As two of the biggest economies in Africa, South Africa and Nigeria’s recent credit rating downgrades will impact Africa’s overall economic growth. This is according to TC Chetty, manager at Royal Institution of Chartered Surveyors’ (RICS) South African division.

Chetty was also concerned that the downgrade would have a ripple effect on the built environment sector and the cost of infrastructure development.

“South Africa’s downgrade to sub-investment or ‘junk’ status is a setback the economy can ill-afford, especially in this already low growth environment,” Chetty said.

“SA joins the majority of African countries currently rated below investment grade, including Nigeria, which in September 2016 was downgraded by S&P further to junk status, with a B rating, five levels below investment grade. Fitch also revised its outlook for Nigeria to negative in January this year,” he added.

Both S&P and Fitch downgraded South Africa’s sovereign credit rating to below investment grade at the beginning of April, while Moody’s put the country on review for downgrade, with a decision expected between the next 30 to 90 days.

Apart from capital outflows from South Africa, as a result of the downgrade, the country’s debt servicing costs are set to increase, Chetty said.

He explained that the country finds itself in uncertain territory having been above investment grade for 17 years.

“We cannot underestimate the impact, especially because South Africa has a well-developed financial and investment sector compared to the rest of Africa,” he said.

While Nigeria has always been rated below investment grade, its ratings have deteriorated since 2012 and last year its economy contracted. Chetty said this was not good for Africa’s overall gross domestic product (GDP) growth prospects, as both countries account for about half of Africa’s GDP.

Corporate finance consultant Bennet Kpentey said the economies of these two nations needed to perform for Africa’s sake.

He said five years ago, Africa’s growth was much higher, but that slow growth has had to do with low commodity prices, weak global trade and political instability.

Citing African Development Bank research, Kpentey said between 2012 and 2016, the global economy grew by a modest average of 2.5%, while Sub-Saharan Africa’s economic growth averaged 3.7%. When Nigeria’s and South Africa’s GDP growth is excluded, Sub-Saharan Africa’s economic performance increased to 5%.

“This is still world leading economic growth, much higher than the 1.6% growth of advanced economies during this period,” he said.

With Sub Saharan Africa’s economic growth slowing to just 1.5% in 2016, Kpentey acknowledged that Africa’s growth has fallen the fastest. But, he said Africa was in no recession.

“It is not a disaster,” he said. “We need to deal with the issues and get strategies in place to mitigate the drop.”

He explained that this also illustrated why Africa’s big brother economies – Nigeria and South Africa – need to perform, and why Africa’s economy needs to diversify, reducing its reliance on commodities.

Africa’s major hurdles

Kpentey said Africa’s hurdles included the continent’s huge infrastructure gap, declining manufacturing, high poverty and inequality, government inaction and bureaucratic delays, climate change, and, the major issue of corruption.

However, he said there was still “shine beyond the gloom”, including Africa’s resilience, its labour force and young population, urbanisation and growing middle-class, its overwhelming adoption of information and communication technologies, increased business and foreign direct investment, and, its rich natural resources.

Amanda Clack, RICS president, said collaboration was key to meeting the demands of Africa’s rapid urbanisation and growth. She also said policy uncertainty was a major threat to infrastructure investment in Africa.

“RICS is collaborating with construction and property organisations from across Africa,” she said.

“We are working together to accelerate the professionalism of land, construction, property and infrastructure in the region.”

Clack said RICS was committed to Sub-Saharan Africa, and with its new offices in Kenya and Ghana, the organisation would also be servicing East and West Africa.