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Insights   > South Africa - Credit Risk Outlook Q3 2021

South Africa - Credit Risk Outlook Q3 2021

South Africa - Credit Risk Outlook Q3 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

Following a contraction -7% in 2020driven by the adverse impact of the COVID-19 related lockdowns, the IMF and Statista forecasts that South Africa’s GDP will grow at the following rates for the next 5 years:



Low growth will do little to alleviate the unemployment rate which reached 34.4% in Q2, 2021. Per Statistics South Africa the number of unemployed persons increased by 584 000 to 7.8 million compared to the first quarter of 2021.


Inflation, Consumer Price Index(CPI) is forecast to be 4.3% in 2021 and is expected to range between 4.5% - 5.0% for the period2022 – 2025.  Factors that could result in inflation breaching 5.0% include rising oil prices, above inflation electricity and water tariff increases and adverse exchange rate volatility.


Disposable income in the middle and lower earning households is being eroded by above inflation increases inessential services. Household debt to income in South Africa has been on an upward trajectory since 2018 resulting in higher debt service costs.  Of concern is that almost all household debt in South Africa is floating rate linked to prime meaning that when the prime lending rate increases, so will finance costs. The current prime interest rate of 7% is at a 50-year low meaning that the probability of rates increasing over the next year is high.


Lower levels of consumer spending have a negative impact on the economy due to consumer spending being a key driving force of most economies.


2.       Confidence

Economic performance is influenced by changes in business and consumer confidence.  Lower levels of business confidence generally result in lower investment by companies as they adopt a wait and see approach. A case in point is South Africa Breweries which cancelled R5 Billion of investment in relation to the ban on alcohol sales in the country under certain Covid-19 lockdown restrictions. The company has since re-instated its investment program by allocating R2 Billion to operations in south Africa.  


The holding back or cancellation of investment has an adverse impact on job creation, especially if the funds pertaining to the cancelled investment are invested elsewhere in the world.


3.       Political Stability and Robust Legal Systems

Investment in countries can be impacted by averse political volatility and legal systems that do not enforce contractual obligations.  South Africa faces the issue of confronting expropriation without compensation which could have a significant impact on land ownership rights.  


4.       Sectoral Impact

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


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



David Symons

Credit Analysis

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