Nigeria risk outlook improves on expectation of $1 billion Eurobond issuance

By:
Matthew Turner
Published on:

Commodity price shock poses largest threat to Nigerian risk profile.

Analysts participating in Euromoney’s Country Risk Survey have reacted positively to Nigeria’s plan to issue a $1 billion Eurobond, according to the latest survey results.

Nigeria outperformed SSA’s main bond issuers in Q1 2013, overtaking Angola and Gabon in the global risk rankings – but structural reform gridlock still poses a concern among participating economists.

ECR contributors upgraded the country’s ECR score by 3.7 points to 42 in Q1, boosting the country’s position in the global rankings to a three-year high. With a global rank of 83, Nigeria is now the fifth-safest SSA investment destination after rising nine places in Q1.

The country’s strong performance in the rankings this quarter was underpinned by a marked improvement in the country’s ATCM indicator, which increased by 3.1 points to 5.1 in Q1, suggesting there is ample credit available to Nigerian corporates and financial institutions.

Improved economic assessment and ATCM made the largest contribution to Nigeria’s enhanced risk outlook this quarter, with improvements in the country’s bank stability (+0.3), economic outlook (+0.1) and government finances (+0.1) indicators.

Nigeria’s gradual integration into the global financial system accounts, in large part, to the country’s score improvements, says Samir Gadio, emerging markets strategist at Standard Bank and one of ECR’s expert contributors.

“Since last year, Nigeria had very large capital inflows, primarily into liquidities and bonds,” says Gadio. “As a result, foreign reserves increased to $48 billion, which helped stabilize the exchange rate, which had previously been under constant pressure.”

That does not mean to say Nigeria is immune from political instability and a commodity price shock. With a political assessment score of 34.7, Nigeria is now more politically unstable than Angola, Benin and Algeria.

The sovereign scores in the political risk section remained low by international and local standards. Corruption (2.4) is perceived to be worse in Nigeria than in Uganda, Kenya or Angola. Nigeria also comes bottom of the table for institutional risk, information access and regulatory policy environment among similar rated peers.

 

Additionally, a commodity price shock still poses the biggest risks to Nigeria, according to Ziemba. She says: “Although [the] non-oil sector drives growth in Nigeria, this is facilitated by the fiscal stimulus financed by oil revenues, which greases the wheels.

“Nigeria has struggled to take advantage of the oil demand, as corruption and siphoning of resources reduce production. The government is saying a lot of the right things but has implementation issues.”

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