8 November 2012

Africa: Moody's - New Ratings for Africa

Outlooks for Kenya, Nigeria and Zambia are stable, rating agency says

Moody's Investors Service, the ratings agency, has expanded its Africa coverage, assigning first-time public ratings to Kenya, Nigeria and Zambia on the back of growing demand for insight on sovereign creditworthiness.

The agency served up sovereign ratings of B1 for Kenya and Zambia, while Nigeria went one higher at Ba3 - three pegs below investment grade - each due to strong economic growth. All three countries were put on stable outlook.

Nigeria, sub-Saharan Africa's second biggest economy, should see growth of over 7 percent this year, underpinned by vast hydrocarbons wealth. Moody's said that the Ba3 rating also reflects a diversifying non-energy sector, which expanded at an average annual 8 percent between 2002 and 2011.

The recent establishment of a sovereign wealth fund should also safeguard oil revenues, strengthening the country's financial position, the group said. After much political wrangling, the Nigerian Sovereign Investment Authority appointed a management board in August, with the government committing an initial $1bn in seed capital - still a tiny fiscal saving for a the region's biggest oil producer.

"The stable outlook on Nigeria's Ba3 ratings reflects Moody's expectations of continued rapid economic growth and strengthened fiscal management," the agency said.

In Kenya, East Africa's biggest economy, Moody's cited structural changes including the rapid roll out of ICT and improvements in infrastructure as reasons for its B1 rating. Governance reforms mandated by the country's two year old constitution should also boost institutional strength, it said.

Last week the Irish energy group Tullow Oil struck oil at its second well in the northern Turkana region, pointing to the country's hydrocarbons potential. "Recent oil discoveries in the northwest of the country will enhance export diversification and help reduce macroeconomic vulnerabilities due to Kenya's heavy oil-import dependence," Moody's added.

Continued political stability and an expectation of rapid economic growth were cited as reasons behind Zambia's B1 rating. Economic growth in the continent's biggest copper producer is expected to hit 7.3 percent this year, driven by strong global copper prices and output, as well as growing foreign direct investment.

The country's debut eurobond, issued this September, was fifteen times oversubscribed, raising $750m and reflecting growing confidence in Zambia's fiscal position. "The government's low financial strength will continue to improve," Moody's stated.

All three countries face risks. Nigeria is struggling with growing security issues associated with the militant Islamist group Boko Haram, while Kenya and Zambia are still grappling with low government financial strength, amongst other issues.

Standard & Poor's is also positive on Nigeria. The agency upgraded Nigeria's credit rating to BB- from B+ this week, citing greater financial stability. South Africa, the continent's largest economy, was downgraded to BBB with a negative outlook, thanks to the economic effects of mining strikes.

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