THE PLUNGE in oil prices exacerbated by last week’s Organisation of Petroleum Exporting Countries (Opec) meeting is punishing the bonds of African crude producers as the nations’ finances come under threat.
The dollar bonds of Nigeria and Gabon, which derive about 70 percent of government revenue from oil exports, were the worst performers in emerging markets after Ukraine last week as Opec kept its output ceiling unchanged. The difference in yield between Angola’s August 2019 securities and equivalent US Treasuries reached 4.92 percentage points on Monday, the most since July 2013.
The central bank of Nigeria, Africa’s biggest crude producer, devalued the currency last week as the 36 percent plunge in oil this year sent the naira tumbling. The International Monetary Fund projects Angola is facing its first budget deficit since 2009 as export revenue drops, while Gabon’s growth will slow next year, according to Standard Chartered.
Sentiment was “open to deteriorating very swiftly, as has happened”, Stephen Bailey-Smith, the London-based head of African strategy at Standard Bank Group, said two days ago. “We’re not done yet. We need to see where the market is prepared to sell oil in the longer term before we can make calls on the fundamentals of these economies.”
Nigeria’s currency weakened 9.1 percent this quarter, the most in Africa after Malawi’s kwacha, as foreign reserves fell to $36.7 billion (R409.5bn) on Monday, the lowest level since August 2012. The naira traded 0.3 percent weaker at 180.18 per dollar by 9.35am in Lagos.
The kwanza, Angola’s currency, is heading for its 15th week of losses as the nation’s reserves declined 16 percent in the first 10 months of the year.
“Investors probably realise 2015 will be a much more difficult year from a fiscal standpoint for oil-producing countries in Africa,” Samir Gadio, head of African strategy at Standard Chartered in London, said on Monday.
Bonds of Nigeria, Angola and Gabon rebounded yesterday with Lutz Roehmeyer of LBB Invest saying they were buying opportunities.
“Their situation is worse” with oil’s decline, Roehmeyer, who oversees $1.1bn of emerging-market debt, said from Berlin on Wednesday. “But you only have to ask if they’re going to pay back their debt. And I say they’ll do it.”
The yield on Nigeria’s Eurobond due in July 2023 jumped to a nine-month high of 6.13 percent on Monday. Rates on Angolan debt climbed to 6.46 percent on the same day, the highest since June 2013, while yields on Gabon’s December 2024 securities reached an 11-month high on Tuesday.
Nigeria and Angola, both members of Opec, have been among the continent’s fastest-growing economies in the past decade.
Nigeria’s growth is expected to slow to 4.7 percent in 2015 from 6.8 percent this year, while the Angolan government’s proposal to cut fuel subsidies, long criticised as wasteful, is “a sign of the changing times”, according to Standard Chartered. –