Latest credit ratings: Nigeria, Angola and Gabon downgraded; Kenya, Uganda stable; Rwanda improves

Standard & Poor's ratings agency has downgraded the sovereign ratings of oil exporters, while Kenya and Ghana are cushioned by their "humility"

NIGERIA’S fuel shortage seems set to ease somewhat as oil marketers announced an end to their strike “in the public interest”. 

For the past week, Nigeria has been gripped by a shortage of petrol, diesel and kerosene following oil marketers’ refusal to supply fuel until they have been paid $1 billion in subsidy arrears owed them by the government.

The strike threatened to bring the country to its knees as most public and private institutions in Nigeria rely on diesel and petrol to power their generator machines, not as a backup but as the primary source of energy given the shambles of its electricity supply.

The shortage resulted in extensive ripple effects in the economy – many domestic flights had been cancelled and some international flights had to land in neighbouring countries to refuel.

One of the leading commercial banks, Guaranty Trust Bank (GT Bank), announced shorter opening hours; several radio stations had announced temporary closure; and mobile operators MTN and Airtel sent out formal warnings saying their services would be impacted.

It’s a stark indicator of just how exposed Africa’s biggest economy – and, ironically, largest oil producer – is to external shocks, and the latest Standard & Poor’s ratings underscores this by downgrading the country’s credit rating to B+ from BB- at the agency’s previous review in October 2014, on the back of what it says is “rising external vulnerabilities”, primarily the decline in global oil prices over the past seven months which has significantly affected Nigeria’s financial position.

Oil nations toxic

The country relies on oil and gas for two-thirds of its fiscal revenues and over 90% of exports.

Other countries receiving a downgraded rating are fellow oil producers Angola and Gabon. Angola’s sovereign rating has been downgraded to B+ from BB-; the analysts say Angola’s debt burden will increase substantially over the next three years.

The country is expected to average a deficit of 5% of GDP over 2015-2017; even more dependent on oil than Nigeria, crude accounts for 70% of fiscal receipts and 95% of exports in Angola.

Gabon is in a similar situation, its rating dropping from B+ from BB-, as fiscal balances deteriorate.

With a sovereign rating of A-, Botswana is the highest rated in Africa in the S&P report, of the 13 African countries surveyed.

Humility is good

On the other hand, Ghana receives a stable outlook, maintaining its B- rating. Although it’s the lowest rating of 13 countries included in the S&P report, it helps that the country ran to the International Monetary Fund (IMF) hat-in-hand last August as it struggled with ballooning budget deficit, spiking inflation and falling currency.

That “humility” has cushioned Ghana from the worst of the oil price drop – the $1 billion IMF program approved in April is expected to ease fiscal and external imbalances, while increased oil production will likely support Ghana’s economic growth prospects from late 2016.

Kenya receives a stable outlook of B+, one grade higher than Ghana, with S&P expecting improved economic prospects over the next few years, buoyed by government investment in the railway network and energy generation projects.

Kenya seemingly learned from Ghana and negotiated a $668million credit standby facility from the IMF in February, to cushion its economy from external shocks, and the government might soon have to draw from the fund – the Kenyan shilling has declined to a three-year low this week, under pressure from rising dollar demand against fickle supply.

Some analysts have linked the recent currency decline to the closure of dozens of Somali money remittance companies in April suspected of financing terror, which drew an estimated $70 million out of circulation.

Despite the IMF cushion, risks remain. The government’s net debt burden is expected to increase to about 53% of GDP in 2015, from 50% last year, and heightened insecurity - especially terror attacks by Somalia-based Al-Shabaab - is worrying investors.

Zambia remains at B+; although a fall in copper prices has put pressure on government finances, a relatively stable political environment and continued strong growth prospects act as a counterbalance.

South Sudan war hits Uganda

Uganda’s rating remains at B, with real GDP expected to grow by more than 6% annually over the next few years. However, the country’s financial position will remain under pressure due to the financing needs of large infrastructure projects, particularly imports needed to kickstart commercial exploitation the country’s two billion barrel oil reserves.

The war in South Sudan has also hit the Ugandan economy hard, as South Sudan is Uganda’s largest export market. Within six months of the war’s breaking out in December 2013, the volume of Ugandan exports to South Sudan had declined by about 60%.

Mozambique similarly remains stable at B. Current account deficits will continue to be relatively large because of import-intensive infrastructure megaprojects, but these investments will support high real GDP growth over 2015-2018. 

Rwanda gets upgrade

Industry players estimate there is 75 trillion cubic feet of gas to exploit off the Mozambican coast, enough to make the country the biggest LNG supplier after Qatar and Australia in the next decade. 

On the other hand, Rwanda has been upgraded to B+ following a rebound in real GDP growth rates to 6% in 2014 from 4.6% in 2013, when donor aid was temporarily cut off following accusations of Rwanda’s interference in the war in eastern Democratic Republic of Congo.

With the resumption of donor support, the country’s financial position has stabilised, and S&P expects that the ongoing presidential succession for 2017 “will be well managed.”

-Additional reporting by Xinhua

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