Economy
Fitch Downgrades South Africa to ‘BB+’
By Modupe Gbadeyanka
South Africa’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) has been downgraded to ‘BB+’ from ‘BBB-‘ by Fitch Ratings with the outlooks stable.
The issue ratings on South Africa’s senior unsecured foreign- and local-currency bonds have been downgraded to ‘BB+’ from ‘BBB-‘.
The rating on the sukuk trust certificates issued by RSA Sukuk No. 1 Trust has also been downgraded to ‘BB+’ from ‘BBB-‘, in line with South Africa’s Long-Term Foreign-Currency IDR.
The Short-Term Foreign-and Local-Currency IDRs and the rating on the short-term local-currency securities have been downgraded to ‘B’ from ‘F3’. The Country Ceiling has been revised down to ‘BBB-‘ from ‘BBB’.
The downgrade of South Africa’s Long-Term IDRs reflects Fitch’s view that recent political events, including a major cabinet reshuffle, will weaken standards of governance and public finances.
In Fitch’s view, the cabinet reshuffle, which involved the replacement of the finance minister, Pravin Gordhan, and the deputy finance minister, Mcebisi Jonas, is likely to result in a change in the direction of economic policy.
The reshuffle partly reflected efforts by the out-going finance minister to improve the governance of state-owned enterprises (SOEs). The reshuffle is likely to undermine, if not reverse, progress in SOE governance, raising the risk that SOE debt could migrate onto the government’s balance sheet.
Differences over the country’s expensive nuclear programme preceded the dismissal of a previous finance minister, Nhlanhla Nene, in December 2015 and in Fitch’s view may have also contributed to the decision for the recent reshuffle.
Under the new cabinet, including a new energy minister, the programme is likely to move relatively quickly.
The state-owned electricity company, Eskom, has already issued a request for information for nuclear suppliers and is expected to issue a request for proposals for nuclear power stations later this year.
The treasury under its previous leadership had said that Eskom could not absorb the nuclear programme with its current approved guarantees, so the treasury will likely have to substantially increase guarantees to Eskom.
This would increase contingent liabilities, which are already sizeable. According to the 2017/18 budget, the government’s guarantee exposure to public institutions was ZAR308.3 billion at end-March 2017, up from ZAR255.8 billion a year earlier.
The main SOEs had additional liabilities of ZAR463 billion in 2016 with no explicit guarantee but with a significant probability that the government would step in should SOEs be unable to service the debt.
The government has repeatedly needed to support SOEs, including Eskom, which is responsible for a large share of liabilities.
The new finance minister has stated that he does not intend to change fiscal policy and remains committed to expenditure ceilings that have been a pillar of fiscal consolidation.
However, Fitch believes that following the government reshuffle, fiscal consolidation will be less of a priority given the president’s focus on “radical socioeconomic transformation”. This means that renewed shortfalls in revenues, for example as a result of lower than expected GDP growth, are less likely to be compensated by expenditure and revenue measures.
This could put upward pressure on general government debt, which at an estimated 53 percent of GDP at end-March 2017 was already slightly above the ‘BB’ category median of 51 percent.
The tensions within the ANC will mean that political energy will be absorbed by efforts to maintain party unity and fend off leadership challenges and to placate rising social pressures for addressing inequality, poverty and weak public service delivery. The Treasury’s ability to withstand departmental demands for increased spending may also weaken.
Political uncertainty was already an important factor behind weak growth last year, as in Fitch’s assessment it has affected the willingness of companies to invest.
The agency believes that the cabinet reshuffle will further undermine the investment climate.
Fitch forecasts GDP growth of 1.2 percent in 2017 and 2.1 percent in 2018, but the reshuffle has raised downside risks.
The current account deficit narrowed to 3.3 percent of GDP in 2016 from 4.4 percent in 2015, on the back of import compression reflecting weak domestic demand, low oil prices and increasing investment income from abroad.
This improvement, together with the flexible exchange rate, will contain pressures should external financing dry up. The government’s low reliance on foreign-currency financing, which accounted for just 11.3 percent of debt at end-March 2017, is also helping to contain external pressures.
Most indicators of economic development are in line with ‘BB’ category medians. GDP per capita at market prices is estimated at USD5,207 for 2016, compared with a median of USD5,007.
The World Bank’s governance indicator, at the 59th percentile, is well above the ‘BB’ median and more in line with the ‘BBB’ median.
However, this may not adequately reflect governance issues that were highlighted in the recent state of capture report by the public prosecutor and governance may deteriorate as a result of the reshuffle.
The rating is supported by a sound banking sector, which has a Fitch Bank Systemic Risk Indicator of ‘bbb’.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc kept the NASD Over-the-Counter (OTC) Securities Exchange in the green territory by 0.04 per cent on Friday, July 16.
The securities depository company added N2.50 to its share price to settle at N95.14 per unit from the preceding session’s N92.64 per unit.
However, FrieslandCampina Wamco Nigeria Plc slid during the session by N5.85 to N141.81 per share from N147.66 per share.
But when the bourse closed for the day, the market capitalisation increased by N1.08 billion to N2.593 trillion from N2.592 trillion, while the NASD Security Index (NSI) appreciated by 1.80 points to 4,320.67 points from 4,318.87 points.
During the session, the value of securities slid by 38.9 per cent to N63.5 million from N104.1 million, the volume of securities went down by 34.5 per cent to 1.2 million units from 4.8 million units, and the number of deals declined by 15.4 per cent to 33 deals from 39 deals.
Great Nigeria Insurance (GNI) Plc was the most traded stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 75.4 million units traded for N5.3 billion.
GNI Plc also ended the day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units sold for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The bulls regained control of the Nigerian Exchange (NGX) Limited on Friday after surrendering power to the bears a day earlier as a result of mild selling pressure.
Yesterday, the Nigerian bourse rebounded by 0.54 per cent, mainly due to the gains recorded by First Holdco and others.
Data harvested by Business Post indicated that the industrial goods and energy sectors were flat, while the banking index chalked up 3.13 per cent. The insurance space expanded by 1.08 per cent, and the consumer goods counter rose by 0.21 per cent.
Consequently, the All-Share Index (ASI) went up by 1,316.52 points to 243,462.13 points from 242,145.61 points, and the market capitalisation grew by N850 billion to N157.057 trillion from N156.207 trillion.
The market breadth index was bullish during the last trading session of this week, printing 31 appreciating stocks and 23 depreciating stocks, representing strong investor sentiment.
First Holdco led the advancers’ log after it climbed 9.97 per cent to N95.95, Haldane McCall appreciated by 9.94 per cent to N3.65, LivingTrust Mortgage Bank soared by 9.73 per cent to N3.72, LASACO Assurance jumped by 5.26 per cent to N2.00, and Thomas Wyatt gained 5.10 per cent to quote at N3.09.
On the flip side, Red Star Express declined by 9.50 per cent to N20.00, Omatek slipped by 6.08 per cent to N1.70, C&I Leasing shrank by 5.93 per cent to N5.55, Jaiz Bank crashed by 5.03 per cent to N8.50, and Livestock Feed fell by 3.89 per cent to N8.65.
As for the activity chart, market participants bought and sold 685.9 million equities for N42.7 billion in 44,134 deals on Friday versus the 498.5 million equities worth N34.9 billion traded in 39,484 deals on Thursday, implying a rise in the trading volume, value, and number of deals by 37.59 per cent, 22.35 per cent, and 11.78 per cent, respectively.
Investors’ darling for the day was First Holdco, with a turnover of 225.9 billion units valued at N21.0 billion, Guinea Insurance sold 53.4 million units for N45.2 million, Zenith Bank traded 41.5 million units worth N4.7 billion, Access Holdings exchanged 29.1 million units valued at N720.6 million, and UBA exchanged 27.5 million units for N1.2 billion.
By Modupe Gbadeyanka
The Africa Association of Professional Freight Forwarders and Logistics of Nigeria (APFFLON) has appealed to the Nigeria Customs Service (NCS) to deepen its sensitisation on the newly introduced Green Tax Surcharge Policy.
The chairman of APFFLON, Mr Akeem Ayobiojo, made this plea on behalf of his colleagues on Tuesday, July 14, 2026, at the Customs House in Abuja, during a stakeholders’ engagement with the agency.
He also called for improvements in the administration of Pre-Arrival Assessment Reports and Post Clearance Audit and the African Continental Free Trade Area (AfCFTA).
Mr Ayobiojo stated that freight forwarders were happy to work with the customs, commending the organisation for implementing Chapter 99, describing it as a major relief for manufacturers.
He, however, emphasised that a deeper understanding of the new tax was necessary for his members, saying more predictable procedures would reduce delays and unexpected costs for importers and freight forwarders.
In his remarks, the Comptroller-General of Customs, Mr Adewale Adeniyi, assured manufacturers, freight forwarders and other players in the nation’s trade sector that the NCS would continue to engage them on fiscal policies affecting their businesses, saying sustained dialogue remains key to resolving implementation challenges and improving the country’s trading environment.
He also promised them the service’s resolve to enhance and facilitate trade, acknowledging that, “Your feedback is important because it helps us understand what is happening in the field, and where necessary, we will take your concerns to the Federal Ministry of Finance and other relevant government institutions.”
Speaking about Authorised Economic Operator (AEO), Mr Adeniyi further explained that Nigeria would not lower the standards required under the Authorised Economic Operator Programme as the initiative is guided by global benchmarks established by the World Customs Organisation (WCO).
On her part, the Deputy Comptroller-General of Customs for Tariff and Trade, Ms Caroline Niagwan, clarified that electric vehicles can be imported without payment of duty only by holders of Import Duty Exemption Certificate (IDEC) issued by the Federal Ministry of Finance.
She also urged importers facing classification disputes to take advantage of the Advance Ruling system, noting, “Once an Advance Ruling is issued based on genuine documentation, importers have certainty on classification, valuation or origin before the goods arrive, thereby reducing unnecessary disputes during clearance.”
