Sei sulla pagina 1di 8

Research Update:

Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks
Primary Credit Analyst: Ravi Bhatia, London (44) 20-7176-7113; ravi.bhatia@standardandpoors.com Secondary Contact: Gardner T Rusike, Johannesburg +27 (11) 214 1992; gardner.rusike@standardandpoors.com

Table Of Contents
Overview Rating Action Rationale Outlook Key Statistics Related Criteria And Research Ratings List

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 1


1286267 | 301112013

Research Update:

Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks
Overview
Infighting within Nigeria's ruling party has heightened political and institutional risks, in our opinion. Extensive oil theft and installation shutdowns have seen oil production fall below levels the government assumed in its 2013 budget and 2014 budget plan, while fiscal buffers in the excess crude account (ECA) have been drawn down over the last year. In our view, the possibility of increased political influence on the central bank's management could slow or halt the progress made in bank regulation and supervision. We are removing the long-term ratings on Nigeria from CreditWatch, where they were placed with negative implications on March 21, 2014. We are affirming our 'BB-/B' long- and short-term sovereign credit ratings on Nigeria. The outlook is negative, indicating at least a one-in-three chance that we could lower the ratings on Nigeria this year or next if the political environment or fiscal picture deteriorate further. As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the Federal Republic of Nigeria are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see " Calendar Of 2014 Publication Dates For EMEA Sovereign, Regional, And Local Government Ratings," published Dec. 30, 2013, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the Federal Government of Nigeria's appeal of a rating decision that we had scheduled to publish on March 21, 2014 in accordance with the announced calendar. On March 21, 2014 we placed our long-term ratings on Nigeria on CreditWatch with negative implications, reflecting that we were considering the appeal (see "Nigeria Ratings On Watch Negative Following Appeal Of Rating Decision," published on March 21, 2014). We have now resolved the CreditWatch. We have not amended the initial rating decision.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 2


1286267 | 301112013

Research Update: Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks

Rating Action
On March 27, 2014, Standard & Poor's Ratings Services removed its long-term sovereign credit ratings on Nigeria from CreditWatch, where they were placed with negative implications on March 21, 2014. At the same time, we affirmed our long- and short-term foreign and local currency sovereign credit ratings on Nigeria at 'BB-/B'. The outlook is negative. We also affirmed our long- and short-term Nigeria national scale ratings at 'ngAA-/ngA-1'.

Rationale
The negative outlook reflects our view that risks to the ratings have increased as a result of: Infighting within the ruling party having heightened political and institutional tensions. Extensive oil theft and consequent installation shutdowns having caused oil production to fall lower than the government assumed in its 2013 budget and 2014 budget plan, while fiscal buffers in the excess crude account (ECA) have been drawn down over the last year. In our view, the possibility of increased political influence on the central bank's management could slow or halt the progress made in bank regulation and supervision. Ahead of the February 2015 elections, the ruling People's Democratic Party (PDP) is experiencing infighting and defections to the strengthening opposition. Meanwhile, the National Assembly has not yet passed the 2014 federal budget, although we understand the government expects the budget to be passed in April 2014. Nigerian legislation allows the disbursement of budgetary funds using 2013 budget guidelines up to June 2014. Many northern (and some southern) PDP politicians have crossed the aisle to the All Progressive Congress (APC) and there is a chance that next year's election will be fought along religious and regional lines, with the northern Muslim areas broadly supporting the APC and the Christian south supporting the PDP. Militancy in the northeast, led by the Islamist group, Boko Haram, has not abated despite military and diplomatic efforts. Oil theft and subsequent pipeline shutdowns have caused oil production to fall below levels assumed in the 2013 budget and 2014 budget plan. In 2013, average production stood at around 2.2 million barrels per day (b/d) against a budgeted amount of 2.5 million b/d, while in 2014 production has so far averaged about 2.25 million b/d against a reduced 2014 budgeted amount of 2.39 million b/d. The production shortfall contributed to a drawdown of ECA reserves; these fell

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 3


1286267 | 301112013

Research Update: Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks

to about US$3.4 billion in February 2014 from more than US$10 billion at end-2012. We understand the government is committed to raising the ECA reserves during 2014 (and the ECA rose slightly from about US$2.1 billion in January to US$3.4 billion in February 2014), although we believe that pre-election spending could pose challenges in this regard. In our view, the possibility of increased political influence on the central bank's management could slow or halt the progress made in bank regulation and supervision (see "Brighter Prospects For Nigeria's Banking Sector In 2014 Will Depend On Political and Regulatory Stability," Feb. 11, 2014). We classify Nigeria's banking sector in group '8' under our Banking Industry Country Risk Assessment (BICRA) methodology. We rank BICRAs on a 1-10 scale, where group '1' represents the lowest economic and industry risk. Although nominal gross general government debt has increased significantly in recent years, we expect it to remain relatively low at about 30% of GDP for 2014-2017. We also anticipate that net general government debt will remain below 20% of GDP and fall to 16% in 2017. In 2010, the central bank established the Asset Management Company of Nigeria (AMCON) to ring-fence nonperforming and substandard assets stemming from the 2009 banking crisis; AMCON's debts carry a guarantee from the federal government and, in line with other asset recovery entities, we include AMCON's debt in our figures for general government debt. In 2010 and 2011, AMCON bought distressed assets from Nigerian commercial banks, and issued about US$37 billion (15% of 2010 GDP) worth of three-year bonds to finance the purchases, thereby stabilizing the then-distressed banking sector. We understand that, in December 2013, AMCON paid off the majority of its existing bondholders using proceeds of new longer term bonds issued to the central bank. Nigeria's current account balance has consistently reported a surplus, although historically errors and omissions have been high. Crude oil and gas exports have accounted for over 90% of merchandise trade receipts. Although foreign exchange reserves declined significantly from their 2008 peak, we estimate that they will cover an average of four months of current account payments in 2014-2017. We estimate that liquid external assets exceed external debt by 38% of current account receipts, putting Nigeria in a strong net creditor position by this measure. GDP growth is primarily driven by strong non-oil growth: in 2014-2017, we expect annual real GDP growth to average 6.3%, while per capita GDP growth will average 3.5%. However, oil production has stagnated due to theft, subsequent oil pipeline shutdowns, and as new investment awaits the passage by parliament of the long-pending Petroleum Investment Bill. Nigeria's National Bureau of Statistics is rebasing the country's GDP by updating the GDP computation framework using new data sources, definitions, and methods. We do not believe that this on its own will improve Nigeria's credit quality in the near term. However, some ratios, primarily those

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 4


1286267 | 301112013

Research Update: Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks

measured as a percentage of GDP, may change. Overall, the ratings on Nigeria are constrained by our view of its low GDP per capita; low level of development outside the oil sector; significant infrastructure shortfalls; internal political tensions; and weak institutions. The ratings are supported by low general government and external debt burdens; ample oil reserves; strong non-oil GDP growth; and forecast high petroleum prices, which support exports and government revenues. Nevertheless, as an oil-dependent economy, Nigeria is prone to potential oil-price and production shocks and we consider that its capacity to adequately respond to such shocks needs further development.

Outlook
The negative outlook indicates at least a one-in-three chance that our view of Nigeria's political environment or fiscal picture could deteriorate further to the extent that we could consider lowering the ratings. We could also consider lowering the ratings if external balances deteriorate beyond our forecasts, for example as a consequence of a further drop in oil production (or prices), or if increased political influence on the central bank's management slowed or halted the progress made in bank regulation and supervision. The ratings could stabilize at current levels if political tensions do not increase further in the run-up to the 2015 presidential elections, if fiscal buffers on the ECA increase, and if budgetary performance does not weaken beyond our current expectations for Nigeria's fiscal trajectory.

Key Statistics
Table 1

Federal Republic of Nigeria - Selected Indicators


2007 Nominal GDP (US$ bil) GDP per capita (US$) Real GDP growth (%) Real GDP per capita growth (%) Change in general government debt/GDP (%) General government balance/GDP (%) General government debt/GDP (%) Net general government debt/GDP (%) General government interest expenditure/revenues (%) Oth dc claims on resident non-govt. sector/GDP (%) 166 1,131 7.5 4.7 1.9 (0.4) 12.4 (12.7) 3.4 26.5 2008 208 1,376 6.3 3.4 0.9 4.6 11.4 (13.3) 3.1 37.3 2009 169 1,091 6.9 4.1 6.0 (9.3) 17.1 (3.7) 6.5 41.3 2010 230 1,437 7.8 4.9 9.9 (6.8) 22.4 8.7 6.1 26.6 2011 246 1,496 6.8 3.9 4.8 0.5 25.1 6.9 4.8 22.2 2012 263 1,555 6.5 3.6 6.4 1.9 29.6 11.2 8.1 21.9 2013e 300 1,730 6.8 3.9 2.4 (4.0) 28.4 12.2 9.0 22.4 2014f 329 1,846 6.3 3.4 5.4 (5.0) 30.3 15.7 8.5 23.6 2015f 354 1,934 6.2 3.5 3.8 (3.5) 30.7 17.4 9.1 25.2 2016f 388 2,065 6.2 3.6 2.2 (2.0) 29.4 17.4 9.2 26.7 2017f 427 2,220 6.3 3.7 1.1 (1.0) 27.1 16.4 8.8 28.3

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 5


1286267 | 301112013

Research Update: Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks

Table 1

Federal Republic of Nigeria - Selected Indicators (cont.)


CPI growth (%) Gross external financing needs/CARs +use. res (%) Current account balance/GDP (%) Current account balance/CARs (%) Narrow net external debt/CARs (%) Net external liabilities/CARs (%) 5.4 55.4 16.6 31.1 (46.1) (10.5) 11.6 59.1 14.0 26.2 (42.8) (15.8) 11.5 61.6 8.2 17.5 (48.2) 2.6 13.7 70.6 6.3 14.0 (31.6) 0.4 10.8 80.3 5.1 10.2 (27.9) (0.9) 12.2 77.3 7.8 16.8 (33.8) (20.4) 8.5 77.6 7.0 15.9 (36.3) (20.6) 9.8 75.1 6.0 13.7 (37.6) (21.3) 9.7 77.7 4.9 11.3 (40.0) (19.8) 10.0 77.2 5.2 11.8 (37.3) (18.2) 9.9 75.8 5.6 12.4 (41.5) (17.6)

Other depository corporations (dc) are financial corporations (other than the central bank) whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. CARs--Current account receipts. The data and ratios above result from S&Ps own calculations, drawing on national as well as international sources, reflecting S&Ps independent view on the timeliness, coverage, accuracy, credibility, and usability of available information.

Related Criteria And Research


Related Criteria
Sovereign Government Rating Methodology And Assumptions, June 24, 2013 Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers, May 7, 2013 Criteria For Determining Transfer And Convertibility Assessments, May 18, 2009 Rating Implications Of Exchange Offers And Similar Restructurings, Update, May 12, 2009 Understanding National Rating Scales, April 14, 2005

Related Research
Brighter Prospects For Nigeria's Banking Sector In 2014 Will Depend On Political and Regulatory Stability, Feb. 11, 2014 Outlooks: The Sovereign Credit Weathervane, Year-End 2013 Update, Feb. 4, 2014 Banking Industry Country Risk Assessment: Nigeria, Nov. 22, 2013 Sovereign Defaults And Rating Transition Data, 2012 Update, March 29, 2013

In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 6


1286267 | 301112013

Research Update: Nigeria Ratings Affirmed; Outlook Negative On Increasing Political, Institutional, And Fiscal Risks

After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts. The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook.

Ratings List
Ratings Affirmed; CreditWatch/Outlook Action To Nigeria (Federal Republic of) Sovereign Credit Rating BB-/Negative/B Nigeria National Scale ngAA-/--/ngA-1 Senior Unsecured BBTransfer & Convertibility Assessment BB-

From BB-/Watch Neg/B ngAA-/Watch Neg/ngA-1 BB-/Watch Neg

Additional Contact: SovereignEurope; SovereignEurope@standardandpoors.com

Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 7


1286267 | 301112013

Copyright 2014 Standard & Poor's Financial Services LLC, a part of McGraw Hill Financial. All rights reserved. No content (including ratings, credit-related analyses and data, valuations, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of Standard & Poor's Financial Services LLC or its affiliates (collectively, S&P). The Content shall not be used for any unlawful or unauthorized purposes. S&P and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively S&P Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. S&P Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. S&P PARTIES DISCLAIM ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED, OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall S&P Parties be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages. Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. S&P's opinions, analyses, and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. S&P assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions. S&P does not act as a fiduciary or an investment advisor except where registered as such. While S&P has obtained information from sources it believes to be reliable, S&P does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives. To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, S&P reserves the right to assign, withdraw, or suspend such acknowledgement at any time and in its sole discretion. S&P Parties disclaim any duty whatsoever arising out of the assignment, withdrawal, or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof. S&P keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of S&P may have information that is not available to other S&P business units. S&P has established policies and procedures to maintain the confidentiality of certain nonpublic information received in connection with each analytical process. S&P may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. S&P reserves the right to disseminate its opinions and analyses. S&P's public ratings and analyses are made available on its Web sites, www.standardandpoors.com (free of charge), and www.ratingsdirect.com and www.globalcreditportal.com (subscription) and www.spcapitaliq.com (subscription) and may be distributed through other means, including via S&P publications and third-party redistributors. Additional information about our ratings fees is available at www.standardandpoors.com/usratingsfees.

WWW.STANDARDANDPOORS.COM/RATINGSDIRECT

MARCH 27, 2014 8


1286267 | 301112013