Growth in Sub-Saharan African bullish, says rating agency

By Macharia Kamau and Reuters

The economies of rated sub-Saharan African (SSA) sovereigns should continue to grow solidly over the coming two years, says Standard & Poor’s Ratings Services in the new report card.

The report released yesterday indicates that high commodity prices and infrastructure spending are fuelling growth in the region.

“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,” said Standard & Poor’s credit analyst Christian Esters.
Nevertheless, high infrastructure spending has 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, are undertaking large public investment programmes.

“However, should budgetary financing pressures materialise, we believe that most governments have some flexibility and 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,” said Esters.

However, spending increasing faster than revenues has in some cases offset the fiscal benefits of oil revenue. This is attributed to subsidies on imported refined oil products, such as diesel.

For the rated non-oil exporting sovereigns, Standard & Poor expects continued high oil prices would put pressure on fiscal balances as governments attempt to maintain subsidies or reduce taxes on fuel products.

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, the report says a drop in global risk appetite could also erode the confidence that foreign investors have shown in SSA markets since 2009.

Since publishing its last report card on SSA in October 2011, Standard & Poor’s has taken three rating or outlook actions and assigned one new rating in the region.