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Insights   > SA Credit Outlook Q4 2021

SA Credit Outlook Q4 2021

South Africa - Credit Risk Outlook Q4 2021  


Our credit analysis team have put together a fact-based Credit Risk outlook for South Africa covering the economy, business and consumer confidence, political stability, and a sectoral update.                                        


1.       Economy

The country’s low economic outlook remains weak, with the economy being adversely impacted by ongoing load shedding which has a negative impact on manufacturing and production, together with the steep increase in the oil price from around$21.0/Barrel in April 2020 to its current trading price of around $81/barrel in November 2021 representing an increase of 286%.


Petrol and diesel have risen as follows:

93 octane unleaded petrol fromR12.02/l on 06/05/2020 to R19.32/l on 03/11/2021.

Diesel 50ppm from R11.19/l on06/05/2020 to R17.23/l on 03/11/2021.


The price of oil is expected to remain high due to an increased demand from countries whose economies are recovering from the impact of lockdowns at a significantly higher rate than was originally anticipated. The supply of oil has been impacted by various factors including:

·        A reluctance by OPEC to significantly increase oil production.  

·        Production setbacks in the U.S.A. due to the outages caused by hurricane Ida

·        The absence of additional Iranian oil that the market was expecting.

·        The introduction by the Biden administration of a moratorium on new oil and gas leasing on federal lands and waters. Nearly 25% of U.S. oil and gas product incomes from federal land.


Higher oil prices will result in upward pressure on inflation caused by:

·      Higher farming costs, as fuel makes up a substantial amount of this cost,

·      Higher transportation costs and

·      Pressure on the exchange rate due to oil being paid for in US$.


The unemployment rate is forecast to trend at around 36% in 2022, with the country’s economic growth being well below the level required to make a meaningful dent in this rate.


2.       Inflation

The overall inflation rate is expected to be around 5% for 2021, decreasing to around 4.5% in 2022.  However, food inflation is significantly higher than overall inflation, reaching 6.9% in August 2021. Food inflation is forecast to be around 4.8% in 2022, still higher than overall inflation. Further increases in the oil price and potential negative exchange rate volatility, as mentioned above, could result in food inflation exceeding the forecast.


In October 2021, the National Energy Regulator rejected Eskom’s latest electricity tariff application for the coming year commencing April 2022. Notwithstanding this rejection, it is expected that there will be a tariff increase in 2022 due to Eskom’s dire financial position. The utility has warned that it needs a R300Bnbailout and municipalities require a once-off R100Bn injection due to the tariff application being rejected.


Disposable income in the middle and lower earning households will continue to be eroded by above inflation price increases of food, electricity, fuel, and essential services.


Household debt has been on an upward trajectory since 2018:

·        Households Debt to Income increased from 71.9%in 2018 to 77.1% in 2020.

·        Households Debt to GDP increase from 33.6% in2018 to 38.2% in 2020. 


These levels are forecast to decrease slightly in 2021, with debt to income expected to reach 73.0% at the end of 2021 before rising to 75.0% in 2022 and 77.0% in 2030. Debt to GDP is forecast to decrease to 36.0% in 2022.


Almost all household debt in South Africa is a floating rate linked to prime which means that when the prime lending rate increases, so will finance costs. With the current prime interest rate at a 50-year low, the probability of rates increasing in the medium term is high.


3.       Confidence

Economic performance is influenced by changes in business and consumer confidence.  


Business confidence:

The measurement scale is from 0 to100.  

The RMB/BER business confidence index fell by 7 points from 50 in Q2, 2021 to 43 in Q3, 2021, with the decrease coming after the unexpected deadly riots and looting that swept parts of the country in July and amid a new wave of restrictions. Per Etienne Le Roux, chief economist at RMB, "The adverse developments in the third quarter are likely to only deliver a temporary setback to what other wise remains a cyclical economic recovery."


Consumer Confidence

The measurement scale is from -100 to 100.

The FNB/BER Consumer Confidence Index rose slightly from -13 in Q2, 2021to -10 in Q3, 2021 with the faster rollout of Covid-19 vaccine and government support for its employees helping to counter the impact of the civil unrest during July.


4.       Political Stability and Robust Legal Systems

The EIU has assigned a political risk rating of BBB to South Africa reflecting political stability. The riots in July 2021 were primarily driven by frustration arising from the country’s underperforming economy which has resulted in official unemployment reaching 36% and youth unemployment exceeding64% in Q2, 2021.


Fitch Ratings (15 July 2021) believes that the direct economic impact of riots in South Africa following the arrest of former president Jacob Zuma will be limited for the sovereign’s creditworthiness. However, the violence highlights tail risks to social and political stability. This could affect fiscal policy, including public-sector wage negotiations, complicating efforts to stabilise the level of government debt/GDP.


Political stability and the strength of a country’s legal system has a direct impact on investment which in turn impacts job creation.


5.       Sectoral Impact

The impact of weak economic conditions differs between economic sectors resulting indifferent probabilities of default (PD) across sectors. PD’s may be positively or negatively impacted by changes in economic performance, outlook, and political events.


The table below details a broad probability of default for each sector using a scale of Low, Moderate and High. Please note that the PD’s for sub-sectors within a sector may differ.

Sector Probability of Default


David Symons

Credit Analysis

Download full report here

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