CAPE TOWN - Credit rating agency Moody's is set to announce its review of South Africa’s credit rating later today, the announcement will give an indication of investor confidence with regards to policy direction under President Cyril Ramaphosa.
If Moody's does keep its foreign and domestic currency debt at investment grade, this will be seen by the investment community as a vote of confidence in South African President Cyril Ramaphosa.
According to Tom Elliott, International Investment Strategist at the deVere Group, the rand and stock market are likely to rally and this will be a positive message.
“But investors should appreciate it’s still early days in the post-Zuma era, and there will continue to be skepticism as to whether Ramaphosa can really deliver. Investors want to see not only economic growth but evidence that the ANC can clean itself of corruption,” says Elliott.
“On President Ramaphosa’s to-do-soon list should be making labour laws more flexible, i.e. taking on the same unions who help finance the ANC. And also, sorting out the country's power shortage. Last week’s delay in the signing of 27 IPPs was not a good development.”
A couple of high profile corruption convictions would send a positive message that the rule of law has returned, says Elliott.
“However, there will be plenty of senior ANC members who will put up a fight on this and try to destabilise President Ramaphosa. They may well find allies with the unions who object to a reform of labour laws.”
Moody's retained its long-term issuer and senior unsecured bond rating but placed it on review for downgrade, citing “a series of recent developments which suggest that South Africa's economic and fiscal challenges are more pronounced than Moody's had previously assumed”.
Earlier this month, Finance Minister, Nhlanhla Nene, met with officials from Moody’s ahead of Friday’s review and said afterward he was confident the National Treasury had reassured the rating agency on South Africa’s fiscal plans.