Moody’s optimistic on sub-saharan Africa
THE creditworthiness of subSaharan Africa will be supported by a robust pace of economic growth both this year and next, Moody’s Investors Service said in an outlook published yesterday.
It predicted that the 10 countries which it rates in the region would grow at an average pace of 5.2% this year and 5.3% next year. Moody’s provides credit ratings for Angola, Botswana, Ghana, Kenya, Mauritius, Namibia, Nigeria, Senegal, SA and Zambia.
Most of its rating outlooks for sub-Saharan Africa sovereigns were stable, balancing the region’s vulnerability to commodity price fluctuations with an improved fiscal resilience and gradual structural transformation, Moody’s said.
In contrast to previous commodity cycles, sub-Saharan African countries have been able to absorb a larger share of resource wealth over the past decade, improving the living standards of its people, it said.
This favourable trend was likely to continue, driven by net foreign direct investment (FDI) inflows, a trade reorientation towards Asia, and improved resource wealth management. Favourable funding conditions and a potentially growthsupportive long-term demographic shift would also help, it said. However, Moody’s warned that sub-Saharan Africa’s dependence on commodity exports remained a key vulnerability.
“In our view, the lack of product diversification and the resulting exposure to external shocks dents the region’s productivity and growth potential as it has yet to build a savings buffer similar to that common among Middle Eastern countries,” it said.
Given the importance of Chinese demand as a growth driver, sub-Saharan Africa was vulnerable to a hard landing in China. This was particularly the case in resource-rich countries like Zambia, Angola, Mauritania, and the Democratic Republic of Congo, where the share of exports to China was more than 40%.
The close correlation of commodity prices with other asset classes such as global stock prices, exposed the region to pro-cyclical financial spillovers, it said.
“Taken together, these dynamics combine to limit the region’s economic strength.”
Nonetheless, Moody’s said it believed the prospects for continued FDI investment in the region were “favourable” given its strong growth outlook and sustained commodity prices.
FDI inflows to Africa would amount to $70bn-$85bn this year, and $75bn-$100bn next year, up from $43bn in 2011, it said.
An African Development Bank report last week predicted that FDI in Africa was set to rise by more than 10% this year.
Nomura economist Peter Attard Montalto said portfolio flows into Africa were likely to slow from their current “frenetic” pace when the unconventional monetary policy easing in developed countries began to reverse.
“We’ll still see a significant amount flowing in but people will be a lot more cautious,” he said.
Event risk remained “pervasive” in sub-Saharan Africa and could have a negative effect on its attractiveness to FDI, Moody’s said. This included the risk of cross-border conflict and a “high incentive” for mining contract renegotiations, which would create uncertainty for investors.