♠ Posted by Emmanuel in Africa at 12/13/2014 01:30:00 AM
|Power outages in S Africa at a time of falling energy prices aren't a good sign.|
Just as Russian sovereign debt is just one or two rungs above speculative grade--don't be surprised if it drops back into the latter realms real soon--so is South African sovereign debt feeling the pinch. With credit rating agencies poised to lower their debt further, it is headed towards junk territory:
Investors in South African bonds are signaling mounting concern the nation’s credit rating will be downgraded for a third time this year...The continent’s second-biggest economy is projected to expand 1.4 percent this year, which would be the worst since the 2009 recession, as the nation grapples with the impact of labor strikes, power cuts and rising government debt. South Africa was downgraded by Standard & Poor’s in June to one step above junk, the lowest of the three main ratings companies, while Moody’s Investors Service reduced its ranking last month to two levels above junk.On today's menu are above-inflation wage increases demanded by public sector workers that are likely to be appeased as well as the money-draining national power company:
“South Africa remains one of the most vulnerable emerging markets,” Nicholas Spiro, the London-based managing director of Spiro Sovereign Strategy, who predicts a cut by Fitch today, said in an e-mail on Dec. 9. The nation faces “an excessively large external deficit to finance amid a worrying lack of growth,” while “prospects for meaningful fiscal and structural reforms remain bleak,” he said.
Above-inflation wage demands by government employees and emergency financial assistance for Eskom Holdings SOC Ltd., the cash-strapped state power utility, may scupper those plans. The government will ensure that Eskom doesn’t run out of cash needed to buy diesel to fuel power generators, Minister in the Presidency Jeff Radebe said yesterday.It's the same trouble the world over with outsized public sectors that have undue abilities to hold the rest of their nations hostage with seemingly unreasonable demands.
“The Eskom situation is the biggest risk right now,” Modise at Citadel said by phone on Dec. 10. There’s also “a very high risk that they’re going to be forced to settle above what they have budgeted for” to meet state-worker salary demands, he said.