International ratings agency Standard & Poor’s currently has Nigeria on a negative sovereign ratings watch. (The country is rated at BB minus.) “This means there is a clear and present danger,” explained the agency’s regional manager: sub- Saharan Africa Konrad Reuss recently. The issues are the Boko Haram insurgency, the fall in oil prices (because of the importance of oil for government revenues and export revenues) and the upcoming (and previously postponed) elections.

However, he cautioned that elections did not automatically deliver bad results. They could deliver good ones. It was simply that elections caused uncertainty. It is very important for Nigeria’s future that the country gets a stable government with good policies.

The country does not have a high per capita gross domestic product (GDP). African countries with higher GDPs per capita include (from highest to lowest) Gabon, Botswana, South Africa, Angola, Cape Verde and the Republic of Congo.

Despite these concerns, Nigeria remains in the middle of the sovereign ratings rankings for Africa. “We know the service sector is the most rapidly growing sector,” he pointed out. “Notwithstanding the negative watch, I like Nigeria. It is a diversified economy. It has an interesting private sector.

“Ratings are really about credit- worthiness,” he elucidated. If his agency did downgrade Nigeria, it would have little effect on that State’s borrowing. It would be more an issue of the country’s image. “From a debt perspective, even if there was a downgrade, Nigeria would still look quite solid.” The country’s biggest weakness is perhaps its current account deficit, which is expected to continue into 2018.

No less than 80% of Nigeria’s sovereign debt is naira-denominated and only 20% in dollars. So the country faces no foreign debt servicing problems. The country has effectively abandoned a fixed exchange rate and the floating exchange rate is acting as a safety valve for the economy.

Standard & Poor’s has six main categories it uses when rating governments. These are (with Nigeria’s current classifications): institutional and governance effectiveness (weakness); economic structure and growth (weakness); external liquidity and international investment position (neutral); fiscal flexibility and performance (weakness); debt burden (strength) and monetary flexibility (neutral).

Reuss clarified that the reason economic structure and growth was identified as a weakness was because of weakness in the structure of the economy and not in the country’s growth rate. The structural problems were not being offset by the good growth. “At the end of the day it is not addressing the underlying problems of the economy.”

However, in comparison, he noted that another major West African economy, Ghana, was “in dire straits”. This is not the case with Nigeria. “Nigeria is a different story. There are so many ways for Nigeria to still lead the pack at the end of the day. Agriculture has done well, [also] banking and telecommunications.”

He also addressed last year’s rebasing of Nigeria’s GDP, which made the country’s economy the biggest in Africa. Worldwide, rebasing is done all the time. “It reflects best practice. Today, we have a much more realistic picture of the Nigerian economy.” He noted that the quality of economic data available today, worldwide, was much better than it was 20 years ago and that this situation also applied to Africa.

Reuss was addressing consultancy Frontier Advisory’s Frontier Forum seminar on Nigeria in Sandton, north of Johannesburg. He stressed that Standard & Poor’s is a ratings agency, not a consultancy and pointed out that ratings was now a regulated sector.