Global ratings agency Moody’s has joined Fitch and S&P Global in issuing a warning to South Africa that its latest actions are pushing the country’s growth prospects in the wrong direction, and putting its sovereign debt rating at risk.
On Wednesday, the firm said that the new mining charter announced last week by the department of mineral resources will have a negative impact on the economy, and put mines and workers at risk.
The charter called for mines to adjust ownership so that at least 30% of all companies be black-owned. It also ordered that only companies with 50%+1% BEE ownership have access to prospecting rights, and that the “once empowered, always empowered” policy be scrapped.
According to Moody’s, this will impact all major mining operations in the country, and will force them to dilute shareholding – which will not be accepted by shareholders.
“It will likely require miners to use cash or raise debt to facilitate the equity transfer,” Moody’s said. This would deter investors at a time that South Africa was already economically fragile as a result of two ratings downgrades to junk, and the country entering a recession.
Earlier this week, another ratings firm, Fitch, said that it was clear that the South African government was placing its “radical economic transformation” agenda ahead of the country’s growth – while S&P Global also highlighted similar risks.
All three ratings agencies have downgraded South Africa’s sovereign debt rating this year amid poor GDP growth, political instability and policy uncertainty – all of which paints a bleak picture of the country’s prospects for the rest of the year.
Analysts have said that the mining charter – as well as the Public Protector’s bid to have the Reserve Bank’s Constitutional mandate changed – all play into the “radical economic transformation” narrative being pushed by president Jacob Zuma’s support base within the ANC, ahead of the party’s elective conference at the end of the year.
Ratings agencies have repeatedly warned against opting for investor-negative populist policies at the expense of economic growth.