Africa Q4 results: Angola and Gabon improve, South Africa and Kenya decline


Matthew Turner
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Three of Africa’s top-ranked sovereigns – South Africa, Botswana and Namibia – saw downward shifts in their risk assessment scores in Euromoney’s 2012 Country Risk Survey, amid slower growth trends and widening political divisions. Worsening financing conditions meant Nigeria dropped five positions in the rankings, while pre-election tensions saw Kenya slip into the survey’s riskiest tier.

Euromoney Country Risk (ECR), in which economists assess countries across a range of economic and political criteria, recorded increased risk in some of Africa’s safest economies, including South Africa and Botswana.

South Africa retained its position as Africa’s safest economy in 2012, but ECR contributors have shown greater anxiety in the economy after the country endured higher levels of risk in 2012. The sovereign’s ECR score fell by 1.3 points (out of 100) to 56.9 in Q4 2012. This score decline left the country falling five places in the rankings to 50th globally.

South Africa and Botswana lie in tier three of ECR’s five-tier system, while Namibia’s deteriorating country risk score meant it fell into tier four in 2012. A further nine sovereigns are in tier four, including Nigeria, Ghana, Angola and Gabon. Sovereigns in tier four are considered to pose a substantial risk to investors and trade counterparties. And 35 African sovereigns are located in tier five – ECR’s riskiest investment category.

Only three of the continent’s tier four sovereigns benefited from improved risk appetite last year. Angola’s strong performance lifted it above Nigeria for the first time since September 2010 – a trend ECR recently explored: Angola now a safer bet than Nigeria, risk poll shows. Gabon’s high oil wealth means the country retains a firm footing in the rankings, with a global rank of 87. Meanwhile, Mozambique’s score improvement saw the sovereign rise into tier four.

A closer inspection of South Africa’s ECR score demonstrates that multiple factors were to blame for a higher risk environment. Labour unrest, sluggish economic growth and widening political divisions led to the sovereign’s credit rating being downgraded in 2012.

ECR data show that all of South Africa’s scores for political, economic and structural risk deteriorated in 2012. The country’s economic assessment score recorded the largest score decline, falling by 2.1 points to 51 (out of 100) last year. Increased economic risk largely stemmed from a deterioration in the country’s economic outlook and monetary policy indicators, which both fell by 0.4 points (out of 10).

South Africa’s mining strike at Marikana, which left 44 people dead and more than 70 injured, also has a bearing on the country’s political and structural assessment. Country risk experts shed one point off the country’s political assessment and 0.6 points off the country’s structural assessment.

The country’s labour market and industrial relations indicator deteriorated by 0.4 points out of 10 to 4.4 in 2012, leaving the country with the worst-performing labour market score among the Brics, according to ECR experts.

The South African economy is expected to grow to 3% in 2013, according to the IMF, down from a July projection of 3.3%, while the IMF maintained its projection of 2.6% growth in 2012. Standard & Poor’s (S&P) remains doubtful about the government’s commitment to reduce the country’s fiscal deficit in 2013, forecasting the deficit to widen to 5.1% of GDP.

South Africa’s downward score trend this year has left Botswana closing in on Africa’s top spot. Only five places now separate Botswana from South Africa in the global rankings.

Namibia, on a score of 46.8, lies further adrift from sub-Saharan Africa’s (SSA) two strongest performers. Economists downgraded the sovereign by 2.7 points in 2012, due to deteriorating scores for economic and political risk. The continued failure of the country’s authorities to submit debt indicators data to the World Bank continued to negatively affect its overall ECR score in comparison with Botswana and South Africa.

Nigeria’s economy exhibited increased risk in 2012, according to ECR economists, in spite of the country receiving an upgrade from S&P. Deteriorating scores in the country’s Access to Capital Markets (ATCM) indicator meant that the sovereign suffered a 3.4 point ECR score decline in 2012. Increased risk assessment caused Nigeria to fall three positions in the global rankings to 92nd, while the country continues to receive poor scores for corruption and institutional risk.


Kenya slips into riskiest survey tier

Excluding Zimbabwe, Kenya slipped furthest in the ECR rankings for SSA, with ECR contributors shedding 3.9 points off the country’s overall risk assessment score. This led Kenya to slip into tier five after falling 12 positions in the global rankings.

Of most concern to ECR analysts is the country’s economic assessment, which deteriorated by 0.8 points to 41.1 in 2012. The sovereign’s economic outlook indicator fell by 0.5 points to 4.5 in 2012, leaving it with the weakest economic outlook score among Africa’s B-rated sovereigns.

Pre-election jitters could account for Kenya’s score decline. The country has entered into an election cycle, with voting due to be held in March. The political unrest that swept through the country in 2008 was triggered by political grievances and it is feared the same could happen again in 2013.

As Fitch recalls: “Political risk continues to weigh on Kenya’s investment environment, given the scale of post-election violence in early 2008 and continuing tensions. A constitutional referendum in August 2010 went smoothly, but the implementation of some of the contentious issues might yet cause some tensions. The trial of alleged key instigators of the 2007 election-related violence and the upcoming elections in March 2013 will weigh on political risk in the short term.”

Kenya’s upcoming general election will therefore likely lead to a strain on economic growth in 2013. Capital Economics cites “a combination of a deteriorating external environment and heightened political risk in the run-up to elections in March 2013” as factors that will continue to negatively impact on the country’s economic outlook. Capital Economics forecasts the Kenyan economy to grow by 4.0% in 2013.

A report by Standard Bank, in February 2012, highlights the constraints on economic growth in 2013. “While Q3:12 GDP growth jumped to 4.7% y/y from 3.3% y/y, there was limited indication that a broad-based improvement in economic activity was under way,” stated the report.

High oil-rich Angola and Gabon make progress

Confidence in oil-rich Angola and Gabon improved last year, amid a recovery in the global oil prices. Ranked alongside each other in the SSA rankings, both economies share similar risk profiles, due to their high reliance on oil production. Rising oil production has led to strong economic growth for both countries in recent years. Angola is forecast to grow by 6.8% in 2013, while Gabon is expected to grow by 5.8%.


ECR contributors are confident about Angola and Gabon’s public finances, increasing Angola’s government finances indicator by 0.2 points to 5.2 in 2012. Meanwhile, Gabon’s government finances indicator of 5.3 points remains a key strength for the oil-rich economy.

However, investors should remain wary of Angola’s business and investment environment, according to the survey results. Global economists continue to highlight Angola and Gabon’s political risk assessment as a key survey weakness, despite marginally improved scores in 2012.

Angola has greatly improved its country-risk rankings, compiled by Euromoney semi-annually since 1993. The sovereign has risen more than 60 places in the Euromoney rankings in the past decade, from a lowly position of 165 in 1996, eventually overtaking Argentina, Greece and Egypt, which became more risky in the same period.

Meanwhile, Gabon's position in the ECR rankings has not wavered much in the past decade. Gabon’s global rank of 87 has improved by only one position since 1993.


This article was originally published by Euromoney Country Risk. To find out more: register for a free trial at