A top ratings agency has cast fresh doubt on South Africa’s ambitious plans to spend R1-trillion on infrastructure, warning that rises in the cost of debt funding as a result of the country’s sovereign rating downgrades would hamper infrastructure projects until 2020.
Moody’s and Standard & Poor’s recently downgraded South Africa’s sovereign ratings, citing the government’s "diminished capacity" to handle its political and economic challenges.
Global Credit Rating, which rates 1000 organisations and debt issuers in more than 30 countries, said many construction groups in South Africa faced declines in their order books and the outlook for the sector had "deteriorated further".
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"Many companies have sufficient secured contracts to maintain revenue at current levels through (next year)," Global Credit Rating corporate ratings head Eyal Shevel said on Tuesday.
There was, however, "little in the way of new projects" and medium-term order books were "looking a bit thin", he said.
Despite the government’s claims that more than R1-trillion would be spent on infrastructure projects over the next eight years, there was "no certainty on the financial feasibility of these initiatives", Global Credit Rating said. The slowdown in new projects had a "significant impact" on large construction firms, it said.
Mr Shevel said any further ratings downgrades of South Africa would raise the cost of borrowing for the country and state-owned companies.
"South Africa already spends about 3% of gross domestic product on interest payments, so any increase (in the cost of borrowing) could seriously affect the infrastructure investments already announced by the government," he said.
There were three ways to fund infrastructure projects in South Africa: public funding, private-public partnerships and the "user pays" principle that had been rejected by many Gauteng highway users.
"Currently, none of these available sources of funding appear to be looking healthy," he said.
Article continues on page two: "...government was "increasingly" experiencing funding constraints because of lower tax revenues, greater social spending and the likely increased cost of debt funding..."