Cape Town - The commodity price slump and lower gross domestic product (GDP) growth will continue to trouble South Africa and Nigeria, according to a report by Standard and Poor's on ratings trends in sub-Sahara Africa in 2016.
Since slow economic growth is at the core of SA's problems, the ratings agency foresees that the country faces a tough year in 2016. This is despite the projected narrowing of the current account deficit due to lower oil prices and their consequent impact on the import bill.
"Weak European demand for SA's manufactured goods, weak Chinese demand for key hard commodity exports - including gold, platinum, iron ore and coal - electricity shortages and weak business confidence, exacerbate the issue," according to the report.
The agency foresees that lower-than-expected GDP growth, combined with the government's exposure to weak state-owned enterprises like Eskom, could pose a risk to the government achieving its fiscal targets.
"In addition, foreign investor sentiment could add to the woes. Even though 90% of the total general government debt stock is in local currency, approximately 34% of this is held by non-residents, which makes the sovereign vulnerable to global investor sentiment, relative returns, and diverging policy decisions elsewhere," cautioned Standard and Poor's.
It also pointed at recent reshuffles at the Treasury, which "rattled markets" and led to the withdrawal of funds, as well as exchange rate pressures.
As for Nigeria, the oil price slump will continue to strain its economy. Nigeria is the largest oil exporter on the continent. It relies on oil for about two-thirds of its fiscal revenues and over 90% of exports. In 2015, Nigeria was estimated to have run its first current account deficit since 1998.
Standard and Poor's foresees that the new Nigerian government, led by president Mohammaddu Buhari, will seek to tackle the slump by stimulating growth via planned countercyclical spending, while simultaneously seeking to limit currency devaluation via strict exchange controls.
As for Africa's third-largest economy and second-largest oil exporter, Angola, the ratings agency foresees that it will attempt to implement significant budget cuts, particularly capital expenditures, while being more willing than Nigeria to devalue. Also contrary to Nigeria, it does not plan a fiscal stimulus, according to Standard and Poor's.
The agengy pointed out, however, that some net oil importers like Senegal, Rwanda, and Ethiopia will benefit from falling oil prices. Kenya, on the other hand, while also a net importer of oil, will continue to face fiscal pressures, while Mozambique will suffer from subdued coal and aluminum prices and the threat of crystallising contingent liabilities, in the view of Standard and Poor's.
The agency said elections will pose challenges to fiscal consolidation in Uganda, the Democratic Republic of Congo, Ghana and Zambia, while Burkina Faso will attempt to stabilise its political environment after longstanding president Blaise Compaoré was ousted in late 2014.