Nigeria needs structural reforms – Fitch

Nigeria could attain investment-grade status if it undertakes reforms to its power and oil sectors that would help boost economic growth and per capita income, a senior director at credit rating agency Fitch said.

With a review of the rating scheduled for publication on October 3, Fitch’s Richard Fox told Reuters on Tuesday that analysts from the firm would visit Nigeria in early September.

Fitch currently rates Africa’s biggest economy three notches below investment grade at BB-, in line with the BB- and Ba3 grades assigned by rivals Standard & Poor’s and Moody’s.

Fox said structural issues weighed 40 percent on Fitch’s rating scale, suggesting that unless long-delayed reforms to key sectors are completed, the country will struggle to secure higher ratings that would attract a wider pool of investors.

“What is going to be needed (to achieve investment-grade status) is success on the structural reform … and improved external buffers, the two main things that we are looking for on the positive ratings side,” Fox said.

Nigeria’s bond and stock markets have drawn increasing foreign demand in recent years. The stock exchange on Wednesday said foreign portfolio inflows into its equity market rose 65.1 percent to 356.50 billion naira ($2.20 billion) in the first quarter.

But Moody’s said in an annual report on Wednesday that although growth was resilient, limited structural reforms were constraining Nigeria’s ratings.

It also saw elevated risks from the confluence of a violent nationwide Boko Haram Islamist insurgency and increased militant and criminal activity in the oil-rich Niger delta.

“This violence has the potential to stall foreign investment and is increasingly a fiscal drag on spending by state and local governments,” Moody’s said in a statement.

S&P revised its rating outlook to negative from stable in March, saying continued infighting within the country’s ruling party had heightened political and institutional risks.

It also cited extensive oil theft and installation shutdowns that had cut oil production below levels assumed in the government’s 2013 and 2014 budget plans.

Fox said growth could exceed forecasts if oil and power sector reforms that have been stalled for years were completed.

Nigeria’s oil minister said last week that an oil bill that has been more than five years in the making should be broken up in order to speed up its passage through parliament.

The bill to reform oil taxes and licences and overhaul the state oil company should help unlock billion of dollars in new investments in the oil industry but has been delayed by political wrangling and objections from oil majors.

Fitch’s Fox said April’s rebasing of Nigerian GDP to $510 billion – pushing it past South Africa to become Africa’s top economy – had no ratings impact.

But a further fall in foreign reserves could trigger a negative rating action if it caused significant naira weakness, he warned.