S&P Global Ratings agency has downgraded Nigeria from stable outlook to negative. The rating agency confirmed this in a research update published on February 28 2020.
Why the downgrade?
According to the update cited by Nairametrics, the rating agency claimed it was revising the outlook for Nigeria from stable to negative owing to a string of issues befalling Africa’s largest economy.
- Nigeria’s economic growth remains weak, slower than that of several peers at a similar rating level. Weak growth, sizable public debt, and external pressures are all weighing on Nigeria’s creditworthiness.
- Foreign-exchange reserve levels have fallen from $45 billion at mid-year 2019 to $38 billion at end-2019 and $36.5 billion in February 2020.
- The Central Bank of Nigeria (CBN) has been issuing bills, which have attracted foreign investors. About a third of foreign-exchange reserves are derived from nonresident holders of these CBN bills, positions we consider to be vulnerable to a change in investor sentiment.
- Owing to the late passage of the budget in 2019, government funding pressures resulted in increased financing from the central bank through overdraft facilities.
As a consequence of these pressures, we are revising the outlook to negative from stable.
The rating agency also had some positives for Nigeria
- Increased nonresident participation in domestic markets has been driven by the more-open, liberalized exchange-rate system since April 2017, as well as relatively attractive returns on the CBN’s bills. This has, in turn, helped to boost foreign-currency reserves.
- The prompt passage of the 2020 budget–the first time it has been passed before the start of the fiscal year in several years–also provides the government an opportunity to raise external funding through commercial issuances or concessional funding if required, supporting FX reserves.
- Over our forecast period, export revenue could see some upside once production from new oil and gas fields comes on stream. Imports could reduce due to the current crackdown on smuggling of goods across Nigeria’s borders with neighbouring countries, as well as import substitution measures. This will help the current account move back into a surplus averaging close to 1.8% of GDP over 2020-2023, and thereby reduce downward pressure on reserves.
On CBN maintaining FX reserves
- There have been some outflows from nonresidents in 2019 in line with other frontier and emerging markets; however, the firm interest rates in the CBN market will likely ensure they remain attractive to nonresidents.
- If nonresidents remain in the market, central bank reserves should stay broadly around current levels of five months of current account payments.
- The prompt passage of the 2020 budget – the first time it has been passed before the start of the fiscal year in several years – also provides the government with an opportunity to raise external funding through commercial issuances or concessional funding if required, supporting FX reserves.
What this means
S&P is one of the leading rating agencies in the world and is relied upon for investment decisions in frontier and emerging markets. The negative ratings signal a possibility of a costlier debt round should Nigeria proceed with its Eurobonds. Foreign investors could demand a higher yield on the back of a higher risk rating due to this downgrade.
It could also worsen the situation for the Nigerian stock market, which relies heavily on foreign investor inflows to boost demand and prices of stocks. Foreign investors have largely avoided Nigerian stocks due to policy inconsistencies on the part of the CBN.
FG meets group to access AfCFTA’s $650 billion market
AfCFTA is aligned to the ministry’s twin national objectives of industrialization and export based diversification.
The Ministry of Industry, Trade and Investment has met with executives of the Nigerian Agribusiness Group (NABG) on the implementation of the African Continental Free Trade Area (AfCFTA) and access the continent’s market worth $659 billion, in mostly manufacturing goods and services.
This was disclosed by the Minister of Industry, Trade and Investment, Otunba Niyi Adebayo during the meeting on Monday.
The minister emphasized on the importance of AfCFTA, as it is aligned to the ministry’s twin national objectives of industrialization and export based diversification. It provides us with a preferential access to African market worth over $650bn, in mostly manufactured goods .
Back story: Nairametrics had reported when Aissata Koffi Yameogo, ECOWAS’ Programmes Officer in charge of implementing AfCFTA rules of origin in the continent, said that the implementation will expand market for the manufacturing industry to 1.3 billion West African citizens, without additional duties and fees.
“It will build production capacity in the region and develop the value chain, and increased export to other African states” she added.
The benefits would also encourage member states to specialise in the production of a certain good where they have a comparative advantage, thus enhancing the quality and quantity of local production and creating more jobs.
He said, “This would improve our competitiveness and the perception of our products and services in the African market. Intra-African trade in Agro products and services will develop our local value chain, create jobs and increase our GDP.”
Today, the Honourable Minister @NiyiAdebayo_ , had a meeting with executives of the Nigerian Agribusiness Group(NABG), on the implementation of the African Continental Free Trade Area (AfCFTA) Agreement. pic.twitter.com/GOhVzLVJb2
— FMITI Nigeria (@TradeInvestNG) August 10, 2020
Download the Nairametrics News App
According to International Monetary Fund (IMF), the elimination of tariffs could boost trade in Africa by 15-25% in the medium term, and once fully implemented, is expected to cover all 55 African countries, with a combined GDP of about US$2.2 trillion.
INEC to introduce election results viewing portal
INEC says the policy would be tested at the Nasarawa State Constituency Bye-Election.
The Independent National Electoral Commission, INEC, has announced the introduction of a dedicated public portal called the INEC Result Viewing (IreV), which would enable Nigerians to view real-time results in polling stations.
This was announced Thursday evening in a statement signed by Festus Okoye, INEC’s Commissioner and Chairman of Information and Voter Education Committee.
— INEC Nigeria (@inecnigeria) August 6, 2020
“ The Commission is aware that result management has remained a major source of mistrust in our electoral process. INEC is determined to address any source of this concern through enhancing the level of transparency in the conduct of elections,” INEC said.
INEC also said that it is an important principle for votes during elections to be correctly counted. This new initiative is a major step towards achieving that goal. However, INEC said this does not constitute electronic collation of votes just yet. Instead, “the collation of election results shall remain as provided for by law, a manual process of completion.”
IreV would be tested during the Nasarawa State Constituency Bye-Election scheduled for August 8th, INEC said.
Concerned Nigerians are advised to visit inecresults.com, create an account, and fill in their details which will lead them to the portal to oversee the collation of votes.
Chinese Loans: Clauses are international standard terms – Amaechi
The probes into Nigeria’s use of foreign loans could negatively affect how foreign lenders perceive the country.
Nigeria’s Minister of Transport, Rotimi Amaechi, said the clauses contained in Nigeria’s Chinese loans for infrastructural development are standard international commitment clauses. In other words, such are regular, applicable clauses whenever a country goes into a trade agreement with another country.
The Minister revealed this while on Channels Television’s evening political talk show, Politics Today.
I have said that these are standard clauses in international commercial agreements. We have been keeping to our repayment plans and we will repay our loans. pic.twitter.com/XGnakdgQsq
— Chibuike.R. Amaechi (@ChibuikeAmaechi) August 5, 2020
Back story: The Nigerian Senate called a hearing last week, asking the Minister to explain the clauses on Chinese-funded infrastructure projects in Nigeria. Instead, the Minister argued that the probe into Nigeria’s use of foreign loans to finance infrastructure projects could negatively affect how foreign lenders perceive the country and also impact further financing for future projects.
Later during his recent Channels TV interview, the Minister said Nigeria is not Madagascar or Sri Lanka and has been keeping up with payment plans for the loan. “ No country has complained about Nigeria’s loan obligations,” Amaechi said.
Although he acknowledged Nigeria has debt over revenue problems, he made it clear that “that does not mean we have at any point in time refused to pay our loans.”
Amaechi then claimed that only a criminally-minded person would have issues with the loan terms. “Only those who don’t want to repay are worried about the clauses. If we repay our loans we won’t get arbitration,” he said.
The Minister also disclosed that the Ministry of Finance has repaid up to $98 million of the loans, adding, “those are standard international commitment clauses” and that no loan can be taken by the government without the approval of the National assembly.