South Africa retains its A3 negative watch rating

In its latest country credit risk review, international credit insurer Coface has kept South Africa’s rating unchanged at A3 negative watch. South Africa is one of a handful of countries that have maintained their credit risk rating throughout the financial crisis.

The global credit crisis and subsequent recession slump has resulted in Coface downgrading over 60 countries over the past two years. Countries downgraded include the UK, moving from A1 to an A3 rating due to massive business failures and deep rifts in economic policy. Botswana was downgraded from and A2 to A4 due to the fall off in demand for tourism and diamonds.

South Africa has had an A3 country risk rating since 2005. The country was placed on an A3 negative watch country rating in 2007 following the xenophobic attacks based on the social and political tensions the attacks highlighted.

Coface says the A3 rating means that SA has a stable business environment with a good business infrastructure and the strong likelihood of debt recovery should a South African company fail to pay for goods. However concerns around political and social stability do pose a risk for foreign investors, it says.

Coface says South Africa’s rating stability throughout the recession is mainly due to government’s sensible fiscal management of the problem. With global markets recovering around the world, South Africa needs to show business rejuvenation and improvement in debt repayment trends, along with political and social improvement. These elements are key to ensuring foreign investor interest in South Africa.

The Coface group runs an international rating department based on macro and micro economic information for every country around the world. This rating indicates the risk of payment default in each country by reviewing elements such as business infrastructure, Coface’s credit insurance payment experience in that country and socio/political influences. The ratings range from A1 being the lowest risk rating to D being the worst risk rating.

The ratings are used by suppliers to those countries to manage their credit risk exposure. Coface also rates each country’s business environment, looking specifically at elements such as the banking system, judicial and legal systems, and availability and reliability of corporate information.