One of the high conviction views taken by the Investec Investment Management’s South Africa Asset Allocation Committee is that the country will reach investment grade status by 2028. There has been a significant amount of improvement to SA's macro picture, and there are two considerations in making this assessment, 1) is an investment grade rating for SA plausible and 2) is an investment grade rating for SA probable.
Recent credit rating upgrades and commentary by Moody’s last week that SA is on the right track for a rating upgrade likely confirm the plausibility argument, and we believe the path of least resistance is to an investment grade rating.
On the probability argument, our suggested pathway we believe is skewed in a particular direction of highly probable events given recent execution discipline by National Treasury on fiscal consolidation and SA’s removal from the Financial Action Task Force (FATF) greylist. The combination of these factors ascribe an above 50% probability of investment grade by 2028 in our view. Execution precision by National Treasury will be key, and the exact details of what needs to be executed on is discussed below.
The local government elections in the next few weeks are a risk to the political stability metric usually monitored by ratings agencies, but local government elections tend to be less impactful on the national policy environment than national elections. We remain cognizant of the risks around the upcoming election, but the conflicts in the Middle East and Eastern Europe, rising yields, fiscal stresses and monetary policy tightening globally are among the key external risks.
The road to investment grade for SA
What must be achieved for SA to reach investment grade by 2028
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