Picture: REUTERS
Picture: REUTERS

ABUJA — Nigeria’s slow implementation of structural economic reforms is limiting its chances of a credit-rating upgrade, Moody’s Investors Service said on Tuesday.

While economic growth in Africa’s biggest crude oil producer was "resilient", any chance of an update from its Ba3 rating, three levels below investment grade, is hindered by corruption, weak institutions and its vulnerability to oil price drops, Edward Al-Hussainy and Dietmar Hornung, credit analysts at Moody’s, said.

Sub-Saharan Africa’s second-largest economy expanded an estimated 6.6% in the first quarter of the year, compared with 6.9% in the previous three months, the central bank said last week, citing figures from the West African nation’s statistics bureau. Oil contributes as much as 70% of the government’s fiscal revenue, leaving it sensitive to a downturn in global prices, Moody’s said.

"Momentum for addressing challenging structural reforms has slowed," Mr Al-Hussainy and Mr Hornung said. "Most critically, legislation to revise the fiscal regime in the petroleum industry and to deregulate the downstream oil and gas sector has stalled, holding up significant foreign investment while the sector’s productivity declines."

A proposed law to reform regulation and funding of the nation’s oil industry has been stalled in parliament since it was first sent to the National Assembly in 2008. Fiscal provisions in the Petroleum Industry Bill seek to raise Nigeria’s share of revenue to 73% from 61%, Petroleum Minister Diezani Alison-Madueke said in September. Energy companies operating in Nigeria say the fiscal terms will make offshore oil exploration unprofitable.

Royal Dutch Shell, Exxon Mobil, Chevron, Total and Eni run joint ventures with the state-owned Nigerian National Petroleum that pump more than 90% of the country’s oil. Bonny Light crude, one of Nigeria’s main export blends, have fallen 12% to $105.81 a barrel on Tuesday in London since this year’s peak on February 8.

Violence in the north caused by an Islamist insurgency and increased unrest in the oil-rich Niger delta have also "elevated risks" in Nigeria, Moody’s said.

Nigeria has faced worsening sectarian turmoil in the north, where the government has been battling Boko Haram since 2009. The militant group, whose name means "Western education is a sin", seeks to impose Islamic rule on the country and has killed thousands over the past three years, according to the US embassy in Abuja, the capital.

The government lost about $1bn last month because of missed oil production targets, Finance Minister Ngozi Okonjo-Iweala said last week in an interview in Cape Town.

Production fell to 1.81-million barrels a day in March, the lowest level since September 2009.

"This violence has the potential to stall foreign investment and is increasingly a fiscal drag on spending by state and local governments," according to Moody’s.

While Nigeria was not "at a tipping point", it said, "political risks are amplified by the combination of rising poverty and inequality, political disempowerment, entrenched religious and ethnic tensions, and extraordinary levels of corruption."