High Inequality Hampers South African Reforms, Moody’s Says

JOHANNESBURG (Capital Markets in Africa) – The tension created by high levels of inequality in South Africa increases political risk and hampers the progress of economic reforms, Moody’s Investors Service said.

Joblessness among young people in Africa’s most-industrialized economy that’s at more than 50 percent and slow economic growth “are key credit challenges,” the ratings company said in an emailed statement on Tuesday.

While President Cyril Ramaphosa has pledged reforms to boost the economy and lure investors, the government has fallen short in addressing disgruntlement in many poor communities over a lack of electricity, water, houses and jobs, and South Africa remains one of the most world’s unequal nations. The African National Congress, which has dominated all elections since taking power in 1994 after leading the fight against white-minority rule, will seek another five-year mandate in May 8 elections.

Violent protests against poor government services and a lack of housing intensified across South Africa last week ahead of the vote. The demonstrators have blocked roads, burnt tires and confronted the police, with Johannesburg and Cape Town, the two largest cities, the worst affected.

South Africa’s Baa3 credit rating is supported by the strength of its core institutions, deep and well-developed financial sector and markets, and its limited exposure to foreign-exchange volatility, Moody’s said.

“While South Africa’s economic growth will remain slow and fiscal strength will continue to erode, we expect the country’s credit profile to remain in line with those of Baa3-rated sovereigns,” said Moody’s Vice President Lucie Villa. “We anticipate that government policy and the institutions will remain focused on addressing this trend but any reversal will be gradual at best given that social, economic and fiscal policy objectives will remain difficult to reconcile.”