Nigeria Risks Ratings Downgrade If Its Oil Savings Drop
Nigeria’s credit ratings may be cut if the country raises its proposed oil benchmark price and fails to increase its savings, President Goodluck Jonathan said.
The Cabinet of Africa’s biggest oil producer has proposed an oil price of $75 a barrel for its 2013 budget, announced last month. Nigeria’s House of Representatives is seeking a price of $80 a barrel, while the Senate wants $78 a barrel. The West Africa nation saves crude revenue above the budgeted oil price.
The lower price is prudent and key to communicating that Nigeria “is managing the economy and thinking of tomorrow,” Jonathan said today in an interview broadcast on state-run television NTA. A higher price may prompt rating companies to “downgrade you and give a negative outlook,” he said.
Nigeria will be at increased risk of inflation and currency depreciation if a higher oil price than proposed by Jonathan’s administration is adopted, Finance Minister Ngozi Okonjo-Iweala said last month. The government, which relies on oil proceeds for 80 percent of revenue and more than 90 percent of foreign- currency income, should also act prudently amid a slow global economic recovery, she said.
The credit rating of sub-Saharan Africa’s second largest economy was raised Nov. 7 one level to BB- by Standard & Poor’s as the nation increased foreign-currency reserves with oil prices staying well above the $72 a barrel price used for this year’s budget. S&P’s rating with a stable outlook places Nigeria three levels below investment grade. Moody’s Investors Service separately the same day assigned Nigeria a Ba3 rating, the equivalent of its grades at S&P and Fitch Ratings.
The government didn’t end an electricity-management contract signed by Manitoba Hydro Electric Board of Canada in July to run the state-owned power utility Transmission Co. of Nigeria, Jonathan said. Reuban Abati, a spokesman for Jonathan said on Nov. 14 that Manitoba’s contract was canceled because due process was not followed.
The initial report of the termination was a “misunderstanding,” said Jonathan. Manitoba “did not follow the law strictly,” he said.
Nigeria is divesting majority holdings in 17 power generation and distribution companies spun out of the former state utility to curb power shortages, which are a daily occurrence in Africa’s most populous country with more than 160 million people. Nigeria announced investors who won bids to run 10 state-owned power distribution companies on Oct. 30 and five power plants on Sept. 25.
The government is not in talks with the militant Islamist group Boko Haram, which has claimed responsibility for bombings and attacks in Abuja, the capital and the mainly Muslim north, Jonathan said.
Authorities in Nigeria blame Boko Haram for a surge in attacks in which hundreds of people have died this year. Boko Haram, which means “Western education is a sin” in the local Hausa language, has carried out a series of bombings and attacks since 2009 in what it says is a campaign to establish an Islamic state in the country. Jonathan in January called the insurgency a more serious threat than the 1967-1970 Biafra civil war.
“There is no dialogue with Boko Haram,” said Jonathan. “They operate undercover, they wear a mask.”
Jonathan refused to confirm if he would run for office again in the next election in 2015. A Christian from the southern oil-rich Niger River delta, he succeeded Muslim northerner, Umaru Yar’Adua, who died in May in 2010 before the end of his first term and defied a party rule that made it the North’s turn to produce a presidential candidate at the 2011 election.
Nigeria is roughly split between a mostly Muslim north and a largely Christian south. The ruling People’s Democratic Party has an unwritten rule of rotating the top position between the two regions every two terms.