Fitch keeps South Africa’s rating unchanged, with load shedding and Transnet a concern

Fitch has kept South Africa’s BB rating unchanged – maintaining a stable outlook.

The global ratings agency announced its decision on Friday.

According to Fitch, South Africa’s credit rating is constrained by low real GDP, high inequality, high and rising government debt-to-GDP ratio, and a modest path of fiscal consolidation.

Furthermore, load shedding and an embattled logistics sector were also identified as significant factors negatively impacting economic growth.

“Growth is hampered by power shortages that are expected to continue in the near to medium term, although at a lower magnitude than in recent months, and by a struggling logistics sectors,” said Fitch.

Transnet’s financial and operational challenges have led to disruptions in supply chains due to a dysfunctional freight rail and port delays.

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Light at the end of the tunnel?

The ratings agency estimates the intensity of load shedding will reduce between 2024 and 2025, attributing the improvement to the return of three units at Kusile power station since September 2023.

“Further capacity is expected to come from private sector investments, with a pipeline of confirmed projects representing 12GW of new capacity,” Fitch said.

The ratings agency also zoomed in on the progress made by government’s Operation Vulindlela.

Launched in 2020, the initiative was geared towards modernising and transforming network industries – including electricity, water, transport and digital communications.

Fitch said although the operation’s reforms would contribute to a modest increase in real GDP growth in the near to medium term, they were “limited in ambition”.

“We do not think they will significantly enhance South Africa’s low growth potential – which we estimate at 1.2%,” said Fitch.

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Treasury responds

Noting Fitch’s rating, National Treasury said it government would focus on raising GDP growth by improving the provision of electricity, logistics and enhancing delivery of infrastructure.

“Fiscal policy continues to support this approach by stabilising debt and debt-service costs,” National Treasury said in a statement.

“Government reiterates that fiscal consolidation will be implemented through spending reductions, efficiency measures across government and moderate tax revenue measures.”