Ratings key for investors
[caption id="attachment_35139" align="alignright" width="200"] GILL MARCUS[/caption]
RESERVE Bank governor Gill Marcus said yesterday what rating agencies did on Friday would have a bearing on South Africa's ability to attract investments.
Marcus was speaking at a South African Institute of Chartered Accountants (Saica) function.
Speculation is mounting that one of the two agencies due to release their sovereign credit ratings reviews on South Africa on Friday will downgrade the rating as the protracted strike at platinum mines weighs on economic growth prospects.
Marcus's comments sent the rand slipping for the second session in a row to the dollar yesterday‚ with dealers attributing its latest weakness to her saying South Africa was in a very difficult position due to the ongoing wage strike in the platinum sector.
At 6.30pm the rand was at R10.73 against the dollar from Monday's close of R10.64.
Against the euro, it was at R14.53 from its previous close of R14.46, and it was at R17.98 to the pound from R17.88 on Monday.
"The key take away from Marcus's commentary was that South Africa was facing enormous economic headwinds," Iquad Treasury Solutions trader Muhammad Ayob said. "The big risk event of the week though, is still going to be the ratings review on the country."
Downgrades to lower rating means a country's chances of defaulting on payments rises, making borrowing costly for the government and its entities. Downgrades also make a country less attractive to investors.
"Ratings matter because a lot of ... organisations, pension funds, investors, particularly those in the retirement industry, will have a mandate as to what they can invest in, and it should be investment grade," Marcus said.
"We are still a couple of notches above that [junk status] and therefore ratings do matter."
Rating agencies Fitch and Standard & Poor's (S&P) will release their reviews of South Africa's sovereign credit ratings on Friday.
Fitch has the rating at BBB with a stable outlook and S&P has a BBB rating with a negative outlook.
Some analysts say S&P is the more likely of the two agencies to downgrade the rating.
Marcus said South Africa was in a "very difficult moment" and that the focus on the platinum-sector strike should not only be on the workers and their demands.
"I think there is a significant neglect of the employer side of that equation and what role the employers have played in getting to this mess," she said.
"This is hugely about employer attitudes, behaviours, pay, executive pay, the kind of issues that really do affect the interactions."
Wage talks between the Association of Mineworkers and Construction Union and platinum producers again failed on Monday, raising fears that the next move from mining companies would be to mothball some of their operations and shed jobs. – Ntsakisi Maswanganyi. Additional reporting by Andries Mahlangu
