Euler Hermes publishes its Q1 2018 country and sector risk ratings, a report helping decision makers to trade internationally, and positions South Africa as a medium risk country poised for GDP growth with 2% 2018 and 2.5% in 2019

Constructions and metals are the riskiest sectors in 2018. The pharmaceutical industry is regaining momentum.

Johannesburg, April 24, 2018 – Euler Hermes, the worldwide leader in trade credit insurance, publishes its Q1 2018 country and sector risks ratings. The company monitors 242 countries and territories using about 40 short-term and medium-term indicators to measure the risk of payment disruptions in a given country that are outside the control of companies. According to the report, the South African macroeconomic outlook shows signs of improvement.

Stéphane Colliac, senior economist for Africa at Euler Hermes said: “Growth should accelerate further, to +2% in 2018 and +2.5% in 2019 from +1.3% in 2017. Low inflation is the main growth driver (+4% in 2018), as it supports household purchasing power and should trigger monetary policy easing. But, reforms are needed to sustain this growth momentum in the longer-run. Otherwise, bottlenecks such as the low level of investment in infrastructure and high unemployment will deter growth again”.

Stable Country risk in South Africa

South Africa’s country risk ranks at a medium level: despite its rich natural resource endowments, geographic dominance and good relations with major trading partners, structural weaknesses in the economy such as unemployment, low investment and diminishing educational standards are a huge drawback for the African economic powerhouse.

Political risk in South Africa also plays a key role in the overall country risk rating. In this regard, numerous and unexpected cabinet reshuffles had a knock-on effect on the Rand, which hit a record low of almost ZAR17 against the US Dollar.

The great expectations that came along with the election of Cyril Ramaphosa and his new government last December contributed to the stabilization of the South-African currency.

President Ramaphosa has already targeted its main priorities, pledging to fix the country’s mining sector, address education, create jobs, especially for the youth, and increase investments. He should use the improving cyclical momentum to implement some first reforms:

  • Business confidence in March reached 97.6 and remained above the 2016-2017 levels throughout 1st
  • The consumer was also quite more eager to spend, and retail sales accelerated from 2017H2, growing above +4% y/y (3 months average basis) for the first time since 2012.

However, the last five years of subpar growth and the last wave of credit agencies’ rating downgrades took their toll on the corporate sector, since business insolvencies began to increase (+5% between September and January).

Justin Jacobs, Risk Director Euler Hermes South Africa declared: “We are recording difficulties in the construction and metals sectors. In the last six months, companies have experienced an increased number of claims and overdues from suppliers and the 2018 forecast does not call for a recovery. The low budget dedicated to public infrastructures and the slight upturn in private investments on commercial properties are clearly not enough to let the compartment out of non-payments risks. The chemical sector, and especially pharmaceutical, is posting good financial results thanks to a dynamic demand and a shortened value chain which allowing realise good margins”.