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Zuma’s Cabinet a concern for Fitch

The ratings agency shifted its outlook for SA today, with Zuma’s minister’s among its concerns.

FILE: President Jacob Zuma announcing the newly appointed Cabinet and deputy ministers. Picture: GCIS.

JOHANNESBURG - President Jacob Zuma's selection of Cabinet ministers has featured prominently in a decision by global ratings agency Fitch to shift South Africa's outlook from stable to negative.

The latest rating is being described as a wake-up call as Fitch draws back on its growth forecast for the country, pegging it at just 1.7 percent, even lower than the number released by the World Bank earlier this week.

Fitch cites the ongoing strike on the platinum belt and an unstable supply of electricity as some of the factors which influenced its decision.

But the agency also speaks about Zuma's ministerial appointments and the track record of some of those now in key portfolios as being behind its decision.

Despite calls for a smaller, more streamlined Cabinet, Zuma increased the number of ministers to 35.

Today, Fitch said the current ministerial structure would likely damage South African's prospects of accelerating growth, saying, "[The] government faces a challenging task to raise the country's growth rate and improve social conditions, which has been made more difficult by the weaker growth performance and deteriorating trends in governance and corruption."

CREDIT DOWNGRADES

Fitch's negative report raises concerns that it may downgrade South Africa's credit rating even lower than its current BBB. Raising further concerns is the fact that another ratings agency, Standard and Poor's, is also expected to announce changes to its outlook for the country today.

Such adjustments are bad news for South Africa and signal a possible credit downgrade from the current BBB.

This is something the South African Chamber of Commerce and Industry's CEO Neren Rau says needs to be avoided.

"We're two steps away from junk grade and one would argue that if we fall one level lower, we would experience a mass loss of interest by investors," he says.

"All of us would suffer that impact and therefore all of us need to look at our respective roles in mitigating that downgrade."

But economist Thabi Leoka says turning things around will be an uphill battle.

"It's not a good picture. The risks are high and, unfortunately, there's not much we can do for now."

Treasury says government knows exactly what the problems hindering growth are and is redoubling its efforts to implement key aspects of the National Development Plan.

Meanwhile, Eskom says it's aware of how critical its role is and has given its assurance that the Medupi power plant will be online by the end of the year.

Without that, there is little chance the country will avoid continued load shedding going forward - a reality any business would prefer to avoid.