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Vehicle, mining industries face “enormous difficulties”


South African Finance Minister Trevor Manuel said on Friday the mining and automobile sectors would face “enormous difficulties” but this was not unique to local industries.

Manuel was addressing reporters after returning from the G20 summit in London, at which countries agreed to triple funds of the International Monetary Fund to address the worst economic crisis since the 1930s.

South Africa’s mining and automotive industries have been hard-hit by a global economic slowdown putting thousands of jobs on the line.

Asked if he was more optimistic South Africa would avoid job cuts he said:

“I would have to lie to you if I said that we concluded an agreement yesterday that allows for the sales of platinum to rise and that jobs in the platinum mining industries will be reinstated.”

“These sectors are going to face enormous difficulties. I think the automobile sector is also going to face enormous difficulty, but that wouldn’t be a uniquely South African situation.”

Meanwhile, ratings agency Fitch Ratings on Friday issued a statement which confirmed Manuel’s stance.

The agency said the global economic downturn is having an increasingly negative impact on South Africa’s automotive sector.

“As a consequence, Fitch believes that the credit profiles of South African automotive companies are expected to come under increasing pressure over the next 18 months, and that a recovery in market conditions is not expected prior to 2011,” it said.

The agency believes companies with strong cash generation and financial flexibility will be better positioned to weather the current economic downturn. Key rating drivers will include an increased focus on strong liquidity and the ability to de-leverage.

Raymond Hill, senior director and head of Fitch Ratings’ Emerging Markets corporate team, said: “The combination of the negative trends in vehicle sales, export data and GDP forecasts with the expected adverse impact on automotive companies’ credit metrics, most notably leverage and cash flow generation, mean that further corporate downgrades seem probable in the short- to medium-term.” – Reuters

Source: iol

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