Africa can absorb aid cuts and trade strains, Fitch says

Pressure from US aid freezes and global trade tension is unlikely to result in broad credit downgrades in Africa, Fitch Ratings said on Thursday.

The impact of tariffs on Africa is limited because of the region’s export composition and weaker integration into global supply chains compared to a region such as Asia, Fitch said.

Sub-Saharan Africa has been one of the largest recipients of funds disbursed by the US Agency for International Development (USAID) which was frozen by executive order of President Donald Trump.

Nonetheless, SA, Namibia and Ivory Coast remain relatively shielded from recent events, said Paul Gamble, head of Middle East/Africa in Fitch’s Sovereign Ratings Group.

Nigeria and the Seychelles both hold positive credit outlooks from Fitch Ratings — an indication that a rating is expected to be raised — thanks to ongoing reforms, he said on a webinar.

“The reforms that we’ve seen really put the region in a better position to absorb some of these shocks,” Gamble. “The impact for the ratings looks manageable.”

Still, the freeze on US foreign aid was not without negative consequences, Fitch said.

Some of the poorest nations were at risk for having projects come to an abrupt end and would see fiscal stability come under pressure. Ethiopia received US assistance worth around 80% of its foreign exchange reserves, with Mozambique, Uganda, and Lesotho also seen at risk.

“African-owned multilateral banks might become more important institutions in this shifting landscape,” Arnaud Louis, senior director at Fitch, said on the webinar.

Gamble also pointed to Washington’s pivot to strategic investments in minerals in Africa as potentially becoming a new sphere for the trade tensions as it could intensify competition on the continent with China.

“Africa will be a playing field for US-China tensions,” said Gamble. The US interest is becoming “more opportunistic, transactional” focusing on access to minerals and rare earths rather than broad-based development, he said.

The Trump administration has said it wants to invest billions of dollars in the Democratic Republic of Congo. The country’s minerals, which are used in mobile phones and electric cars, are presently dominated by China and its mining companies.

Reuters