Moody’s Investors Service, the bond credit rating business of Moody’s Corporation, on Tuesday said Nigeria’s economic growth was resilient, predicting that the country could emerge as the largest economy in Africa by 2020.

The firm’s report obtained by our correspondent said, “Nigeria’s $260bn economy is on track to overtake South Africa as the largest economy in sub-Saharan Africa by 2020, with growth momentum being generated by the non-oil, primarily domestic service-oriented, sector.

“Consequently, Moody’s observes that Nigeria’s Gross Domestic Product growth has been remarkably stable in the six per cent-eight per cent range, with negligible sensitivity to the global downturn in 2007-08 and the subsequent negative oil price shock.”

It, however, said the country’s elevated levels of investment continued to face a chronic infrastructure deficit that weighed on productivity and competitiveness.

The report pointed out that the country’s Ba3 rating balanced the economy’s robust growth prospects and the government’s limited debt levels against low per capita income, weak institutions, slow progress in executing structural reforms, and an acute fiscal vulnerability to adverse oil price shocks.

The report said, “Nigeria has a significant hydrocarbon endowment, with reserves currently estimated to be around 37.2 trillion barrels or around 28 per cent of total African reserves. Oil exports are essential to the economy and account for over 85 per cent of total merchandise exports and 60 per cent-70 per cent of fiscal revenue. However, this dependence on oil exports exposes the economy to global energy price volatility.”

Moody’s noted that investment in Nigeria had converged to the median for Ba-rated sovereigns, following structural reforms and macroeconomic stability that was achieved by 2010, adding, “Nigeria has also been effective in attracting foreign direct investment relative to both African and Ba-rated peers.”

The report added that the legislation to revise the fiscal regime in the petroleum industry and to deregulate the downstream oil and gas sector had stalled, holding up significant foreign investment while the sector’s productivity declined.

It said, “With 65 per cent to 70 per cent of government revenues sourced from the oil sector, fiscal sensitivity to oil prices is high and the government’s mitigation strategies are a key ratings driver.

“In their current form, Moody’s views these fiscal buffers as insufficient; savings of windfall oil revenues in the Excess Crude Account’s have historically been volatile and discretionary withdrawals from the fund by both federal and state levels of government have undermined the ECA’s credibility.”

Source: Punch (By Ademola Alawiye)