Kenya needs credit score upgrade to attract investors

Kenya is four levels below the international credit rating grade needed to attract foreign investment at the same rate as capital flows going to emerging economies like China, Brazil and India; with poor infrastructure, rising public debt, and political uncertainty being the main setbacks.

Global rating agencies Standard and Poor’s, and Fitch upgraded Kenya’s score to B+ with a stable outlook from B late last year, but investment analysts say this grade falls short of the standard that is needed to offer investors sufficient comfort.

“Kenya is still four steps away from the investment category BBB-,” said Ashif Kassam, managing partner of financial consultancy firm RSM Ashvir. “The B+ category is similar to the speculative category of Moody’s B1/B2/B3 ratings,” he added.

Mozambique, Senegal and Uganda have a B+ rating from S&P while Angola and Cameroon have a similar rating from Fitch.

Benin and Ghana have ‘B’ ratings from S&P. In a last month report, Standard and Poor’s said the B+ rating was based on “good economic management, continued progress in pushing forward economic reform, and sophisticated domestic debt management”.

The rating agency, however, said the score reflects “the country’s low level of economic development, underlying ethnic tensions and relatively high government debt levels.”

Difficult and expensive

Mr Kassam said the lower rating makes it more difficult and expensive for countries to issue sovereign debt due to high marketing, guarantee and underwriting costs demanded by investors, a factor that Treasury is likely to take note of as it prepares for its expected Eurobond issue of $500 million.

The debt to GDP ratio has climbed by about five percentage points in as many years to 51 per cent.

Einsten Kihanda, a fund manager at ICEA Asset Management, said the rating agencies will focus on next year’s presidential elections when revising Kenya’s ratings.

“If we handle next year well, then our ratings should go up significantly,” said Mr Kihanda, adding that the government also needs to speed up the pace of revenue collection to match growth in public debt.

Peter Wachira, an investment manager at Pinebridge Investments, said investing in infrastructure will spur economic growth and strengthen the government’s ability to repay debts.

“If they are being used for recurrent expenditure that would bring some concern,” said Mr Wachira.

FitchRatings said in its detailed report that “Kenya’s public debt ratio has deteriorated since 2008… and is not projected to stabilise until the 2010/2011 fiscal year at the earliest.”