Moody’s says South African strike could spook investors

Image courtesy stock.xchnge (PocketAces)

Image courtesy stock.xchnge (PocketAces)

South Africa’s latest mass strike could dismay investors and prolong the country’s sub-par economic growth, the credit ratings agency Moody’s warned Thursday.

Moody’s said the strike by more than 200,000 engineering and metal workers would damage the country’s “already deteriorating reputation among investors”.

Members of the NUMSA union downed tools on Tuesday to press demands for a double-digit pay raise.

Further negotiations between the union and employers are expected to take place at 16:00 GMT on Thursday, according to the steel and engineering industry federation, SEIFSA.

But Moody’s said the strike “risks paralyzing nearly one third of the manufacturing sector” and would mean South Africa would be unable to take advantage of a more favourable global economic outlook.

The strike — South Africa’s biggest ever — comes days after the resolution of a five-month long platinum strike that pushed the economy to the brink of recession.

“The NUMSA strike threatens to bring this year’s number of lost workdays close to the 20.7 million record set in 2010.”

“South Africa’s reputation among investors is being increasingly damaged by the strike-prone nature of its economy. Carmakers BMW and Nissan recently decided against expanding their production… citing the costs posed by the month-long strike in two subsectors of the industry.”

Moody’s also warned that the strike could affect the country’s credit rating.

South Africa’s rating — which helps determine the government’s cost of borrowing on international markets — was recently downgraded by two of three big ratings agencies, Standard and Poor’s and Fitch.

Moody’s has put South Africa’s rating on negative watch.

“Continued weak investment, exports and overall growth will pose serious challenges to the government’s efforts to rein in its budget deficit and stabilize its debt metrics, a credit negative for the economically troubled country,” Moody’s said.

If South African bonds are downgraded to junk status it would make the country’s debt off limits to large institutional investors.

– Sapa




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