Low oil price sees Kenya benefiting as Nigeria strains

NAIROBI/LAGOS — Investors skittish about Nigerian assets as plunging oil prices pummel the West African nation’s economy are casting their eyes across the continent to Kenya. The World Bank raised its growth forecast for Kenya on March 5, saying oil prices that have tumbled 48% since June would boost the economy of the nation, a net importer of crude.

By contrast, Nigeria is set to slow, the International Monetary Fund said the same day. The continent’s biggest oil producer is struggling with falling export revenue and a loss of investor confidence, after it postponed elections amid the insurgency by the Islamist group Boko Haram in the country’s northeast.

"Some investors think it makes more sense to be overweight Kenya versus Nigeria," said Mahan Namin, a money manager at Insparo Asset Management, which sold its Nigerian sovereign bonds last year and has bought more Kenyan debt this year. "The divergence with Nigeria is a case of Kenya’s revenue base being more diversified and oil prices being lower."

Kenya, with 41-million people and a gross domestic product of $55bn, is the biggest economy in East Africa, with tea, coffee and tourism among its main sources of foreign exchange. Investments in infrastructure, agriculture and manufacturing are creating more jobs and should increase growth to 7% by 2017, the World Bank said after upgrading this year’s projection to 6% from 4.7%.


While Nigeria dwarfs Kenya with its $520bn economy and population of 170-million, it relies on oil for 90% of export earnings and 70% of government revenue. The plunge in oil prices will slow growth to 4.8% in 2015, compared with 6.3% in 2014, the IMF said.

"Kenya has managed to diversify," Standard Chartered East Africa CE Lamin Manjang said. "It is not a commodity-driven economy" like Nigeria, he said.

Morgan Stanley and Aberdeen Asset Management were among investors that said they sold all their Nigerian local bonds in the past six months as the naira weakened 18% against the dollar, the most among 24 African currencies tracked by Bloomberg. Kenya’s shilling depreciated 3.1% in the period.

Yields on Nigeria’s $500m of bonds due July 2023, rated three levels below investment grade by Moody’s Investors Service, climbed 95 basis points in the past year to 7.01% in Lagos. Yields on Kenya’s $2bn of debt due June 2024, rated one level lower, dropped 16 basis points since a sale in June to 6.44%.

The yield divergence will continue at least until after Nigeria’s presidential election on March 28 and as long as oil prices stay low, said ING’s Marco Ruijer.

"If oil remains around $60 a barrel, Kenya will trade inside Nigeria. If prices rise to $70 or $80, that gap should disappear," Mr Ruijer said.


Bloomberg