SOUTH African companies would face a tough operating environment in the short term given the prolonged wildcat strikes and an uncertain macroeconomic environment, rating agency Standard & Poor’s (S&P) said in a report on Monday.
"The overall credit quality of our rated issuers is likely to be constrained by large capex (capital expenditure) programmes and rising costs, as well as continued weakness in the global economy," S&P said in the report.
The prospects for corporate issuers depended on the stabilisation of the economic, regulatory, and political environment, as well as efforts to restore investor confidence in the country following the labour strikes earlier this year, the report noted.
The local business sector has called for a clear policy direction at the ruling African National Congress’s upcoming elective conference next month.
S&P warned the ratings trends of the companies were likely to be affected by the number of credits that carried a relation to the sovereign rating and its current negative outlook.
The agency downgraded South Africa’s sovereign rating to BBB last month, and gave it a negative outlook, meaning the next rating move might be another downgrade.
A weaker business and investment climate in South Africa was expected to possibly drag on domestic economic growth, while social pressures could have implications for shaping the medium-term political, economic and fiscal landscape.
S&P forecast South African growth would soften to not more than 2.5% this year, and the current account deficit would increase to at least 5.1% of gross domestic product. The forecasts are mainly based on conditions in the global economy, the recession in the eurozone, and a moderation in Asian economies’ growth.
Growth was forecast at 3% next year.
Despite short-term hurdles, positive demographic trends and good growth prospects for sub-Saharan Africa as a whole presented South African companies with strong fundamentals for growth over the medium to long term, S&P said.
"Additionally, as the global economic recovery eventually gathers pace, we should see the credit quality of South African corporate issuers start to pick up," it said.