UBS Wealth Management’s Chief Investment Office (CIO) has launched a new report on Africa’s sovereign credit prospects, an important benchmark used to evaluate the risk of investing in a country. The report concludes that after years of deterioration, the credit outlook of many African sovereign issuers is stabilizing or improving.
Africa’s sovereigns have been hit by a range of issues in recent years, including the end of the commodity super cycle, depreciating exchange rates and mounting public debt ratios. Energy exporters, such as Nigeria, were particularly affected.
Nigeria, Africa’s largest economy, has seen several credit rating downgrades in recent quarters, but the recent recovery in energy prices and the potential for further moderate upside should bode well for the sovereign’s creditworthiness.
According to the report’s findings, however, macroeconomic prospects in the region are beginning to improve. The International Monetary Fund (IMF) forecasts real GDP growth to almost double this year in Sub-Saharan Africa, reaching 2.6 percent, while fiscal and current account deficits are expected to have peaked at 4.5 percent and 4 percent last year, respectively. Key drivers supporting the outlook include rising global growth and trade, a modest recovery in energy and base metal prices, more competitive exchange rates for African currencies, and structural reforms in a range of countries.
Ali Janoudi, Head of Central and Eastern Europe, Middle East and Africa, France and Belgium International at UBS Wealth Management, said: “The modest energy price recovery over the past 18 months has supported the growth potential of many African economies, but especially Nigeria. The more optimistic outlook for sub-Saharan Africa should also affect Nigeria’s economy going forward as the region embarks on a new phase of development.”
Michael Bolliger, Head of Emerging Market Asset Allocation at UBS Wealth Management’s CIO, said: “We expect Nigeria, Africa’s largest economy, to recover from recession this year although it is unlikely that growth rates will return to previous highs. A determining factor for the country’s growth outlook will be a successful continuation of the Naira’s exchange rate liberalization.”
