Nigeria regains investor confidence in Q1 risk survey


Matthew Turner
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Nigeria outperformed sub-Saharan Africa’s (SSA) main bond issuers in Q1 2013, overtaking Angola and Gabon in the global risk rankings – but structural reform gridlock remains an issue.

Analysts participating in Euromoney’s Country Risk Survey have reacted positively to Nigeria’s rapidly expanding economy, according to the latest results.

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


Improved economic assessment 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 growth miracle is well documented by ECR contributors, who assigned an economic outlook score of 6.2 points in Q1. Economic growth remains strong, with GDP growth projected at 7.1% for the end of 2012 and 6.6% for 2013, according to the IMF.

Reform momentum in the energy and banking sectors was another positive step for Nigeria’s risk outlook, with the country’s banking stability indicator improving for the fifth consecutive quarter.

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.”

However, an over-reliance on capital inflows as the basis for economic momentum also poses risks to the country’s economic momentum. “To build an economy you can’t just rely on capital flows,” says Gadio. “What you really want to see is a meaningful increase in FDI and that hasn’t been really happening because of limited structural reforms.”

Meanwhile, the country’s political stability poses a key challenge to the country’s risk outlook, according to ECR analysts, remaining the country’s most pressing rating constraint. With a political assessment score of 34.7, Nigeria is now more politically unstable than Angola, Benin and Algeria.

A report by Eurasia Group explains how political instability will pose a threat to the country’s reform momentum.

It states: “Nigeria’s buoyant economy can withstand substantial political headwinds and the country remains by far the most dynamic African frontier, but the combination of instability, regional balkanization and presidential weakness will stall the administration’s ambitious reform agenda next year.”

The sovereign’s score improvement coincided with an improved regional outlook, with SSA’s main issuers – Namibia, Nigeria, Tanzania and post-election Kenya – all seeing safer, though still comparatively high-risk, portfolio options.

Nigeria’s improved risk perception this quarter left the sovereign climbing into the upper bound of ECR’s fourth tier, to become the fifth-safest SSA investment destination, overtaking Angola and Gabon.