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Managing Volatility: Insights South Africa

Managing volatility in an uncertain economic environment

The recent uptick in political uncertainty and subsequent downgrades of South Africa’s long-term foreign currency sovereign debt rating by S&P Global Ratings and Fitch Ratings have rocked the South African economy and markets. The ratings, which were previously ‘BBB-’ with a negative outlook, were lowered to ‘BB+’ in the week of 3rd April 2017 in the wake of the cabinet reshuffle, bringing South Africa’s rating into sub-investment territory. This could spell severe economic repercussions for our country and business.

South Africa now faces the possibility of a deteriorating economic environment over the medium term – the extent and magnitude of which are still to be seen across companies and organisations. While the scope of potential volatility can appear to be daunting, it requires renewed focus by management and boards of directors to address and manage these uncertainties.

Key take-outs:

  • Although South Africa managed to avoid the downgrade in 2016, a downgrade to sub-investment grade was simply a matter of time. Consequently, the downgrade had already been partly priced into financial markets prior to the move by S&P, which was shortly followed by Fitch.
  • Nevertheless, the two immediate consequences of the downgrade, i.e. a weaker currency and higher government borrowing costs, both place pressure on what is already a slow to no-growth environment, which in turn could lead to further pressure on South Africa’s sovereign debt rating.
  • Deloitte’s Volatility Response Framework assists organisations in navigating through the challenges, approaches and responses required to manage volatility in an uncertain economic and political environment.

How can Deloitte help:

Deloitte’s Corporate Finance Division and Restructuring Services team are well positioned to assist organisations in thinking through the challenges, approaches and company responses, to doing business in volatile times.
 

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