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SA economy gets a 'wake-up call'

Fitch has changed its outlook for SA from stable to negative.

The Treasury says its long-term plan of a stable economy remains in place. Picture: AFP.

JOHANNESBURG - As reaction continues to stream in to South Africa's latest international rating adjustment, the Treasury says it knows what needs to be done to grow the country's economy and is redoubling its efforts in this regard.

Ratings agency Fitch said the ongoing mass action and constrained electricity supply were both factors in its revision.

This morning, the ratings agency changed its outlook for South Africa from stable to negative and lowered its growth forecasts.

The decision has been described as a "stern warning" and a "wake-up call" to an economy deeply affected by the ongoing strike in the platinum industry.

The Treasury says its long-term plan of a stable economy remains in place while the implementation of the National Development Plan remains a key priority.

It says through this, South Africa's growth potential should be unlocked.

But economist Thabi Leoka says a full downgrade looms.

"We believe that there is a higher probability of a ratings downgrade to BBB-minus which will be on the same level as Russia and Brazil."

The Democratic Alliance is calling for good leadership and an urgent end to economic policy confusion in order to avoid a recession.

Standard and Poor's is also expected to adjust its rating after local markets close.

POWER PROBLEMS

Meanwhile, Eskom has stated that it is aware of the critical role it plays in the growth of the country's economy.

The power utility said its grid had stabilised and it was not expecting any emergency load shedding tonight or this weekend.

Eskom's Andrew Etzinger said discussions with investors were continuing.

"The Medupi power station is a vital part for the growth of the economy and it's on track to deliver power by the end of the year."

Economists say Fitch's rating is bad news for South Africa and serves as a warning that a downgrade is looming.

WAGE DEAL 'IMMINENT'

A possible end to a crippling five-month strike that has disrupted global output of the platinum is in the offing, with Association of Mineworkers and Construction Union (Amcu) leader Joseph Mathunjwa saying a wage deal with the top three platinum producers is imminent.

Yesterday, Lonmin, Impala Platinum and Anglo American Platinum announced they had reached an "agreement in principle" with Amcu bosses that they hoped would bring an end to the country's longest ever mining strike.

Around 70,000 Amcu members have been on strike in the sector since January demanding a basic salary of R12,500 per month.

But Amcu leadership only agreed to end the strike if the companies improve their living out allowance increases and reinstate essential services staff.

Mathunjwa said the deal has not yet been signed and the strike is still on.

The principle agreement has been welcomed from most corners and an official statement is expected from the companies later today.

South Africa is home to 80 percent of the world's known platinum reserves and the strike has halted production at mines that usually account for 40 percent of global output of the precious metal.

"VERY DAMAGING"

Even if a deal is agreed, platinum producers face renewed financial challenges after suffering huge revenue losses in the strike and with the prospect of paying increased salaries, while restarting mines that have lain dormant for five months.

"No doubt the strike will have had a negative impact on balance sheets and production," said Peter Leon, mining analyst at Webber Wentzel. "Still, if a deal is agreed, there will be many more positives than negatives."

According to a website run by the three companies, the strike has so far cost them R22 billion in revenue, while workers have lost nearly R10 billion in wages.

The platinum strike also threatens to destabilise labour relations across South Africa as other groups, in particular the National Union of Metalworkers of South Africa, sharpened their rhetoric and pushed for strikes in pursuit of wage increases way above inflation.

"Hopefully a resolution to the platinum strike would cool labour risks elsewhere because a Numsa strike would be pretty devastating," continued Leon.

*Additional reporting from Reuters.