Beyond S&P’s upgrade of Nigeria’s sovereign rating

Nigerians have received the news of the global rating agency Standard & Poor’s upgrade of the country’s sovereign rating with excitement. It raised Nigeria’s sovereign credit rating from B -to B, citing improvements in the country’s external balances, rising oil production, and stronger foreign exchange reserves. It also cited the growing economic impact of the domestic refining capacity led by the Dangote Refinery. Simultaneously, S&P raised Nigeria’s national scale ratings to ‘ngA+/ngA-1’ from ‘ngBBB+/ngA-2’, with a stable outlook. This is Nigeria’s first sovereign rating upgrade since 2012, which makes it quite significant. In reaching this decision, S&P said Nigeria’s creditworthiness has improved on the back of three years of sustained structural reforms. It hailed the liberalisation of the exchange rate, which has boosted access to foreign currency and enabled a market-driven exchange-rate environment. This, in turn, has supported investor and consumer confidence, it said. But S&P’s assessment of Nigeria’s performance overlooks many issues germane to the country’s performance. While acknowledging the performance in the areas it reports on, the reality is that the country is still grappling with rising poverty. This is a critical issue that must be addressed for this rating to make sense and be relevant to the ordinary people of this country. It also hinged the upgrade on two significant developments in Nigeria’s oil sector. First, it acknowledged the rise in crude oil production in recent years arising from improvements in the Niger Delta region. More importantly, it noted the significant refining capacity that Nigeria has built over such a short time. S&P attributed this to the seminal role that Dangote Industries Ltd.’s refinery and petrochemical complex is playing in the nation’s economy, particularly in supporting the country’s current account surplus, which it projected to rise to 5.8 per cent of GDP in 2026, from 4.8 per cent last year. These are concrete achievements that have obviously impacted the economy positively. Dangote Refinery has helped cut our importation of refined products significantly, leading to a conservation of foreign exchange because what would have been spent on such imports has been saved, leading to the increased current account surplus and foreign reserves. However, as good as this development might sound, it must be put in a proper context. On paper, it is an upgrade, but reality tells a different story. While all these developments mentioned in the report are going on, Nigeria is at the same time battling the scourge of runaway inflation, especially food inflation, currently at 16.06 per cent. In a country where food production has become a challenge, inflation is now a reality that citizens must deal with. The rise in inflation and other challenges, including the steep exchange rate depreciation, have culminated in a fall in the standard of living. So, this upgrade must not be allowed to make the government rest on its oars. Our economy is still critically challenged. Even the rating agency acknowledged this, warning that it would downgrade Nigeria’s rating should any of the critical aspects of the reforms be reversed. The agency has recently issued such an upgrade to another African country, but, like our case, that nation is still battling with similar challenges as ours. While S&P hinged its report partly on Nigeria’s rise in oil exports, this must also be put in its proper context. Our oil export is rising now due to the current conflict in the Middle East, which has resulted in higher crude oil prices. Should this crisis be resolved soon, Nigeria may experience a decline in oil sales and may even revert to the previous condition. Nigeria is also going through a debt crisis, with the government’s uncontrollable penchant for borrowing. With the country’s rising profile, how will the country perform better going forward, when debt servicing will take so much away from the government’s earnings? If the government continues to borrow at this pace, will the country be able to sustain the debt burden? The real sector has been under stress. The Manufacturers Association of Nigeria, in recent times, has been saying that its members are not selling their goods. So, if the productive sector is complaining about poor patronage of its services, on what indicators did the rating agency base its pronouncements? Those familiar with the nature and purpose of rating agencies’ work know that this exercise has very little immediate benefit to offer to the ordinary people of Nigeria. It will not, for instance, reduce the price of garri or yam, nor will it reduce house rents for urban dwellers. However, Daily Trust believes that it should serve as a bolster to the government that the impact of its reforms is being recognised. This is not a time to relapse, but to rethink the reform processes to determine the direction of the next phase.