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South Africa Gets 'Negative' Economic Rating


One of the world's key economic ratings agencies is forecasting a tough year for Africa's largest economy. Standard and Poor's will continue its "negative" forecast for South Africa into 2009.

Most of 2008 has been very good for South African business, but Standard and Poor's Managing Director Konrad Reuss says the year will close on a pessimistic note.

"The way 2008 turned out for South Africa, it was a much more challenging year than what we had expected. And for 2009 we do not see any sort of near-term improvement," Reuss said.

South Africa's gold and platinum mining companies enjoyed record high prices for those metals just a few months ago. But the global economic slowdown has sparked dramatic drops in commodity prices. More than 10,000 miners may soon lose their jobs.

"The African economies did benefit for some years now from very high commodity prices," he noted, "and now have to adjust to much lower commodity prices again, which does not mean that the good times for African economies are completely over. I think the easy times are definitely over."

Standard and Poor's changed South Africa's forecast from "stable" to "negative" three weeks ago. Reuss says political uncertainty going into the 2009 elections will help keep that rating in place.

The gloomy outlook will hurt South Africa's ability to attract foreign capital, according to economist Chris Hart at a company called Investment Solutions.

"What it means is that immediately it becomes more difficult to obtain credit, and it becomes more expensive," he said.

But Hart says investors should not be scared away because countries everywhere are struggling.

"The relative risk between South Africa and your developed world has actually closed, because in fact the global credit crunch is in fact a developed-market crisis," Hart said. "And over-indebtedness, which is more severe in your developed markets, is in fact the root cause of this problem."

Some economists, such as Professor Johannes Fedderke at the University of Cape Town are not sure the negative forecast for South Africa should be believed.

"It may well be, in fact, an overreaction on the part of the rating agencies to try and recover some credibility, and at the expense of emerging markets," he said.

Fedderke suspects that Standard and Poor's is being overly cautious after failing to forecast the credit crisis in Europe and the United States.

"This is as much a question about the ability of the ratings agencies to get things right as it is a question mark that attaches to South Africa's fundamental riskiness," Fedderke said.

Although South Africa will continue to endure the stigma of a negative rating, Standard and Poor's is predicting the country will see a 2.5 percent economic growth rate for 2009, even as other countries struggle with recessions.

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