Africa’s Ratings Spotlight Shimmer

Decades after assigning it first Sub-Sahara Africa sovereign rating and long after expiration of a US government program that paid for the exercise, S&P added Rwanda to its 20-country universe and launched a standard quarterly publication for tracking regional trends. It comments that “solid” GDP growth from diversified commodity exports and trade stands in contrast to North Africa, although they both display governance and political risks. Banks, particularly in Nigeria, have also been covered the last five years, and companies as well will have to respond to investor transparency demands, the agency predicts. After post-crisis central bank intervention which rescued one-third of the industry while non-performing credit reached an equal proportion, regulation has improved but longer-term health is still in question, with internal controls crucial to managing high-margin segments and avoiding single-name concentration in the future. Mergers, interbank guarantees, and establishment of a central asset resolution arm have aided recovery but a record of stability has yet to be demonstrated over time. Nigeria’s sovereign B grade is a notch under neighboring oil powerhouse Angola’s due in part to this legacy. However the latter remains a single-party state and has more recently emerged from civil conflict. Both have major education, infrastructure and labor constraints although government debt levels are low. Their managed exchange rates and shallow financial markets limit monetary flexibility, and changes could mitigate shocks from petroleum price swings according to the analysis. Economic growth of 7 percent and strong current account surpluses will prevail in the two as post-election uncertainties likewise linger over the successor leadership generation. In Zambia a new administration has brought “uncoordinated and contradictory” views but copper exports at three-quarters of the total are firm on modest domestic and external debt burdens. GDP growth and inflation are put around 5 percent, but reversal of previous privatizations is a “concern” especially since the stance may be politically-driven.

Uganda has attracted attention with oil finds in the Eastern sub-region, but continues under currency depreciation and fiscal pressure with reliance on good rains and donor relations. The IMF has a policy support instrument in place but fertility and poverty rates point to mixed development progress. In the Francophone zone, tiny Benin with under $800 per capita income has benefited from official debt cancellation and government endurance with President Boni Yahi’s re-election to offset flooding and pirate attacks on the Cotonou port. Rwanda too was given a B in its maiden rating as business climate reforms were diluted by a “top-down” policy approach and unrest along the border with the Democratic Republic of Congo. Botswana is the continent’s sole investment-grade recipient as global diamond appetite has rebounded, but a large HIV-AIDS and jobless contingent have injected rough edges, the organization cautions.