South Africa’s top corporates show resilience amid structural and cost pressures — Moody’s

South Africa’s largest listed companies are demonstrating resilience despite facing persistent structural challenges, high borrowing costs, and infrastructure bottlenecks, according to analysts at Moody’s Investors Service.

While the country’s economy remains constrained by weak growth, high unemployment, and ongoing energy and logistics challenges, blue-chip corporates on the JSE continue to leverage strong balance sheets and diversified funding strategies to weather the difficult environment.

“These are diversified, blue-chip corporates with access to international financing as well, though more domestic than international,” said Iker Ballestero Barrutia, corporate finance analyst at Moody’s. “But this varies significantly by sector and company size.”

Despite improved access to capital through local and international markets, the cost of capital has risen significantly over the past five years. A recent decline in benchmark interest rates is beginning to ease pressures though.

Despite some improvements, power supply issues still persist although ongoing inefficiencies in logistics infrastructure — particularly in South Africa’s ports and rail systems — remain as key constraints to growth.

However the Moody’s analysts emphasized that corporate South Africa has responded with adaptability, with many firms investing in private energy generation and outsourcing logistics to mitigate infrastructure failures.

Sheri Morgan, deputy director and head of corporate ratings at GCR said SA corporate property funds were now showing signs of recovery, particularly in retail and logistics sub-sectors. 

Property income growth for some firms was outpacing inflation, driven by strategic portfolio repositioning and improved asset quality.

“Many funds have undertaken asset recycling, shifting investments to meet evolving post-COVID demand trends,” said Morgan. “This includes focusing on properties aligned with consumer behavior shifts and improving portfolio relevance.”

Defensive characteristics — such as escalated lease structures and diversified tenant bases — had also helped to offset macroeconomic challenges.

Positive external tailwinds, such as lower interest rates, reduced load shedding, and firmer consumer spending, were also providing support for a rebound in property fundamentals.

However, the office segment continues to lag behind, with recovery expected to be slow and gradual.

Moderate gearing levels and manageable debt maturities have contributed to funding flexibility. Capital market access, for both debt and equity, had improved, helping bolster liquidity across the sector.

Still, rising utility costs and deteriorating municipal service delivery remain key challenges that could erode margins.

“Real estate companies that are proactive — managing their own energy and water supply — are more likely to stabilize or even outperform the broader market,” Morgan added.

Looking ahead, the Moody’s and GCR Ratings analysts believe that unlocking higher growth potential will require visible progress in logistics reform.

While the government has taken steps to open freight rail operations to private sector participation, material economic benefits are expected to take time.

“There’s recognition of the private sector’s role — not just in capital but in expertise,” said another analyst. “Progress on port and rail privatization is encouraging, but reforms in logistics are more complex and slower than what we saw in electricity.”

The World Bank estimates that inefficiencies in South Africa’s rail and port networks reduced export capacity by around 20% in 2023.

Although increased private sector involvement could alleviate this burden, analysts have remained cautious about prospects of this as the “scale of new investment may not be enough to lift long-term growth” above 2%.

While reforms continue, Moody’s plans to release its updated 2027 forecast in November. Until then, the ratings agency is maintaining a cautious outlook, with a baseline scenario of modest growth supported by incremental reform and corporate adaptability.

BUSINESS REPORT