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Capital Markets

Nigeria: Analysts question oil producer’s new rating

Fitch and S&P put Nigeria’s risk of default on the same level as Brazil and Turkey.

Nigeria has received its first sovereign debt ratings from Fitch Ratings and Standard & Poor’s, but some analysts have questioned the appropriateness of the ratings assigned.

Both agencies assigned the sovereign a BB– rating, on stable outlook, in February, putting the country on a par with some of the top emerging markets performers globally.

“Nigeria has a very strong economy and the fundamentals are there,” says Sruti Patel, head of research at Afrinvest. “But it is slightly surprising that the rating is on the same footing as Brazil and Turkey.” Although the Nigerian economy is very dependent on oil, recently GDP growth has been stronger in the non-oil sectors such as agriculture and manufacturing, she says.

Testing times

“While Nigeria’s ability to repay debt has vastly improved, its political stability and will to drive anti-corruption measures and more diversified long-term growth will be tested in coming months,” a research report from Merrill Lynch argues.

The two factors testing the government’s will include the way in which the armed forces deal with violence in the oil-producing Delta region in the next six months; and the handover of the presidency when Olusegun Obasanjo’s term comes to an end in a year’s time.

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