Nuclear stall could buy SA ratings reprieve - economist

Durban – The fact that South Africa’s nuclear programme has been put on hold for the foreseeable future could give the country a credit ratings reprieve when Moody’s reviews its sovereign credit rating in a few weeks.

This is the view of Nazmeera Moola, economist at Investec Asset Management, who spoke to Fin24 on the sidelines of the World Economic Forum (WEF) on Africa that is currently taking place in Durban.

On April 26, Judge Lee Bozalek ruled in the Western Cape High Court that government’s nuclear procurement processes thus far had been unlawful and unconstitutional.

READ: Ruling on Zuma’s nuclear deal a marker of SA’s political health

Eskom has since terminated its request for information (RFI) as part of the 9.6 GW nuclear energy new build programme.

Moola said the turn of events could work in South Africa’s favour. “One mitigating factor is that nuclear seems to be kicked out of the forecast horizon, which may help SA’s rating.”

She explained that ratings agencies tend to work within a three-year window. “If nuclear is happening so far away that they can’t quantify it, it falls away.”

S&P Global and Fitch, which downgraded South Africa to junk status in the first week of April after President Jacob Zuma’s Cabinet reshuffle, saw the nuclear build programme as a significant risk, because it seemed imminent in April, Moola said. 

READ: BREAKING: S&P downgrades SA to junk status

“Whereas now, depending on the reactions of the Department of Energy and Eskom it could be pushed out of that forecast horizon, which could work to South Africa’s advantage.”

SA and Africa growth outlook

Moola said over the course of the last three to four years, there has been a rapid deterioration in Africa’s growth outlook because of the decline in commodity prices. “But since commodity prices bottomed at the end of January last year we’ve seen the growth forecast improved.”

As a result of higher commodity prices, better tourism and better agricultural figures, South Africa’s growth was expected to rebound to 1.7%. “Unfortunately the impact that the Cabinet reshuffle had on confidence means that fixed investment is likely to contract this year,” Moola said.

READ: Investors urged to stay calm after Cabinet reshuffle

“Looking at the consumption side of it, durable goods such as vehicle sales will continue to contract. And this means we’re lucky if we get growth of 1% this year. So it’s a significant fall from a single action.”

Moola pointed out that the Cabinet reshuffle hasn’t had an impact on borrowing costs yet because of the “massive inflow into emerging markets”.

“We’ve seen some $30bn flowing into emerging market debt this year of which $8bn came in in April which is a massive cushion to the South African bond and currency markets and as a result you haven’t seen a fallout in terms of the inflation outlook and interest rate outlook,” she said.

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