Fitch Ratings Outlines Major Restrictions To Economic Growth


Fitch Ratings has acknowledged the fact that there is remarkable progress recorded towards stabilizing the electricity supply through maintenance management and additional renewable energy to the national grid as indicated by Eskom.

However, Fitch did not relent in citing that the constrained electricity supply is a major restriction to economic growth in South Africa.

According to Fitch Ratings on Wednesday, SA’s Outlook remains stable as it affirmed the country’s Long-Term Foreign and Local-Currency Issuer Default ratings at BBB- and BBB.

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In its statement Fitch Ratings pointed out that poor supply of electricity contributes to low rate of growth in the couuntry, but the government is making visible progress to take care of the challenges causing this setback.

“Trend GDP growth remains low compared to that of its peers‚ with five-year average GDP growth at just 2.2% compared to a ‘BBB’ median of 3.3%. GDP growth was 1.2% in 2015 and is likely to slow to just 0.7% in 2016 before recovering to 1.5% in 2017.

“Growth is held back by constrained electricity supply‚ concerns about the deteriorating investment climate and fractious labour relations. The government has made progress in addressing power supply problems‚ with no load shedding so far this year‚ as maintenance management has improved and additional renewable power sources have been added to the grid‚ although new units from the Kusile and Medupi coal-fired power stations will only come on line in 2018.”

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Eskom’s Chief Financial Officer commented on Fitch’s decision to affirm the sovereign rating with regards to making electricity more available to ensure growth.

“We recognize that a reliable electricity supply is a prerequisite for the country’s economic growth and while we are ensuring that the supply remains unconstrained through our maintenance programme‚ we are also aggressively executing the capital build programme which will increase our generation capacity; these initiatives demonstrate Eskom’s commitment to supporting government’s efforts of fulfilling the country’s economic and social objectives.”

The contribution of electricity to economic growth is too important to be overlooked because without it, the economy cannot move forward.