Fitch Ratings moved South Africa's investment-grade rating a notch closer to junk, saying its economic growth performance and prospects have deteriorated amid social and political tensions.
The credit ratings company downgraded South Africa's long-term foreign currency issuer default rating to triple-B from triple-B-plus, putting it two steps above junk territory. The outlook is stable.
Fitch said South Africa's gross domestic product growth has averaged 2.2% in the five years through 2012, compared with 4.7% for emerging markets as a whole.
The firm said the weak growth reflects structural rigidities, declining competitiveness, policy uncertainty and labor unrest.
Fitch said the country's public finances have also weakened and the firm estimates South Africa national government debt will rise to 41% of GDP at the end of 2012 from 27% at end of 2008.
Social and political tensions have increased as subdued growth, coupled with rising corruption and worsening government effectiveness, have constrained the government's ability to improve living standards, reduce the 25.5% unemployment rate and redress historical inequalities, Fitch said.
However, South Africa's investment-grade rating is supported by a generally sound banking system, a deep local bond market that allows the sovereign to borrow in its own currency and a floating exchange rate, Fitch said.
South African President Jacob Zuma last month won a vote to keep his top post in the African National Congress, a victory that sidelined his rivals and virtually ensures he will continue to run Africa's largest economy as president.
Days later, the ANC said it wouldn't seek to nationalize mines or other industries, but reserved the right to increase state involvement in the economy. Mr. Zuma had said before that they wouldn't pursue nationalization, but left-leaning supporters of the ANC have called repeatedly for such policies, creating confusion as to the party's intentions.
