South Africa’s economic woes domestic, downgrade risks high: deputy governor

, Finance

CAPE TOWN  – Deputy central bank governor Kuben Naidoo said on Tuesday domestic factors are the main cause of a frail economy and the risk of further credit downgrades is “quite significant”.

Painting a bleak picture during a monetary policy forum in Cape Town, Naidoo said a downgrade to South Africa’s local currency rating, which could see it fall out of crucial bond indices, could cost $8 to $12 billion in lost investment.

Fitch and S&P Global Ratings both downgraded South Africa’s foreign-currency rating to speculative grade, or junk, following an abrupt cabinet reshuffle in March that saw the respected Pravin Gordhan axed as finance minister by President Jacob Zuma.

Africa’s most industrialized economy has been hampered by tensions within the ruling African National Congress and policy uncertainty that have sapped investor confidence and thwarted efforts to create jobs and reduce widespread poverty.

The government says it is striving to boost growth and find policies to boost employment.

Naidoo also cited the high levels of mistrust between the private and public sectors and South Africa’s powerful unions.

“We have a very weak economy and that is almost all due to domestic factors,” he said.“Global factors play some role, but those domestic factors include policy uncertainty, significant levels of mistrust between government, business and labour … and that certainly hobbled growth,” he said.

Among many spats between the state and private sector, the chamber of mines and the mining ministry are locked in a number of legal disputes over new regulations which industry says will throttle investment.

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Naidoo said the economy would likely grow 0.6 or 0.7 percent in 2017 and inflation should remain within the 3 to 6 percent target range for the next two years.

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