Well-balanced economies that have shown steady performance over an extended period present key opportunities for growth and development in Africa, while those with high political risk will continue to fail to instil confidence in foreign direct investors, says trade credit insurer Coface.
Following the release of its ‘2017 Africa Business Credit Risk Rating Review’, the company also highlights that smaller countries in sub-Saharan Africa are faring better than larger countries, owing to higher levels of diversification, which balances risks and supports better overall performance. Many larger African countries have experienced deterioration during the protracted period of depressed commodity prices, owing to their economies’ reliance on single commodities. This calls for a restructuring of their fiscal programmes to rebalance this effect – although Coface warns that this cannot be achieved in a short time.
In its review, Coface upgraded Kenya’s business credit risk from B (significant business credit risk) to A4 (reasonable business credit risk), following a boost in tourism and increased public investment; and that of Ghana from C (high business credit risk) to B (fairly high business credit risk), after the country had passed its democratic maturity test in December, demonstrating a good level of public finance management.
The report also predicts that Namibia’s exports will increase this year, especially uranium, copper and diamonds. Namibia’s uranium production, in particular, will experience a sharp increase, owing to the capacity expansion at uranium producer Swakop Uranium’s Husab mine, which will make the country the world’s third-largest uranium producer.
More broadly, Namibia’s mining sector is expected to pick up against a backdrop of moderate increases in the prices of resources, with the International Monetary Fund expecting its global raw materials index to increase by 11% this year, compared with the 10% decrease last year. Specifically, increased production at Canadian gold miner B2Gold’s Otjikoto gold mine and copper producer Weatherly International’s Tschudi copper mine, both commissioned in 2015, will have a positive effect on the country. Diamond mining is also expected to recover.
In contrast, Coface notes that South Africa, albeit a diversified economy, remains under pressure, experiencing ongoing poor economic growth, informed by high levels of political instability, a lack of government spend, poor allocation of the Budget, increased allegations of fraud and corruption, and the consequent devaluation of the rand, which has aggravated the effects of the drought and low commodity prices. Coface has rated the country at C, indicating high business credit risk.
Mozambique was also downgraded to the highest risk level of E (extreme business credit risk), owing to government payment defaults. In January, the country defaulted on a $60-million interest payment to bondholders and political stability remains precarious, says Coface.
Mozambique then went on to miss a $119-million payment due in March 2017 on a loan arranged by financial services company Credit Suisse Group. The $622-million facility was taken out by State-owned security company ProIndicus and was supposed to fund the buying of boats and radar systems to protect the country’s Indian Ocean coastline, where companies including Italian oil company Eni SpA and US-based petroleum and natural gas exploration and production company Anadarko Petroleum have large offshore gas reserves.
Economic activity declined in 2016 in Malawi, rated D (very high business credit risk), owing to the drought, as the agriculture sector represents 30% of gross domestic product (GDP) in the country. Nigeria (rated D) is expected to show weak growth in 2017, while Coface expects a slow recovery in activity in 2017 from Angola (rated D), owing to improvements in the oil sector, which accounts for almost 40% of GDP.
The GDP of Botswana, rated A4 (reasonable business credit risk), is expected to improve slightly, partly as a result of expected improvement in the diamond price. Coface says the budget balance of the Democratic Republic of Congo (rated D) is expected to return to surplus in 2017, driven partly by improvements in the copper price.
In the report, Coface also highlights that Africa continues to depend on economic growth in Europe and China, as these regions are its largest trade partners. As growth and demand in these areas slow, the positions of African export countries deteriorate and net imports increase, negatively affecting the account balance.
According to Coface’s estimates, global growth weakened for the second consecutive year in 2016 at 2.5%. In 2017, marginally higher growth is expected at 2.7%, as a result of an upturn in activity in emerging economies – which is predicted at 4.1% in 2017, compared with 3.7% in 2016 – and economic recovery in Brazil and Russia, which will offset China’s gradual economic deceleration.
Coface expects GDP growth in advanced economies to hold steady at 1.6% in 2017, with the slowdown in the UK being compensated by the resilience of the eurozone and the slight improvement in economic activity in the US. Meanwhile, China will remain subject to the same issues in 2017 as in 2016.
“As the Chinese government is not yet ready to trim its level of support for the economy, it would seem that reducing the country’s imbalances is not a priority. This has been demonstrated by the increase in the private nonfinancial debt:GDP ratio of 20 GDP points between June 2015 and June 2016, according to the Bank of International Settlements,” concludes Coface.