African Economies Stronger Against External Shocks
Fitch Ratings says Sub-Saharan Africa's (SSA) investment momentum and positive economic growth trends have improved the regions resilience to external shocks.
The credit rating agency head quartered in New York released the Sub Saharan Africa Sovereign Outlook 2008 special report on Friday. In the report, Fitch highlights better economic management, rising public investment using resources freed up from debt relief, windfall from oil and other commodities, and increased private capital flows as factors driving Africa's growth.
According to the report, investment rates in SSA have risen to 22% of GDP in 2007. This strong growth has resulted in annual GDP per capita at market exchange rates more than doubling since 2002 to just over US,000 in 2007.
Fitch notes that capacity constraints exposed by strong growth has seen African governments move to addressing infrastructure deficits particularly in energy and transport.
Capital expenditure budgets are rising and governments are now looking at new sources of financing such as international bond issuance, tapping domestic bond markets for infrastructure bonds and attracting rising Chinese foreign direct investment (FDI). This means that there is likely to be an acceleration in infrastructure investment over the medium term notwithstanding capacity and institutional weaknesses.
Fitch adds that sub-Saharan Africa faces a less benign external environment in 2008, with weaker global growth and forecast softer non-oil commodity prices. Monetary policy is also being tightened in response to inflationary pressures from high food and fuel prices. But Fitch expects rising investment will keep the region's growth close to 6% for a fifth year.
In 2007, 15 SSA countries were rated in the agency's long term credit ratings. The Fitch investment ratings scale ranges from AAA (best quality, reliable and stable) to D (non-investment grade, defaults on obligations.)
South Africa was assigned a BBB+ rating with a positive foreign currency outlook, reflecting the country's improved growth performance and potential.
Fitch believes that South Africa's sound macroeconomic framework will provide mitigation against any negative impact on inflation, interest rates and growth resulting from South Africa's vulnerability due to its large current account deficit and dependence on external portfolio financing.
It also assumed no material change in policy regardless of the outcome of the ANC leadership contest which was held in December. Since then external and internal shocks including electricity shortages have resulted in a selloff of equity and fixed income securities and a weakening of the rand.
Nevertheless economic fundamentals in terms of a budget surplus, higher reserves and healthy external and domestic balance sheets remain sound.
For more information visit Fitch Ratings
www.sagoodnews.co.za
