In a country, where the national government excels in incompetence without leadership, one city – which is interesting enough ruled by the opposition party – excels in financial management. The results are diametrical: South Africa’s national economy ruled by the ANC finds itself with a credit rating just before junk status and its economy overtaken by Egypt to fall on Rank 3 in Africa, while Cape Town in the Western Cape, ruled by the DA, enjoys the highest possible credit quality ranking.
h3. South Africa
The latest World Economic Outlook (WEO) by the International Monetary Fund (IMF) suggests that South Africa is now only the third-largest economy on the African continent – behind Nigeria in first place, followed by Egypt.
Were it not for the rand’s slump, South Africa would not have surrendered its second place during 2015, said Cristie Viljoen, manager in Financial Risk Manager at KPMG in South Africa. Viljoen regards the latest WEO as reflecting “sobering” gross domestic product (GDP) statistics for SA. South Africa has been known as the continent’s second-largest economy since Nigeria rebased its GDP data in early 2014.
The WEO data further suggests that the SA economy will grow by a mere 0.6% this year. Viljoen emphasised that SA remains Africa’s most developed economy and has a more diversified economic base than the Egyptian economy. “However, SA’s fall from first and now second place among the continent’s giants is of great concern, especially as this development is largely attributed to weakness in the rand that, in turn, has largely been as a result of domestic issues,” said Viljoen.
SA recorded a decline in the US dollar value of its economy during 2012 to 2015, because of slowing real growth (in rand terms) as well as a depreciation in the value of the rand, explained Viljoen.
h3. Cape Town
The ratings agency Moody’s has announced that the City of Cape Town has received a long- and short-term Global Scale Rating of Baa2 and Prime -2 respectively and a long- and short-term national scale rating of Aaa.za and Prime -1.za respectively following a change in their ratings methodology. The City now has the highest possible level of credit quality within the national context.
This means that going forward, there should be less volatility in the City’s national scale rating, even when the global scale rating is moved either up or down and is thus more reflective of the City’s own credit quality within the local environment. The inclusion of a global credit rating makes it more comparable with other entities on the international market.
‘In a sense, the City will be less constrained by the country’s rating. This is especially advantageous for the City as it plans to approach the external bond market in the future,’ said the City’s Executive Deputy Mayor, Alderman Ian Neilson.
Moody’s cites as a reason for its decision the ‘City’s good budgetary performance, strong liquidity position and moderate debt levels. The financial position is supported by the administration’s prudent financial policies and its relatively large and diversified economic base’.
This latest signal of confidence in the financial management of the City comes on the heels of the recent announcement by Ratings Afrika, which awarded the City the highest Municipal Financial Stability Index (MFSI) among the metros.
h3. Quo Vadis South Africa?
Well … the way down to levels of Zimbabwe and Sudan might be faster than one thought ….