SA GROWTH OUTLOOK (MOODY'S)

Cape town - Ratings agency Moody’s yesterday revised the country’s growth forecast down to 0.5 percent this year, however maintaining that South Africa could see an upgrade if the government implemented structural reforms to resuscitate the economy and curbed public debt.

In a report released on Tuesday, Moody's said the elevated government debt and liability risk from state-owned enterprises (SOEs) remained a risk to the country’s growth prospects. It said the reduction of contingency liability reforms would exert upward pressure on the country’s overall rating, resulting in a downgrade. The news saw credit spread in the market, moving up 18 basis points on Tuesday from a non-attractive 236 basis points to 217. The appraisal came just hours after Eskom, the country’s biggest liability, confirmed another dim forecast for the current financial year, saying it was poised to record losses of R45 billion.

While Mboweni’s replacement of former minister Nhlanhla Nene a few weeks before the mini-Budget was received as positive, Moody's expects the country’s policy direction to remain the same, given the lack of changes in the past few years The ratings agency said the government needed to improve corporate governance and liquidity problems in SOEs, Eskom in particular, with a standalone credit quality or Baseline Credit Assessment (BCA) of caa2 and guaranteed debt of about 7percent to contain liabilities risk. It said the current BCA reflected the extremely weak liquidity for Eskom and a debt burden that was set to rise unless it was offset by tariff increases.

Moody’s said a potential upgrade would be determined by the country’s economic direction in the MTBPS. The agency projected the real economy to grow at 1.3 percent next year on the back of continued weak activity in most of the major industrial sectors.

The agency last month cut South Africa’s growth forecast from 1.5 percent expected at the start of the year to 0.7 percent on the news of South Africa entering a technical recession.

It said the rebound in the agricultural sector could, however, provide an upside potential for growth.

A LOOK AT TREASURY BOSS, TITO MBOWENI

Cape town - With the sudden resignation of now former finance minister Nhlanhla Nene and his replacement by former Reserve Bank Govenor, Tito Mboweni, we look at what the new Finance Minister can bring to the table.

Mboweni, is an avid avocado farmer and ardent proponent of a wealth tax and knows markets well. He is in fact  special advisor to Goldman Sachs, an investment bank synonymous with the idea of capital markets. Mboweni knows Cabinet well as he was democratic South Africa’s first labour minister. From there he went on to succeed Chris Stals as governor of the SA Reserve Bank in 1999 and served in that role for 10 years. 

Mboweni is, therefore, a co-architect of two essential South African systems: the labour market and monetary policy systems. Given his firm grasp of economics, this alone eminently qualifies him for the role as 8th finance minister of democratic South Africa*. The minister also holds a Masters in Development Economics, a field that South Africa, with its massive unemployment and poverty levels, can benefit from. He also has been out of government and in the private sector long enough to understand intimately the issues the private sector faces with the state’s macro and micro-economic management.

Mboweni will hit the ground running – he has 14 days to present a vitally important medium-term budget statement and three days in which to digest and comment on a decision by Moody’s Investors Services on whether or not they will downgrade South Africa’s investment rating status

EARLY OCTOBER BLOW FOR MOTORISTS

Cape Town:- Fuel prices will go up come Wednesday, according to the latest increase announced by the Department of Energy (DoE). Both grades of petrol, 93 and 95 (ULP & LRP), will increase by 99 cents and 100 cents a litre (c/l) respectively from midnight on Tuesday. Diesel 0.05% sulphur and diesel 0.005% sulphur will both increase by 124c a litre. Illuminating paraffin (wholesale) will go up by 104c, while illuminating paraffin (SMNRP) will cost 139c more per litre. The maximum retail price for LPGAS will spike by 179c per kilogram.

The department has attributed the rising fuel price to the weakening rand exchange rate. "The average rand/US dollar exchange rate for the period 31 August 2018 to 27 September 2018 was 14.7899 compared to 13.9430 during the previous period.

"This led to a higher contribution to the Basic Fuel Prices on petrol, diesel and illuminating paraffin by 48.72c/l, 51.03c/l and 50.62 c/l respectively," the DoE revealed. The DoE's announcement comes shortly after the Automobile Association (AA) on Friday warned that fuel users are facing unprecedented price increases in October that it described as "catastrophic" for road users. It warned that South Africa could experience its biggest fuel price hike in the country's history in October.