TEXT-Fitch: African ratings more stable but less buoyant than other regions
Feb 28 - Fitch Ratings says in a review of a decade of Sub-Saharan Africa (SSA) ratings, that two-thirds of the region's sovereign ratings are unchanged since they were first assigned while one-third have improved. Unlike other regions, no ratings are lower than when first assigned. However, with the exception of South Africa, none have been upgraded by more than a notch. Excluding South Africa, which was first rated in 1994 and has been upgraded a cumulative three notches since then (notwithstanding January's one-notch downgrade), five of the other 14 rated sovereigns in the region (36%) have been upgraded: Lesotho, Ghana, Rwanda, Seychelles and Angola. However, Lesotho and Ghana were upgraded several years ago, in 2004 and 2005 respectively, and both their Outlooks are currently Negative. The other three were upgraded more recently, in 2010 and 2011, and the Outlooks on Angola and Seychelles are currently Positive. Comparing SSA's experience with other regions, and focussing on countries, as in SSA, that were first assigned ratings in the 'B' or low 'BB' categories, of 20 such countries, a quarter have suffered downgrades, 30% are unchanged, but a higher proportion - 45% - have seen rating upgrades. Moreover, in several cases these upgrades have been of more than a rating category. Azerbaijan, Brazil, Bulgaria, Kazakhstan and Turkey have all moved from low sub-investment grade into low investment grade. SSA still has only two investment grade ratings - South Africa and Namibia - and the number is unlikely to increase any time soon. SSA's rating trajectory is therefore best described as mildly positive, but less dynamic than other regions. However, compared with current non-African rating peers in the 'B' and low 'BB' categories, SSA's performance has been much more positive. Virtually all current non-African 'B' category sovereigns have seen downgrades, in some cases by several notches e.g. Cyprus, Egypt and Lebanon. Africa's upward rating progress has been relatively slow because the factors that constrain the region's ratings, whilst not acting as a cap, are ones which will only ease slowly. For example, with few exceptions, SSA ratings are constrained by relatively low per capita GDP and levels of human development. Even with sustained average GDP growth of over 5%, and in some countries much higher growth rates, per capita GDP will remain below 'B' category medians for the foreseeable future. Other constraining factors affect groups of countries rather than the whole region. Weak governance is not unique to SSA and is only a constraint within the 'B' category for oil producers Cameroon, Gabon, Angola and Nigeria. Improving governance will be a long-term challenge. Commodity dependence will also be slow to change but can be mitigated by strong reserve cushions or ideally an effective commodity reserve fund, though few SSA sovereigns actually have such a fund. Dependence on FC borrowing and the counterpart - underdeveloped local markets - is a constraint on countries such as Gabon, Lesotho and Mozambique. Debt/GDP ratios are quite low for the region as a whole, at an average 37%, and not a major rating constraint within the 'B' category except for Cape Verde and Seychelles, with 70% to 80% ratios. Positive and Negative Outlooks are roughly balanced at present. Four ratings in the region have a Positive Outlook (Angola, Gabon, Mozambique and Seychelles) while three have a Negative Outlook (Ghana, Lesotho, Zambia). The presentation 'Africa's Prospects: A Rating Perspective' is available at www.fitchratings.com Additional information is available at www.fitchratings.com.