In its annual Global Sovereign Outlook, published Tuesday November 25, 2014, Moody’s says despite a gradually recovering global economy which will support continued stable credit quality for the world’s sovereigns in 2015, it sees four risks on the horizon that could interrupt growth and undermine sovereign creditworthiness across the globe.
“For sub-Saharan Africa, downside risks emerge from its links to China’s economy, with sovereigns demonstrating strong regional trade links facing lower risk than those that rely on commodity exports,” Matt Robinson, Vice President and Senior Credit Officer at Moody’s was cited saying in a press statement.
“The importance of China for sub-Saharan Africa as an export destination has risen to be almost on par with traditional European trading partners, reflecting greater trade integration and a near-doubling in sub-Saharan Africa’s share of global trade over the past decade,” he added.
The report, entitled “2015 Outlook: Global Sovereigns,” says the principal risks to sovereign creditworthiness across the globe are the possibility of confidence shocks from the expected rise in US interest rates, especially in the case of a disorderly market reaction, the impact of lower growth in China and the euro area, the overhang of geopolitical risks, and reform fatigue.
It has however, noted a positive side. It says on the positive side, global GDP growth is likely to continue at a steady pace 2015, though at lower levels than before the crisis.
Moody’s notes that it expects Chinese growth, one of the drivers of global GDP, to be between 6.5% and 7.5% in 2015 — but a slower than expected expansion would further undermine global economic prospects. Sub-Saharan Africa could be negatively affected by a sharper-than-expected slowdown in China or further deterioration in commodity prices, resulting from commodity exporters’ significant trade linkages and China’s significant contribution to some African countries’ FDI.
It indicates that resource exporters such as Democratic Republic of the Congo (B3, stable), Angola (Ba2, stable), Zambia (B1, stable), Republic of the Congo (Ba3, stable) and South Africa (Baa2, stable) are the most vulnerable, given their significant trade linkages to China.
In addition, countries such as Zambia, Nigeria (Ba3 stable), Angola and South Africa heavily rely on foreign direct investment contributions from China, albeit these tend to be less volatile than trade or portfolio flows, it says.
The report however notes that, in contrast, countries with strong intra-regional trade linkages, such as Uganda (B1, stable), Senegal (B1, positive), Kenya (B1, stable) and Namibia (Baa3, stable), or those with trade linkages with Europe, such as Botswana (A2, stable), Ghana (B2, negative) and Mozambique (B1, stable), whose export shares to Europe amount to between 50% and 70%, are less directly vulnerable to China-related risks.
By Emmanuel K. Dogbevi