S&P sees Africa rating risks rising with crisis

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Ratings agency Standard and Poor’s sees credit ratings across Africa “skewed to the downside” by the global economic crisis, saying Botswana, Ghana and Nigeria needed to tighten policy sharply.
Reuters notes S&P has already cut the outlooks for several African countries including Botswana, Ghana and South Africa to negative in recent months, as well as cutting its rating for Madagascar after the military helped oust the president earlier this month.
Initial hopes Africa would prove immune to the global downturn have been dashed, with falling commodity prices, remittances, foreign direct investment and the freezing of global capital markets all combining to hurt the world’s poorest continent and stifle a recent boom. 
“If you look across Africa, credit ratings have been skewed to the downside as a result of the global crisis,” S&P analyst Konrad Reuss told Reuters by telephone.
S&P wants to see tighter budget management from Botswana, Africa’s highest-rated sovereign with an A/A-1 foreign currency rating, which is suffering from slumping diamond export revenues. It wants similar action from B+ rated Ghana whose previous government had sharply increased spending.
“We need to see much more drastic action from both Ghana and Botswana otherwise we have already warned we could take negative ratings action,” he said.
S&P already has both countries on negative outlook, but Reuss said he was also monitoring Nigeria — which the agency currently still has on a stable outlook.
“We are looking at Nigeria very closely,” he said. “They have been affected by the fall in the oil price, and we are also looking at the falling reserves and unorthodox policy measures. If foreign investors lose confidence in the central bank that would be negative.”
Nigeria’s central bank has already effectively frozen the interbank foreign exchange market and on Monday said it would impose interest rate controls in a bid to defend the country’s banking system.
Foreign investors are also unnerved by events in Madagascar, where the new army-backed government says it will review contracts with foreign investors agreed by the previous administration if the economic climate improves, revising deals not in the public interest.
New leader Andry Rojoelina has also cancelled a deal with South Korean firm Daewoo Logistics to lease a million hectares to grow food.
S&P has already cut Madagascar to B-with a negative outlook after the leadership change, and Reuss warned it could see more action.
“The new rating is already very low,” he said. “We are already seeing a considerable risk of default on bilateral obligations. Any moves against foreign investors would be negative for creditworthiness.”
Across the continent, he said there was a risk of more political problems if the global downturn became prolonged.
“We would see a potential rise in political risk everywhere,” he said. “You could see more government instability, social unrest, subsidies and barriers as well as other actions.”
S&P currently has B-rated Kenya on positive outlook after the easing of post-election violence last year, but he said an upgrade now look unlikely given the global crisis.
It has South Africa rated as BBB+ with a negative outlook, and Reuss said he was looking primarily at whether expected next president Jacob Zuma would provide policy continuity or a more populist shift after April elections.
Zambia and Tanzania had signalled they were aiming for credit ratings in what was seen as a precursor to issuing Eurobonds, but both have since suspended efforts and Reuss said the crisis made international bond issues impossible.
“Several countries including Kenya, Zambia, Tanzania and Nigeria have said they intended to issue but I think it would now be very unlikely this year or maybe even early next,” Reuss said.