Moody's: US post-election shift in trade policy poses limited overall risk for Sub-Saharan Africa

The credit implications for sovereigns in Sub-Saharan Africa (SSA) of a potential shift in the United States of America (Aaa stable) policies after the November election would materialize through trade, investment and remittances, but would be limited, says Moody's Investors Service in a report published today. 

Moody's report, entitled "Sovereigns -- Sub-Saharan Africa: US Post-Election Shift in Trade Policy Poses Limited Overall Risk, But Exposures Vary," is available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release. The rating agency's report is an update to the markets and does not constitute a rating action. 

"Exports from Sub-Saharan African countries to the US are unlikely to be markedly reduced after the elections. However, shifts in US immigration and foreign assistance policies could reduce remittances and aid over the longer term," says Zuzana Brixiova, a VP-Senior Analyst at Moody's. 

For African sovereigns that trade the most with the US, exports to the US amounted to less than 3% of GDP last year for Madagascar (unrated), Mauritius (Baa1 stable), Rwanda (B2 stable) and Republic of the Congo (B3 under review for downgrade). 

The geographical diversification of SSA's trade, especially intra-African trade and trade with Asia, shield the region from potential negative shocks via this channel. Moody's also does not expect US support for exports to Africa to diminish given their positive impact on jobs at home. 

SSA countries have limited vulnerability to foreign direct investment from the US, as investment flows to the region represent less than 1% of global US FDI and are concentrated in sectors that continue to offer expansion opportunities such as resources and telecoms. 

However, a tightening in immigration rules in the US would over time dampen growth in remittances, although this is unlikely to have a significant impact in the near term. 

Nigeria (B1 stable) and Kenya (B1 stable) receive remittances from the US amounting to 1.2% and 0.8% of GDP, respectively. Senegal (B1 positive, 0.4%), Uganda (B1 negative, 0.4%), Ethiopia (B1 stable, 0.3%) and Tanzania (unrated, 0.1%) are the only other SSA countries where US-originated remittances represent non-trivial amounts. 

Meanwhile, any longer term cuts in US foreign assistance to Africa amid constrained fiscal resources and inward focused policies would expose Rwanda, Mozambique (Caa3 negative) and Uganda, whose aid from the US exceeds 1% of GDP. 

Moreover, weakened SSA policy buffers reduce scope for policy responses to any economic or financial market disruption. Twin deficits, falling reserves and double-digit inflation in Angola (B1 negative), Mozambique, Nigeria and Zambia (B3 negative), for example, have reduced scope for macroeconomic policies to support competitiveness and mitigate shocks.