Trade credit insurance company Allianz Trade says its latest quarterly Country Risk Atlas found that South Africa demonstrates external resilience to shocks, with abundant international reserves, a flexible exchange rate and limited external debt in foreign currency.

South Africa's strengths lie in its positive economic performance, despite challenges such as modest employment rates, loadshedding and critical infrastructure backlogs being identified as the main risks facing the country, it says.

The country has experienced declining trends in insolvencies and reduced external vulnerabilities. Additionally, fiscal consolidation efforts, disciplined salary increases and increased tax collection have contributed to stabilising the government debt ratio, the trade insurer says.

However, South Africa faces weaknesses that could impact on its risk rating. The lack of reliable electricity supply hinders growth and affects businesses, industries and households.

The country also ranks poorly in public debt sustainability risk owing to short-term absorption of revenues for debt repayment and elevated sovereign bond yields.

Disputes among political elites have led to social unrest, impacting on the institutional framework and predictability of government action, the Allianz Trade Country Risk Atlas shows.

The Country Risk Atlas assesses the economic, political and environmental, social and governance factors influencing nonpayment risk for companies in 83 economies.

Allianz Trade upgraded the risk ratings of 21 countries, including South Africa, and downgraded only four in 2023. The upgraded countries showcased their resilience to global shocks.

The trend is wholly different from that of 2022, when Allianz Trade upgraded only eight countries' risk ratings, while downgrading 17, it says.

“In 2022, our country risk ratings were largely influenced by the repercussions of the war in Ukraine. But in 2023, the global economy has shown a certain resilience against one of the most aggressive global monetary policy tightening cycles and in the face of some major global shocks. As such, we have upgraded 21 economies’ risk ratings, equivalent to around 19% of the global gross domestic product, Allianz Trade head of economic research Ana Boata points out.

“Africa has seen the most upgrades at ten, followed by Europe with six, while only China, in Asia, and Uruguay, in the Americas, have seen their country risk trajectories improve.

“However, Africa remains the continent with the greatest difficulties in terms of liquidity and access to international markets at a time when liquidity risk is increasing almost everywhere. Against this backdrop, the current cycle and enduring fiscal and monetary policy efforts may trigger further upgrades in the Americas, with Africa and the Middle East most likely to fall behind,” she adds.

Further, when looking at the average of all of Allianz Trade’s country risk ratings, the global risk of nonpayment for companies in 2023 stands slightly above two, or medium risk – stable compared with 2022 and almost back to 2019 levels.

Regionally, Africa’s average risk rating stands above three, or sensitive, while the Middle East, Latin America and Eastern Europe, including Russia, are close to but below three, or sensitive. Asia Pacific is slightly above two, or medium risk, and Western Europe and North America are close to one, or low risk.

Meanwhile, the major risk factors identified by Allianz Trade for 2024 include liquidity constraints in an environment of high public and private debt and high interest rates.

Similarly, below-potential growth in most regions and lower pricing power for corporates, which will drive revenue growth downwards, are also seen as risks.

Rising business insolvencies, up 8% globally in 2024, with Europe and the US leading the acceleration, are also a risk this year.

Additionally, changes in global supply chains, which could take a toll on countries with twin deficits, mainly on current account balances, present risks, as does increasingly polarised geopolitics in a packed election year, with economies accounting for 60% of global gross domestic product heading to the polls.