How high political risks affect businesses, loans

• Nigeria’s credit rating higher than neighbours’

The assessment of Nigeria as a high political risk region is impacting negatively on the fortunes of businesses and their abilities to access foreign loans.

The current economic recession has not only hiked the cost of borrowing, there is hardly enough money to give to businesses to run their operations or retool in the short or long terms.

The Guardian learnt that foreign loans, which would have come to the rescue of companies given the paucity of funds in the country, have also become prohibitive due to the Federal Government’s inability to effectively quash insurgency in the North east and South South regions.

Some operators, who spoke with The Guardian, hinted that international credit rating for Nigeria is as high as eight per cent but as low as two per cent for neighbouring countries like Benin.

“How can we survive under such circumstances?” they asked. Some operators have already shut down their businesses, while others are considering relocating to friendlier climes.

Although government agencies could not make official comments at press time, a highly-placed source said: “The issue of political risk perception or assessment is being handled by the Ministry of Commerce and Industry and the government is putting in place all fiscal measures to promote businesses in the country.”

The president of Oildata Group, an indigenous oil and gas service, Emeka Ene noted that political risks assessment is based on lenders’ perception. “Perception is titled the ease of doing business and predictability. We need to recognise that in any transformation, there is increased unpredictability, bearing in mind that we are yet to have the Petroleum Industry Bill (PIB) passed. So, anybody who is investing in the oil industry, particularly during this time of disruptions and recession, is bound to run into political risks as some of the factors militating against investment,” he said.

But Austin Avuru, the managing director and chief executive of Seplat Petroleum Development Company, argued that the difference in the cost of borrowing between the dollar and the naira is not much. He said: “Dollar debt is generally from nine to 11 per cent and about 18-22 per cent if it is naira. Even if you are borrowing from an international bank into Nigeria, it’s probably just one or two points lower than what a Nigerian bank would give you because of the political risk if it’s a short-term loan, but if it is a long-term loan, you won’t survive.”

Though the Chief Executive of Financial Derivatives, Mr. Bismark Rewane, agreed that Nigeria’s credit rating is higher than those of its neighbours, he noted it is not as high as claimed. “The yield on our bonds is about seven and half per cent,” he said.

According to him, “Our rating is higher than that of any of our neighbours, and it’s your rating that determines your price. So, if you look at our sovereign ratings from S and P and Moody, it’s higher than those of Benin, Togo, or any of these countries.”

As at the last rating in March 2016, Standard and Poor’s credit rating for Nigeria stood at B+ with negative outlook, Moody’s last set at B1 with stable outlook, while Fitch’s was last reported at B+ with stable outlook.

Generally, a credit rating is used by sovereign wealth funds, pension funds and other investors to gauge the credit worthiness of Nigeria, which impacts on the country’s borrowing costs.

Against this backdrop, Ene argued that Nigeria’s credit rating is not all gloom and doom, as on the flip side, “Nigeria has what many of these other places do not have. Nigeria has a thriving oil industry; there are some infrastructure, it may be threatened but they are already in place. We have a thriving and vibrant service industry; even we look at a country like Ghana, you have to import virtually everything in terms of services, but in Nigeria, they are already there. So that in itself balances the perception of the political risk.”

According to Ene, “when it comes to the movement of capital, capital is a coward, as they say; it does not want to take any risk, it goes in place of least resistance in a way.

“It is understandable why political risk is perceived as high in Nigeria, but the other elements that make up the total investment portfolio evaluations also are pointing in favour of Nigeria.”