South Africa’s risks rise despite improved regional outlook: ECR Q1 2013


Jeremy Weltman
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SSA appears to be staging a comeback this year, but the improving scores seen for large parts of the region should not detract from its high risks – only two countries, South Africa and Botswana, score more than 50 out of 100 – or from the fact that perceptions of South Africa, the region’s largest economy and still-safest sovereign, continue to wane, along with certain others, such as Ghana.

The threat of reduced commodity demand, lower aid inflows and tighter capital market access has eased, not least because the downturn in the Chinese economy was not as calamitous as feared.

Still, risk perceptions of South Africa have continued to increase as the country’s economists and country-risk experts have further reassessed the government finances outlook and refrained from upgrading any of the 15 sub-factors so far this year.

As Richard Segal, director of emerging markets at Jefferies, and another of ECR’s country-risk experts, says: “On the whole, balance of payments situations have improved [in SSA], largely because the export-oriented countries have retained more of their export revenues than they might have done historically.”

On Ghana: “Pre-election spending, which was announced but unaccounted for, reflects the deteriorating risk assessment.”

On Namibia, where risks have eased: “It has to do with an improved policy environment, which differs to South Africa, where conditions have worsened.”

And on South Africa it highlights “a series of downgrades by the main rating agencies, which follows the widening fiscal deficit, the lack of structural reforms and worsening growth environment.

“Because of the lack of structural reforms, the economy has become less competitive so, therefore, the current account has not performed as well as expected and the budget deficit has also widened.”

With South Africa’s score slipping to 56.2 points during Q1 2013, the gap with Botswana – which has been on an improving long-term trend in Euromoney’s survey – has narrowed to less than 0.3 of a point, giving credibility to a prediction made in June last year (Botswana poised to overtake South Africa in Euromoney’s Sub-Saharan Africa-rankings.

The shifting risks seen in Africa and in other world regions during Q1 2013 will give investors much food for thought in the endless search for optimum risk/return trade-offs.