Fingers throughout South Africa have been crossed since the beginning of March against a downgrade as Moody’s put the country’s rating under review. The positive decision to leave our credit rating unchanged has brought respite to the economy. Moody’s affirmation does not mean we are out of the woods yet, as our slow economic growth, political environment and depreciating Rand continue to weigh heavy, but it does indicate a turning point.
Vote of confidence for Johannesburg
Following shortly on the release of the country’s unchanged status was the upgrade of the City of Johannesburg’s rating. Moody’s increase on the national scale rating to Aa1 from A2 is an acknowledgement of low credit risk and strong credit worthiness. It’s an indication of prudent and consistent financial management – with net direct debt decreasing by 5% from 2011 to 30% in 2015.
This independent review of the city by a globally respected credit rating agency is noteworthy as it empowers local government to deliver on imperative infrastructure upgrades that will bring Johannesburg that much closer to its vision of being a ‘World Class City’.
It’s a much-needed good news story for government and the critical role it plays in the management of a city. Johannesburg has had some tough public service challenges of late with traffic backlogs, unreliable public transport and inefficient refuse management being just some of the factors reducing business efficiencies in the city. Moody’s rating affirmation will have a direct impact on government bond yields, enabling the City of Johannesburg to raise the necessary capital to roll out major infrastructure projects.
Infrastructure investment to get excited about
Johannesburg is looking to unlock its economic potential with some R30 billion to be spent on improving the city’s infrastructure this fiscal year, with a further R100 billion allocated over the next decade. In his State of the Province address, Mayor Parks Tau said expansion of the power grid is high on the priority list, as is road improvement and expansion of the Rea Vaya bus system. Of particular interest for the property industry is the focus on the Corridors of Freedom (transport-orientated development strategy) to create new economic subsectors as well as revive flagging industries, like the manufacturing sector.
The Corridors of Freedom initiative has the potential to revitalise lifeless parts of the city by driving energetic activity in the construction sector and developing new office, industrial, tourism and residential nodes across the city.
Investor confidence already evident
Moody’s credit upgrade will seek to bolster an already confident landscape with current and ongoing development taking place across several nodes in Johannesburg .The revised rating will also improve the city’s attractiveness to local businesses and multinationals alike.
Against the backdrop of a tough South African economy, the financial prudence of the City of Johannesburg points to a responsible city. It’s a city with infrastructure plans exemplary of the counter-cyclical fiscal strategy required to reignite economic growth and employment in the province that drives much of the country’s GDP. The top investment grade rating provides an excellent platform for the property sector in Gauteng to work with.