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Minerals Council South Africa calls on government to act following outlook downgrade

London — The Minerals Council South Africa Monday said that the time had come for the government to make hard choices in order to revive the economy, following credit rating agency Moody's decision to downgrade the country's outlook from "stable" to "negative".

The Minerals Council said that Moody's decision "reflects the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures."

Though the Minerals Council welcomed the decision by Moody's to keep South Africa's investment rating at Baa3, the lowest tier of investment grade, it said it was disappointing that the government has not yet agreed on key structural reforms, nor to empowering the Treasury or other key departments to effect rapid change, following minister of finance Tito Mboweni's budget speech.

"First on Mboweni's agenda will be [state utility company] Eskom," Verisk Maplecroft Africa senior analyst Indigo Ellis said Monday.

"But we doubt [South African president Cyril] Ramaphosa has the political capital necessary to even empower Mboweni's Treasury to make those essential changes," Ellis said. "Rapid, sustained change is imperative, yet remains a somewhat distant prospect."

'SIX-MONTH WINDOW'

The council said that the matter was now a matter of urgency as "Moody's decision gives the country a short six-month window to demonstrate a substantial turnaround."

Ellis said that "Moody's unexpected leniency with the Ramaphosa administration has bought them time."

"But with just three months before February's budget, we are pessimistic that the fiscal and political reform needed to save South Africa's last remaining investment grade rating will materialize within the allotted time," Ellis said. "The hill is too steep to climb."

The council said the South African mining industry has the potential to make a sustainable contribution to growth and development, "but, to be able to do this it needs to be able to attract and keep investment, which in turn requires a stable, predictable and competitive investment environment."

"Mining will not play an instrumental part in improving public finances in the short to medium term," Ellis said. "Looking further ahead, fiscal incentives for junior players, steady power supply, and a curb on the power of the unions could make South African mining competitive again."

-- Filip Warwick, filip.warwick@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com