S&P Predicts More Growth for African Economies

Africa infrastructure
Africa is spending billions on infrastructure

Standard & Poor’s Ratings Services (S&P) at the weekend forecast that the economies of rated African countries would continue to record solid growth over the next two years.

The international ratings agency was quoted in a report titled: “High Commodity Prices and Infrastructure Spending are Fuelling Growth among African Sovereigns.”

According to S&P’s Credit Analyst, Christian Esters, “Several factors should account for this steady growth, including high public investment spending, strong commodity exports, and increasingly diversified trade with growing emerging economies, such as China.”

It also pointed out that high infrastructure spending had kept government deficits higher than pre-crisis levels in many countries. Several governments, including those of Cape Verde, Uganda, Ghana, Gabon, Mozambique, Senegal, and Kenya, had undertaking large public investment programmes, the report said. However, it stated that if budgetary financing pressures materialises, governments could delay part of their capital spending programmes.

“We anticipate that continuing high oil prices should help to sustain solid current-account surpluses of some of the rated oil-exporting sovereigns in 2012, such as Nigeria and Angola.

“However, the fiscal benefit of oil revenues has in some cases been offset by spending increasing faster than revenues. This is often owing to subsidies on imported refined oil products, such as diesel,” Esters added.

For rated non-oil exporting countries, S&P anticipated that continued high oil prices would help keep up the pressure on their fiscal balances as their governments attempt to maintain subsidies or reduce taxes on fuel products.

It explained that :”Sovereigns with a high dependence on a few commodities, such as Botswana (diamonds), Zambia (copper), Benin (cotton), and Burkina Faso (cotton and gold) are likely to remain similarly exposed to volatile commodity prices.

“For the region as a whole, a drop in global risk appetite could also erode the confidence that foreign investors have shown in African markets since 2009. We therefore consider this could lead to a decrease in foreign direct investment (FDI) inflows and in portfolio inflows, although the latter are significant mostly for South Africa.”

According to the ratings agency, budgetary pressures in Europe and the United States could also slow down aid flows, which it stressed are critical to sustain public investment in many countries.

“Since publishing our last report card on Africa in October 2011, S& P has taken three rating or outlook actions and assigned one new rating in the region. We lowered the local currency long- and short-term ratings on Botswana to ‘A-/A-2’ in November 2011, revised the outlook on Nigeria to positive from stable in December 2011, and revised the outlook on South Africa to negative from stable in March of this year.

We also assigned a ‘B’ rating to Rwanda in December 2011 with a positive outlook. Of the 16 sovereigns we rate in Africa, 12 reside in the ‘B’ category, which limits the potential for downgrades because such a rating already factors in a high degree of vulnerability,” it added.