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South Africa’s Finance minister assures investors amid warning

Posted on Thursday, 21 January 2016 11:10

Pretoria let bilateral treaties agreed with European nations shortly before the end of apartheid lapse in 2013, triggering concern among foreign investors over whether the replacement law will offer the same protections.

we provide world-class investment protection

President Jacob Zuma signed the Promotion and Protection of Investment Bill into law last month. The law would come into force on a date yet to proclaimed by Zuma.

Finance Minister Pravin Gordhan, reappointed last month after a bungled cabinet reshuffle, told 702 Talk Radio investors would be adequately protected. “I don’t think it should be a deal-breaker because we provide world-class investment protection,” Gordhan is qouted as saying.

The law rolls over existing guarantees against state seizure of assets from a raft of individual, 20-year old treaties but removes the explicit possibility of recourse to international arbitration in the event of a dispute.

European nations affected by the lapse in bilateral treaties include Germany, Spain, Belgium and Switzerland. Europe accounts for around three-quarters of all foreign direct investment in South Africa, although Pretoria has been pushing hard to attract capital from other big emerging markets such as China.

Ratings warning

Konrad Reuss, sub-Saharan Africa head of Standard & Poor’s on Thursday warned that South Africa’s credit rating would be downgraded if further policy mistakes are made and if growth continues to disappoint.

President Jacob Zuma changed finance ministers twice in a week, alarming investors and triggering financial turmoil that sent the rand, bonds and stocks plummeting.

“Certainly events before Christmas was a good sign of how policy mistakes can be made and how they can have a tremendous impact on something like the exchange rate very quickly,” said Reuss, referring to last month’s surprise cabinet reshuffle.

In its November review of South Africa’s credit status S&P kept its rating at BBB-, one notch above sub-investment grade, but changed the outlook to negative from stable.

“We certainly felt we had to flag downside risks in this current environment for South Africa which would result in a downgrade in particular if growth continues to disappoint significantly,” Reuss said, referring to the change in outlook.

Fellow ratings firm Fitch also cut South Africa’s rating to a notch above junk in December. Ratings firm Moody’s rating is two notches above junk with a negative outlook. The International Monetary Fund on Tuesday cut its 2016 growth forecast for South Africa to 0.7 percent from 1.3 percent.

Focus is now likely to shift to Gordhan’s budget speech in February. The agencies and the wider investor community are keen to see if Gordhan can reign-in government spending while boosting growth in Africa’s most industrialised economy that is also facing rising inflation and unemployment running at 25 percent.

The country’s wide current account deficit, which stretched to a shortfall of 4.1 percent of GDP in the third quarter from 3.1 percent in the second, has also been cited by the agencies as a ratings risk.

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