Botswana poised to overtake South Africa in Euromoney’s Sub-Saharan Africa rankings


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South Africa remains the Sub-Saharan African (SSA) region’s safest sovereign, according to Euromoney’s country risk survey (ECR), but Botswana might be about to overtake the region’s star performer if recent trends persist. And Namibia and Ghana are also worth watching.

By ECR - Jeremy Weltman

South Africa remains the Sub-Saharan African (SSA) region’s safest sovereign, according to Euromoney’s country risk survey (ECR), but Botswana might be about to overtake the region’s star performer if recent trends persist. And Namibia and Ghana are also worth watching.

Since 1993, when Euromoney began compiling its country risk rankings biannually, South Africa has had two main spells as the SSA region’s star performer, including since 2009. The most prosperous country in the region, South Africa’s strong institutions, and large and liquid financial sector, means it is the top-ranked sovereign in the region for bank stability, government payments/capital repatriation, and access to capital, while regularly ranking in the top five SSA countries on a range of other ECR sub-indicators.

However, South Africa’s regional dominance from a country risk perspective appears to be waning. And there is historical precedent. In 1993, the country’s ECR score was 8.6 points higher than second-placed Botswana. The scores later converged and, for almost the entire period between September 2001 and September 2009, Botswana ranked above South Africa. The margin is once again shrinking – it is just 2.1 points, signalling the possibility of another seismic shift.

South Africa’s ECR profile has been hampered by a range of internal issues. The country is struggling to grow as fast as some of its other compatriots in the region, affected in part by structural constraints and political divisions over economic policy, while its current account deficit is widening and foreign debt rising – though with little indication of any debt-servicing difficulties.

Furthermore, while South Africa and Botswana have seen their ECR scores decline moderately since the first quarter – reflecting deterioration in global growth prospects linked to the eurozone crisis and its impact on commodity prices – South Africa’s score has fallen slightly more than Botswana’s.

In part, this reflects political uncertainty attached to the African National Congress leadership race ahead of elections to be held in 2014, and will have implications for how to address the high unemployment and social disparities that exist in the country. South Africa’s ECR political assessment is still just keeping ahead of Botswana’s, but by only one point and it has been slipping this year. Its government stability score is lower than that for China, Brazil and Russia.

Botswana ranks higher on several other components of the ECR scores relative to South Africa, notably for its employment outlook, institutional risk and corruption rankings. With regard to the latter, the ECR result mirrors Transparency International’s latest (2011) Corruption Perceptions Index, which also places Botswana – at 32 out of 183 countries worldwide – above South Africa in 64th position.











Where does Botswana beat South Africa?


















South Africa



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Source: Euromoney Country Risk














However, the regulatory environment is still more favourable in South Africa, according to the World Bank’s annual Doing Business report, where better credit access and investor protection are among the highlights. Indeed, this is reflected in our own survey, where South Africa scores 6.2 for its regulatory and policy environment, compared with 5.1 for Botswana.

And closing the gap with South Africa “... may be more attributable to negative sentiment surrounding South Africa, and affecting its own reputation, than merely a positive view on Botswana”, according to Mike Davies, associate director and head of Africa at Maplecroft, and a member of ECR’s expert panel. Nevertheless, it might not be long before Botswana becomes the top-rated sovereign in the region if recent trends persist.

Botswana’s economic miracle

Botswana, often referred to as one of Africa’s success stories, has a higher GDP per capita than South Africa – albeit with a fraction of its population. The country remains largely dependent on the proceeds of diamond mining for its prosperity, although diversification into manufacturing, construction and services in recent years is helping to gradually reduce the economic dominance of this precious commodity.

Unemployment, income inequalities and poverty levels are also uncomfortably high, and inflation is above the Bank of Botswana’s (central bank’s) 3% to 6% medium-term target, but is falling back toward that range. It scores well relative to South Africa in pure economic terms.

Positively, economic growth is not predicted to fall sharply in Botswana in spite of the budget consolidation now taking place in the wake of the extraordinary fiscal stimulus needed to support the economy after the global financial crisis struck in 2008.

The latest African Economic Outlook, an annual report produced jointly by the African Development Bank and the Organization for Economic Cooperation and Development, predicts 4.8% real GDP growth for Botswana in 2012 (down from 6.4% in 2011), before it accelerates to 6.7% in 2013.

The forecasts for South Africa are much lower at 2.8% for 2012 and 3.6% in 2013. Botswana’s economic-GNP score in ECR’s country risk rankings just pips South Africa’s, reflecting these differences.

The completion of large infrastructure projects, and wider concerns surrounding the health of the global economy and its impact on minerals demand, could nonetheless weigh more heavily on the regional economic outlook in the short term.

Encouragingly, Botswana’s government appears committed to achieving a small budget surplus during the current fiscal year 2012/13, as well as improving financial intermediation and regulation, amid a relatively low level of external debt and a current account that is moving from deficit into surplus, helping to shield the country from rising external winds.

Closing the gap

While South Africa and Botswana are established within the third tier of ECR’s five-tier ranking system – denoted orange on our Country Risk Scores Map – the region contains mostly tier-five (highest-risk) countries and a handful denoted as tier-four, all lying along the west coast: Angola, Gabon, Ghana, Namibia and Nigeria.

Of that group, Namibia ranks the highest, in third position regionally and at 75th overall in the global rankings. It is another country closing the gap with South Africa, although the bridge remains wide.

Taking advantage of positive investor sentiment toward SSA’s emerging sovereigns, Namibia launched its first sovereign bond in October – a $500 million, 10-year Eurobond placement – in the wake of a handful of debut listings by other SSA sovereigns.

We noted at the time (Namibia receives improved scores for sovereign risk) that “in Euromoney’s survey of country risk ... Namibia scores well ahead of other African Eurobond issuers such as Nigeria, Gabon and Ghana”.

The bond was five-and-a-half times oversubscribed, signalling appetite for more bond placements, and its success was rewarded by being voted Euromoney’s Middle East and Africa Deal of the Year 2011. As we pointed out at the time, “critics argued that ... [the] bond was too cheap for one of SSA’s few investment grade countries”. But we also noted this could be blamed on the gloomy world outlook.

This increased borrowing has boosted Namibia’s total external debt burden from 3.4% of GDP to 8% of GDP, according to the Bank of Namibia (central bank). However, this, and the country’s total debt burden – rising to around 26% of GDP – remain below at-risk thresholds defined by the International Monetary Fund. There is, therefore, room for the increased domestic and external financing requirements to support the fiscal expansion necessary to support growth and jobs creation.

As in other countries, economic growth decelerated in Namibia last year in response to flooding in the north, affecting agricultural production, softer minerals demand and strike action disrupting manufacturing. These sectors, in conjunction with high levels of construction, are expected to support economic activity during the medium term, although risks are still attached to a sharp downturn in the global economy.

Ghana: still in its infancy

Meanwhile, Ghana, the fourth-ranked SSA sovereign in ECR’s country risk rankings, has retained its regional position despite falling seven places in the global rankings since March to 84th. During the past decade, the country’s political and economic development has greatly improved its standing in the region as one of the less-risky SSA sovereigns.

The country’s economic-growth prospects are among the strongest in the region, with real GDP predicted to rise by 6% to 7% in 2012-13. However, the main sources of this strong growth – oil, cocoa and gold production – are a risk should commodity prices recede.

Most of Ghana’s sub-indicators in ECR’s country risk scores are below South Africa’s and Botswana’s. However, its economic-GNP score exceeds the scores for South Africa and Botswana, and its score for employment/unemployment also exceeds South Africa’s, while on a par with Botswana’s.

With presidential and parliamentary elections scheduled for December, there will be intense pressure for public sector pay rises and other spending increases, which might counteract the recent narrowing of the budget deficit to 4.3% of GDP.

This article was originally published by Euromoney Country Risk.