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Country Risk Atlas: South Africa's Risk Rating Upgraded, Demonstrating Resilience to Global Shocks

12 February 2024 Allianz

• The first edition of Allianz Trade’s Country Risk Atlas assesses the economic, political and ESG factors influencing non-payment risk for companies in 83 economies.
• In 2023, Allianz Trade upgraded 21 country risk ratings (+13 vs 2022) including South Africa and downgraded only 4 (-13 vs 2022), indicating increased resilience despite global shocks.

Allianz Trade, which operates through the Allianz Commercial license in South Africa, released its first Country Risk Atlas, a new flagship publication focused on country risk, an expertise the world leader in trade credit insurance has built up over decades. The Country Risk Atlas is based on a proprietary risk ratings model that is updated every quarter with the latest economic developments and Allianz Trade’s proprietary data on global insolvencies and the business environment.

The Country Risk Atlas provides comprehensive analysis and insights into economic, political, business environment and sustainability factors that influence trends in non-payment risk for companies at a macroeconomic level. It aims to be a companion for businesses and investors in making informed decisions by identifying potential risks and opportunities in 83 different economies, along with the map we produce quarterly for all the 241 countries and territories we monitor every year,states Ana Boata, Head of Economic Research at Allianz Trade.

In 2023, the global economy showed resilience in spite of several global shocks
In its first Country Risk Atlas, Allianz Trade reveals that it upgraded[1] 21 country risk ratings in 2023 including South Africa while downgrading only 4. The upgraded countries showcased their resilience to global shocks. The trend is totally different from that of 2022, when Allianz Trade upgraded only 8 country risk ratings while downgrading 17.

In 2022, our country risk ratings were largely influenced by the repercussions of the war in Ukraine. But in 2023, the global economy has shown a certain resilience against one of the most aggressive global monetary policy tightening cycles and in the face of some major global shocks. As such, we have upgraded 21 economies’ risk ratings, equivalent to around 19% of the global GDP. Africa has seen the most upgrades (10), followed by Europe (6), while only China and Uruguay have seen their country risk trajectories improve in Asia and the Americas, respectively. However, Africa remains the continent with the greatest difficulties in terms of liquidity and access to international markets at a time when liquidity risk is increasing almost everywhere. Against this backdrop, the current cycle and enduring fiscal and monetary policy efforts may trigger further upgrades in the Americas, with Africa and the Middle East most likely to fall behind,adds Ana Boata.

Overall, when looking at the average of all of Allianz Trade’s country risk ratings, the global risk of non-payment for companies in 2023 stands slightly above 2 (Medium Risk), stable compared to 2022 and almost back to 2019 levels. Regionally, Africa’s average risk rating stands above 3 (Sensitive), while the Middle East, Latin America and Eastern Europe (including Russia) are close to but below 3 (Sensitive). Asia Pacific is slightly above 2 (Medium) and Western Europe and North America are close to 1 (Low).

South Africa: strengths and weaknesses
South Africa's strengths lie in its positive economic performance, despite challenges such as load shedding, critical infrastructure blackouts as identified as the #1 risk in the country according to the Allianz Risk Barometer 2024, and modest employment rates. The country has experienced declining trends in insolvencies and reduced external vulnerabilities. Additionally, fiscal consolidation efforts, disciplined salary increases, and increased tax collection have contributed to stabilizing the government debt ratio. South Africa also demonstrates external resilience to shocks, with abundant international reserves, a flexible exchange rate, and limited external debt in foreign currency.

However, South Africa does face weaknesses that could impact its risk rating. The lack of reliable electricity supply hinders growth and affects businesses, industries, and households. The country also ranks poorly in public debt sustainability risk due to short-term absorption of revenues for debt repayment and elevated sovereign bond yields. Disputes among political elites have led to social unrest, impacting the institutional framework and predictability of government action.

Watch out for potential downgrades in 2024
Looking ahead, several factors could challenge the country risk landscape, leading to more downgrades in 2024.

Among the major risk factors identified by Allianz Trade for 2024 are:

• Liquidity constraints in an environment of high public and private debt and high interest rates.
• Below-potential growth in most regions and lower pricing power for corporates, which will drive revenue growth downwards.
• Rising business insolvencies (+8% globally in 2024), with Europe and the US leading the acceleration.
• Changes in global supply chains, which could take a toll on countries with twin deficits, mainly on current account balances.
• Increasingly polarized geopolitics in a packed election year, with economies accounting for 60% of global GDP heading to polls.

Find out more and discover all our country risk profiles and ratings in the Country Risk Atlas!

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