Ethiopia’s first credit rating as “B” and “B1” | Financial Times

(Javier Blas and Katrina Manson)

Ethiopia has received its first sovereign credit rating from the top global agencies, a step that opens the door for a potential debut on international capital markets and highlights the country’s profound turnround.

For many, Ethiopia is still remembered as the country that suffered a famine, described at the time in 1984, of “biblical proportions”. But for savvy investors, the country is today one of the world’s fastest growing economies, averaging growth of more than 10 per cent per year over the last decade and attracting the likes of clothing giant H&M and private equity groups.

Moody’s on Monday joined its rivals Standard & Poor’s and Fitch in rating the country as a highly speculative destination. Moody’s put the foreign currency sovereign credit rating as “B1”, one notch above the “B” given by its rivals.

The government in Addis Ababa has not indicated when it would debut, but Hailemariam Desalegn, prime minister, said last year that the country was planning a Eurobond once it had secured a credit rating.

Bankers cautioned the government could use the rating more as a marketing tool to attract foreign direct investment into Ethiopia, benchmarking the country against neighbouring Kenya and Uganda, rather than to issue a bond immediately.

Ethiopia’s first sovereign rating comes amid a bond spree in Africa. Last year, issues from countries including Gabon and Rwanda helped the region to issue a record $11bn in sovereign bonds, up from $6bn in 2012, according to Dealogic. A decade ago, Africa was issuing bonds worth about $1bn a year.

The issuance spree has triggered concerns over sustainability, coming just a decade after the region benefited from billions of dollars in debt relief.

Credit rating agencies have also warned about mounting debt levels and high fiscal deficits. This year, for example, S&P has lowered its sovereign rating or put on negative outlook Nigeria, Mozambique and Uganda.

Investors, nonetheless, have showed remarkably strong interest in the region, with most of the issuances heavily oversubscribed, even as the US Federal Reserve trims its stimulus programme. But in the current hunt for yield, investors have started to demand much higher interest rates than over the past two years.

In the case of Ethiopia, the three rating agencies highlighted a record of strong economic growth. Alexandra Mousavizadeh, a rating analyst at Moody’s in London, said GDP per capita was rising quickly, having almost tripled in just 10 years. “Growth prospects remain favourable given the investment in developing the country’s power-generating capacity and infrastructure.”

But the International Monetary Fund has warned that the pace of accumulation of public sector debt to finance major investments in dams, factories and housing construction “deserves close attention”.

Fitch said on Friday that it expected Ethiopia to achieve an expansion of 9 per cent in 2014 and 8 per cent in 2015, significantly above the average of the region. But it warned that the private sector remains weak, “reflecting the country’s fairly recent transition to a market economy, and its inadequate access to domestic credit”.
*Source: Financial Times, May 12, 2014, titled “Ethiopia receives first sovereign rating”.

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