Influence of strike action on South Africa s credit rating by global rating agencies

Abstract

The growing importance of Credit agency rating in the economic indicators for a country necessitates investigating the impact of various indicators on credit agency ratings. South Africa is a country which has experienced an increase in prolonged, violent and unprotected strike action. This study aimed to determine the impact of this labour relations action on the country s credit ratings over the last 15 years and the consequent related economic factors. Credit rating agencies do not specifically identify strike actions as a key indicator nor do they indicate which indicators dictate the outcome of the ratings granted. Twelve indicators were measured using a quantitative approve of hypothesis and statistical modeling. The study used the interrelated database of The Department of Labour, The PRS Group, Stats SA and studies by Hammer, Kogan, & Lejeune as well as the published indicators of Standard & Poor s, Moodys and Fitch. This study further used the scatter plots and t - tests to determine the relationship between the indicators and strike action. These were correlated using Pearson s correlation theory in order to substantiate the findings of the scatter plot and t test. Strike action was found to have an effect on the ratings granted. Eight of the twelve indicators correlated negatively with ratings of Standard & Poors indicating that if strike action increased ratings would downgrade. Strike action plays a fundament role in the outcome of ratings granted. This is due to the effect strike action has on the driving indicators. Wages lost during strike action has a 99% correlation with the fluctuation of ratings granted. Ratings determining interest rates and the amount of foreign direct investment into South Africa. With the results as indicated, South Africa s government needs to re-evaluate the significance of strike action as a legal for of resolution and the parameters dictating it. Alternative means need to be explored that supports the growth of South Africa for it to transition from a developing country into an advanced economy.