South Africa ratings upgrade, employment figures largely a positive – BLSA CEO

The upgrade of South Africa’s rating by S&P Global to a positive ratings outlook is largely positive for the country, but employment figures from Gauteng are a source of concern, business organisation Business Leadership South Africa CEO Busiswe Mavuso writes in her weekly newsletter.

She expresses hope that the upgrade is the first of several steps toward regaining the country’s investment-grade credit rating that was lost at the beginning of the Covid-19 pandemic.

Mavuso posits that a ratings improvement does make a material difference.

“Since the elections, yields on key government bonds have improved by about two percentage points, which translates to roughly 20% less in interest government has to pay when issuing new bonds. That is a material improvement in the cost of debt,” she points out.

Mavuso adds that this means that less of government’s money goes into debt servicing costs and that it also lowers the cost of capital for the whole of the economy.

“Businesses must function within the sovereign ceiling – in other words, our banks and other large companies who issue bonds, can only do so at some margin above the government yield. With improvements in the sovereign yield, other businesses also see an improvement in the cost of debt, which makes it cheaper to invest and grow the economy,” she avers.

Mavuso highlights that this growth is likely to contribute to creating more jobs.

She cites the small improvement in unemployment figures in the third quarter announced last week, with 294 000 new jobs created reducing the unemployment rate by over a percentage point to 32.1%.

Mavuso points out that stable electricity supply played a role, with the trade and construction sectors particularly strong in adding jobs.

“The improvement in construction, which added 176 000 jobs, reflects momentum finally on infrastructure investment, suggesting that an improvement in economic capacity and growth is under way,” she posits.

However, Mavuso points out that the data shows an improvement across the country, with the exception of KwaZulu-Natal and particularly Gauteng.

“Both provinces are major growth drivers, yet Gauteng lost 66 000 jobs in the quarter and KwaZulu-Natal 2 000. The Eastern Cape and Western Cape added 83 000 and 75 000 jobs, respectively,” she explains.

Mavuso points out that the quality of services continues to deteriorate in both provinces amid political dysfunction in the metros and uncertainty around the provincial government’s ability to rein metros in and restore service delivery.

“Given that Gauteng contributes about a third of the country’s GDP, its dysfunction puts a real handbrake on national growth,” she warns.

Mavuso says water is a particular issue of concern in the province, which she says has not been properly acknowledged by provincial leadership.

She has called for local government to be effective in maintaining and building infrastructure, reducing the amount of water that is lost before it reaches consumers and focusing on the water supply chain from bulk infrastructure to the last mile.