Report, wrote that the report had “poured cold water on hopes that inflation would soon be tamed”, citing Moody’s own assertion that inflation was growing beyond the Reserve Bank’s target band of 3 to 6%.

Evan Pickworth, however, writing in Fin24, said “In its annual report on South Africa, Moody's Investors Service says interest rates are likely either nearing or at their peak, given that the usual lags in response to monetary tightening have yet to work their way through the economy.”

Same data, different perception although Fin24 goes on to cover the same kind of concerns and issues raised by Moody’s. Perhaps it’s a case of glass half-full versus half-empty?

The business news section of iafrica.com, however, takes a completely different stance with the headline “Moody's downgrade 'the wrong call'”, suggesting that the firm might reverse its current ratings following the outcome of the ANC leadership race.

iafrica.com quoted Business Unity South Africa (Busa) as saying: “Busa has over the past few months engaged the ruling party to ascertain continuity in policy post the Polokwane Conference. We do not expect significant shift in the ANC policy — regardless of the outcome of the conference."


According to iafrica.com, Busa CEO, Jerry Vilakazi, said that “Moody's appear to have limited understanding of South Africa's political economy”. Vilakazi added: "Political discipline has been the bedrock of solid macro-economic fundamentals that are in place in South Africa today. These appear not to have been considered in Moody's assessment of future scenarios."

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