Page 9 - AfrElec Week 11 2023

AfrElec INVESTMENT AfrElec

S&P Global downgrades South Africa’s

economic outlook

SOUTH AFRICA INTERNATIONAL ratings agency S&P Global indices: manufacturers, building contractors,
has changed South Africa’s outlook from ‘posi- retailers, wholesalers and new vehicle dealers.
tive’ to ‘stable’ as the country’s worsening energy BCI can vary between zero and 100, with 50 indi-
crisis continues to impact economic growth, the cating neutrality and 100 – extreme confidence.
Mail & Guardian (M&G) reported on March 9. Annabel Bishop, the chief economist at
In May 2022, S&P gave South Africa a pos- Anglo-South African banking and wealth man-
itive outlook owing to the country’s improved agement group Investec, attributed the down-
fiscal trajectory coupled with the government’s ward slide of overall business confidence to
structural reform efforts. However, economic intensified load shedding and whistle-blower
conditions have since deteriorated, mostly reports of the high levels of corruption and sab-
owing to crippling power cuts, or load shedding, otage at Eskom’s operations.
imposed by national power utility Eskom. The index showed manufacturing con-
According to the ratings agency, Eskom’s fidence crashed by 9 points to 17 in the first
failures have put the economy under increased quarter, indicating that the sector was bearing
pressure as a result of infrastructure constraints, the brunt of the combined impact of intense
Recent data particularly severe electricity shortages. Also, load shedding and dilapidated and poorly run
logistic infrastructure, the RMB/BER report
reforms to improve governance and perfor-
support the view mance at state-owned enterprises have been slow said.
to materialise.
“Fixed investment to expand existing produc-
that South Africa most advanced economy has been stifled by and capital expenditure budgets were increas-
Additionally, the growth of the continent’s tion capacity also suffered as demand weakened
may be heading rising interest rates, said S&P. Tighter mone- ingly absorbed by alternative energy generation
for another tary conditions have also added to the rand’s measures,” it said.
weakness, with the local currency breaching
According to Bishop, such a low reading was
recession. ZAR18.50 to the dollar on Wednesday (March an unusual outcome. “It strongly highlights the
8).
deteriorated business operating conditions for
In response to the downgraded ratings, the manufacturers, but also highlights high risk of
treasury noted that the government is taking further deindustrialisation of South Africa,” she
urgent measures to reduce load shedding in the was quoted by IOL as saying.
short term and to transform the energy sector “This is a severely negative outcome for South
through market reforms, writes M&G. Africa, with the manufacturing sector typically
However, recent data support the view that providing better-paid jobs than in the retail,
South Africa may be heading for another reces- wholesale and vehicle sales sectors, although
sion. Business confidence continued to dete- these three industries are also showing business
riorate in the first quarter of 2023, while the conditions are weak,” she added.
manufacturing sector was brought to its knees by Taking less strain, however, was the confi-
prolonged power cuts, reports local media outlet dence of the building contractors sector, which
Independent Online (IOL). declined marginally to 43 from 46. This was
The RMB/BER Business Confidence Index mostly because of the growing confidence and
(BCI), released on March 8, declined further to activity of sub-contractors and, particularly,
36 points in Q1 2023 from 38 in Q4 2022. The electricians engaged in the installation of backup
BER is the unweighted mean of five sectoral power, the report said.™

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