Economy
S&P Affirms Kenya at ‘B+/B’; Outlook Stable
By Modupe Gbadeyanka
Renowned global rating agency, S&P Global Ratings, on April 7, 2017, affirmed its ‘B+/B’ long- and short-term foreign and local currency sovereign credit ratings on Kenya with the outlook stable.
The agency explained that its ratings on Kenya were supported by its monetary flexibility, liquid domestic financial markets, track record of strong headline and per capita GDP growth, and increasingly diversified economic base.
In March 2016, Kenya signed a new stand-by agreement with the International Monetary Fund (IMF), totalling $1.5 billion over the next 18 months, which would support external financing needs if necessary.
S&P stated that it believes the arrangement will likely act as a policy anchor while it is in force, pointing out that it ratings on Kenya were constrained by the country’s history of ethnic tensions, low GDP per capita and wealth levels, high government fiscal deficits and debt stock, and susceptibility to balance-of-payments pressures.
Since 2014, the lion’s share of Kenya’s net external financing needs has been provided by official rather than commercial lenders.
In 2017, the agency expects the Kenyan economy to grow at 5.3%, slower than the estimated 6 percent in 2016.
Higher oil prices, drought conditions in the Rift Valley, and weaker credit growth (reflecting the government’s introduction of interest rate caps) will weigh on the economy this year; as will the approach of elections in August 2017, if tensions between political parties and along ethnic lines escalate.
“In the medium term, Kenya’s economic growth prospects remain strong, averaging 6% per year over 2018-2020 reflecting a diversified economic base, a resilient tourism sector, and productivity gains from large-scale public infrastructure investments, alongside Kenya’s favourable demographics,” S&P said.
It stated further that large infrastructure projects like the Standard Gauge Railway ($4 billion) have boosted economic activity.
The first phase of the Standard Gauge Railway project has been completed and is undergoing tests before commissioning during 2017. The project seeks to connect Kenya, from the port of Mombasa, with the capital Nairobi and the neighbouring Republic of Uganda.
“We estimate Kenya’s fiscal deficit in 2016-2017 will remain elevated, at close to 10% of GDP, owing to increases in one-off expenditure items related to the elections and drought support spending. This is one of the highest budgetary deficits of all rated sovereigns.
“At the same time, there are still shortfalls in personal and corporate income taxes while capital expenditure implementation lags budget targets. Absent one-off factors experienced in 2016-2017, we expect that large infrastructure-related expenditures will start to decline and that the government will undertake consolidation measures, including improving tax collection.
“We expect fiscal imbalances will reduce more gradually and average close to 6% of GDP in 2017 and close to 4% by 2020.
“We also understand that oversight at the Public Debt Management Office (PDMO) has been bolstered and new debt-management systems have been introduced. We view these factors as supportive of the government’s creditworthiness,” the agency said.
S&P disclosed that the stable outlook reflects its expectation that strong growth prospects will facilitate fiscal consolidation and contain increases in external indebtedness over the next year.
“We could lower the ratings if political tensions flared up and undermined stability-oriented economic policy-making, or if fiscal consolidation were markedly slower and increased government debt or the country’s external private sector debt increased more than we currently expect,” it added.
By Dipo Olowookere
About 0.04 per cent was recovered on Friday from the loss recorded by the Nigerian Exchange (NGX) the previous due to profit-taking.
Yesterday, investors were in the market with renewed vigour, mopping up stocks trading at relatively cheaper prices.
According to data, the insurance counter gained 0.41 per cent, the banking sector appreciated by 0.38 per cent, and the consumer goods index grew by 0.14 per cent.
The gains achieved by these three sectors were enough to lift Customs Street at the close of business despite the 0.26 per cent decline printed by the industrial goods segment and the 0.14 per cent loss suffered by the energy industry. The commodity counter was flat during the session.
A total of 43 equities gained weight on the last trading day of this week, while 26 equities shed weight, indicating a positive market breadth index and strong investor sentiment.
Red Star Express increased its share price by 10.00 per cent to N13.20, NCR Nigeria grew by 9.97 per cent to N128.55, SCOA Nigeria inflated by 9.96 per cent to N14.90, Omatek appreciated by 9.94 per cent to N1.77, and Deap Capital expanded by 9.85 per cent to N4.46.
On the flip side, McNichols decreased by 8.81 per cent to N6.00, Legend Internet crumbled by 7.56 per cent to N5.50, Cornerstone Insurance crashed by 6.48 per cent to N6.35, C&I Leasing contracted by 6.29 per cent to N8.20, and Austin Laz slipped by 5.78 per cent to N3.75.
Yesterday, 539.9 million shares valued at N16.7 billion were transacted in 48,023 deals versus the 1.0 billion shares worth N31.6 billion executed in 51,227 deals in the preceding day, implying a shrink in the trading volume, value, and number of deals by 46.01 per cent, 47.15 per cent, and 6.26 per cent apiece.
Zenith Bank was the most active for the day with 54.6 million stocks sold for N3.8 billion, Jaiz Bank traded 41.5 million units worth N359.4 million, Secure Electronic Technology transacted 37.7 million units valued at N39.2 million, Access Holdings exchanged 30.5 million units for N699.2 million, and Lasaco Assurance transacted 27.2 million units worth N68.3 million.
When the market closed for the day, the All-Share Index (ASI) went up by 72.21 points to 166,129.50 points from 166,057.29 points and the market capitalisation gained N31 billion to N106.354 trillion from N106.323 trillion.
By Adedapo Adesanya
It was a positive ending for the Naira this week after it further appreciated against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, January 16 by N1.33 or 0.09 per cent to sell for N1,417.95/$1 compared with the previous day’s N1,419.28/$1.
The domestic currency also gained N2.41 against the Euro in the official market to close at N1,647.51/€1 versus the preceding session’s closing price of N1,649.92/€1, however, it suffered a N7.97 loss against the Pound Sterling in the same market window to trade at N1,901.32/£1, in contrast to Thursday’s closing price of N1,893.35/£1.
In the same vein, the Nigerian Naira depleted against the Dollar at the GTBank FX counter by N2 to quote at N1,427/$1 compared with the previous day’s N1,425/$1, but strengthened against the greenback at the black market yesterday by N5 to settle at N1,485/$1 versus the N1,490/$1 it was exchanged a day earlier.
Improved supply conditions helped keep the market within range as exporters’ and importers’ inflows in addition to non-bank corporate supply enhanced liquidity as the Central Bank of Nigeria (CBN) made no visible intervention.
Stronger external inflows from foreign portfolio investors (FPIs) and improving current account dynamics, continue to align with structural support in the wider economy.
Nigeria has seen projections of a stronger economic or gross domestic product (GDP) growth and lower inflation in 2026, with these forecasts citing improved macroeconomic fundamentals and reform impacts.
As for the cryptocurrency market, it was mixed following selloff in precious metals and lower US stocks appeared to be denting crypto sentiment.
Gold and silver, both of which also enjoyed big rallies earlier this week, tumbled 1.2 per cent and 5 per cent, respectively while key US stock indexes — the Nasdaq, S&P 500 and Dow Jones Industrial Average — all reversed from early gains to modest losses in Friday trade.
Dogecoin (DOGE) shrank by 2.2 per cent to $0.1370, Ripple (XRP) slipped by 0.8 per cent to $2.05, Ethereum (ETH) went down by 0.7 per cent to $3,228.56, and Bitcoin (BTC) slumped by 0.6 per cent to $95,086.80.
Conversely, Litecoin (LTC) appreciated by 3.2 per cent to $74.48, Solana (SOL) rose by 0.4 per cent to $143.70, Cardano (ADA) jumped by 0.2 per cent to $0.3942, and Binance Coin (BNB) increased by 0.1 per cent to $935.88, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
Oil prices settled higher amid lingering worries about a possible US military strike against Iran, a decision that may still occur over the weekend.
Brent crude settled at $64.13 a barrel after going up by 37 cents or 0.58 per cent and the US West Texas Intermediate (WTI) crude finished at $59.44 a barrel after it gained 25 cents or 0.42 per cent.
The US Navy’s aircraft carrier USS Abraham Lincoln was expected to arrive in the Persian Gulf next week after operating in the South China Sea.
Market analysts noted that it doesn’t seem likely anything will happen soon. However, the weekends have become the perfect time for actions so as not offset the markets.
The market had risen after protests flared up in Iran and US President Donald Trump signalled the potential for military strikes, but lost over 4 per cent on Thursday as the American president said Iran’s crackdown on the protesters was easing, allaying concerns of possible military action that could disrupt oil supplies.
Iran produces approximately 3.2 million barrels per day, accounting for roughly 4 per cent of global crude production, so it was not a coincidence that markets rallied sharply through Tuesday and Wednesday as President Trump canceled meetings with Iranian officials and posted that “help is on its way” to Iranian protesters, raising fears of potential US military strikes that sent prices surging toward multi-month highs.
Weighing against those fears are potential supply increases from Venezuela.
The Trump administration is exploring plans to swap heavy Venezuelan crude for US medium sour barrels that can actually go straight into Strategic Petroleum Reserve (SPR) caverns, since not all all oil belongs in the reserve.
According to Reuters, the Department of Energy is considering moving Venezuelan heavy crude into commercial storage at the Louisiana Offshore Oil Port, while US producers deliver medium sour crude into the SPR in exchange.
Analysts expect higher supply this year, potentially creating a ceiling for the geopolitical risk premium on prices.
Some investors covered short positions ahead of the three-day Martin Luther King holiday weekend in the US.
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