Nigeria Not A High Risk Despite Poor Indicators | Independent Newspapers Limited
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Nigeria Not A High Risk Despite Poor Indicators

Posted: Jun 13, 2016 at 4:30 am   /   by   /   comments (0)

Kirk Leigh

Despite an array of poor macroeconomic indicators including high naira exchange rate, rising unemployment, inflation and decelerating growth, Nigeria remains a moderate risk country.

Its country risk level has been adjudged lower than the regional average, according to BMI Research, a Fitch Group Company.
Country risk refers to the risk of investing or lending in a country, arising from possible changes in the business environment that may adversely affect operating profits or the value of assets in the country.

BMI’s Country Risk Index scores countries on a 0-100 scale, evaluating short-term and long-term political stability, short-term economic outlook, long-term economic potential and operational barriers to doing business.

Contained in its May Newsletter, BMI scored Nigeria 47.4 in its country risk rating for the sub-region, lower than regional peers, Ghana and Cote d’Ivoire with scores of 53.5 and 49.6, respectively.

Nigeria’s score is lower than the regional average of 48.2 but higher than the global average of 54.5. Cameroon, with a score of 43.7 has a lower country risk than Nigeria so does Gabon with country risk of 47.

To arrive at the moderate country risk, BMI projected short-term and long-term political, economic and operational risks for the region.
Though Nigeria is seen as a short-term political risk with a score of 63.5, the country’s long term political risk is low at 43. Though the short-term political risk is higher than the regional and global score of 64.1, it is lower than that of Ghana and Gabon with scores of 72.1 and 65.4, respectively.

However, Nigeria’s long-term political risk is lower than the regional average of 53 but higher than the global average of 61.0. Ghana and Gabon both have higher long-term political risk than Nigeria with scores of 68.6 and 61.2, respectively.
Cameroon once again has a lower long-term political risk than regional peers with a score of 42.7. Cameroon has a lower political risk with a score of 58.5.

On the economic front, the short-term economic risk for Nigeria is the second highest among peers with a score of 51.3. Cote d’Ivoire is the highest with a score of 55.8.
Ghana, Gabon and Cameroon have better short-term economic prospects with risk scores of 37.7, 36.9 and 40.0, respectively, against a regional average of 44.3 and global average of 50.0.

Nigeria’s long-term economic risk is the highest in the region with a score of 56.6, even higher than the regional and global averages of 48.6 and 52.6, respectively.
Ghana figured as the least risky country economically in the long run with a score of 42.5 followed by Cameroon, 45.2, and Gabon, 45.4.

On operational risk, the country did better than the regional average of 39.6 but better than the global average of 49.9. Nigeria scored 37.4.
It did better than Ghana and Cote d’Ivoire with scores of 50.1 and 37.7, respectively. But fell behind Gabon and Cameroon, both central African countries, with scores of 36.5 each.

BMI’s moderate country risk rating, however, contrasts with the near very high-risk rating issued by Coface, a Europe based risk assessment company, in January.
Coface ranked Nigeria in the ‘C’ category in a ranking that begins with ‘A’ as very low risk and D as Very High Risk. It considers the intervening rankings of A2, A3 and A4 as acceptable risk, while B and C are considered high risk.

Nigeria’s ‘C’ country risk ranking indicates that the country has “a very uncertain political and economic outlook and a business environment with many troublesome weaknesses (that) can have a significant impact on corporate payment behaviour. Corporate default probability is high.”

It further classified Nigeria ‘D’ in its Business Climate Rating, meaning that “the business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable.

“The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D”.
Coface has for nearly 70 years been a world leader in credit insurance and has been helping to make businesses durable and contributing to the creation of sustainable wealth worldwide, according to information gleaned from its website.
Euler Hermes rates Nigeria “D” or of the highest risk in its medium term country risk ranking.

“The Medium-Term Rating (Country Grade) measures economic imbalances, the quality of the business climate, and the likelihood of political hazards. It is on a six-level scale running from AA to D, in which AA is the lowest risk level and D is the highest risk level. The Medium-Term Rating is the combination of three scores: the macroeconomic (ME) rating, the structural business environment (SBE) rating and the political risk (P) rating”.
“Standard & Poor’s credit rating for Nigeria stands at B+ with negative outlook. Moody’s credit rating for Nigeria was last set at B1 with stable outlook. Fitch’s credit rating for Nigeria was last reported at BB- with negative outlook,” according to