Economy
Moody’s Drops South Africa’s Rating to Baa3
By Dipo Olowookere
South Africa’s long-term issuer and senior unsecured ratings have been downgraded to Baa3 from Baa2 by Moody’s.
The rating firm also assigned a negative outlook to the country as well as dropping its senior unsecured Shelf and MTN program ratings to (P) Baa3 from (P) Baa2.
“The government’s senior unsecured short-term program rating was also downgraded to (P)P-3 from (P)P-2. The rating actions conclude the review for downgrade that commenced on 3 April 2017,” Moody’s said in a statement issued on Friday.
According to the rating agency, the factors which brought about the downgrades were weakening of South Africa’s institutional framework, reduced growth prospects reflecting policy uncertainty and slower progress with structural reforms; and the continued erosion of fiscal strength due to rising public debt and contingent liabilities
Moody’s said the Baa3 rating recognizes a number of important strengths that continue to support South Africa’s creditworthiness.
However, the negative outlook reflects the continued downside risks for growth and fiscal consolidation associated with the political outlook.
Over the medium-term, economic and fiscal strength will remain sensitive to investor confidence and hence uncertainty surrounding political developments, including prospects for structural reforms intended to raise potential growth and flexibility in fiscal expenditures, it said.
In a related decision, Moody’s also downgraded to Baa3 from Baa2 the backed senior unsecured debt issued by ZAR Sovereign Capital Fund Propriety Limited, a special purpose vehicle whose debt issuance is ultimately the obligation of the South African government, and assigned a negative outlook.
South Africa’s long-term local-currency bond and deposit ceilings were lowered to A2 from A1, and the long-term and short-term foreign-currency bond ceilings lowered to A3/P-2 from A2/P-1, respectively. The long-term foreign-currency bank deposits ceilings was lowered to Baa3 from Baa2, while the short-term foreign-currency bank deposits ceiling was lowered to P-3 from P-2.
The downgrade, Moody’s said, reflects its view that recent political developments suggest a weakening of the country’s institutional strength which casts doubt over the strength and sustainability of the recovery in growth and the stabilisation of the debt-to-GDP ratio over the near-term.
The first driver for the downgrade is Moody’s view that South Africa’s institutional strength, the second factor in our rating methodology, has eroded.
The independence and strength of key institutions such as the judiciary, the Reserve Bank and the National Treasury are a key support in Moody’s assessment of South Africa’s credit profile, through ensuring the continuity of a predictable, credit-supportive policy environment, the agency explained.
Moody’s said it has taken comfort from the manifest commitment of the country’s policy institutions to achieving a broad program of structural reforms through cooperation between government, labour, and business, while at the same time maintaining rigorous adherence to fiscal spending ceilings and embarking on reforms of state-owned enterprises.
However, recent events, particularly but not exclusively the abrupt March Cabinet reshuffle, illustrate a gradual erosion of institutional strength. The institutional framework has become less transparent, effective and predictable, and policymakers’ commitment to previously-articulated reform objectives is less certain.
As a consequence, Moody’s views the underlying political dynamics which led to the March cabinet reshuffle as posing a threat to near- and medium-term real GDP growth.
Uncertainty over near- and medium-term policy priorities has damaged investor confidence, reducing investment in South Africa’s economy which fell by 3.9% in 2016 and is projected to remain subdued in 2017. Investment levels are likely to remain weak until a more stable policy environment emerges.
Medium-term growth will additionally be constrained by mixed progress with structural reforms, including delays in the implementation of reforms in the mining sector, in the governance of state-owned enterprises, and in the elimination of barriers to competition in key network sectors. With the economy already recording two consecutive quarters of contraction prior to the cabinet reshuffle, Moody’s forecasts growth below 1% in 2017 and 1.5% in 2018, with stagnating investment reducing medium-term (and potential) growth as well.
Lower levels of growth and heightened uncertainty about policy direction and policymakers’ commitment to structural reforms have increased the risk of a weakening of the government balance sheet.
In Moody’s view, lower than expected growth will further delay the stabilization of South Africa’s debt-to-GDP ratio. Instead of stabilizing in 2018/19 Moody’s now expects the debt burden will reach about 55% of GDP that year and continue to rise gradually afterwards. While the National Treasury has reiterated its commitment to expenditure ceilings, pressures to raise public wages will again rise in the next fiscal year as the end of the current three-year agreement will open room for new negotiations. Underperformance on revenue collection is another risk, the statement said.
Furthermore, contingent liabilities linked to state-owned enterprises continue to pose a tail risk to the country’s fiscal strength.
Operational inefficiencies, weak corporate governance, and poor procurement practices persist in SOEs, with government guarantees extended to SOEs rising. This has also increased the likelihood of contingent liabilities crystalizing on the government’s balance sheet. Pressures to further extend guarantees and utilize procurement practices to advance political objectives are sources of additional potential risk.
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.”
