The plunge in oil prices exacerbated by last week’s Organization of petroleum Exporting Country (OPEC) meeting is punishing the bonds of African crude producers as the nations’ finances come under threat.
The dollar bonds of Nigeria and Gabon, which derive about 70 percent of government revenue from oil exports, were the worst performers in emerging markets after Ukraine last week as the Organization of Petroleum Exporting Countries kept its output ceiling unchanged. The difference in yield between Angola’s August 2019 securities and equivalent U.S. Treasuries reached 4.92 percentage points on Dec. 1, the most since July 2013.
The central bank of Nigeria, Africa’s biggest crude producer, devalued the currency last week as the 36 percent plunge in oil this year sent the naira tumbling. The International Monetary Fund projects Angola is facing its first budget deficit since 2009 as export revenue drops, while Gabon’s growth will slow next year, according to Standard Chartered Plc.
Sentiment was “open to deteriorating very swiftly, as has happened,” Stephen Bailey-Smith, the London-based head of African strategy at Standard Bank Group Ltd., said by phone two days ago. “We’re not done yet. We need to see where the market is prepared to sell oil in the longer term before we can make calls on the fundamentals of these economies.”

‘More Difficult’
Nigeria’s currency weakened 8.8 percent this quarter, the most in Africa after Malawi’s kwacha, as foreign reserves fell to $36.7 billion on Dec. 1, the lowest level since Aug. 2012. The kwanza, Angola’s currency, is heading for its 15th week of losses as the nation’s reserves declined 16 percent in the first 10 months of the year.
“Investors probably realize 2015 will be a much more difficult year from a fiscal standpoint for oil-producing countries in Africa,” Samir Gadio, head of African strategy at Standard Chartered in London, said by phone on Dec. 1.
Bonds of Nigeria, Angola and Gabon rebounded yesterday with Lutz Roehmeyer of LBB Invest saying they were buying opportunities.
“Their situation is worse” with oil’s decline, Roehmeyer, who oversees $1.1 billion of emerging-market debt, said by phone from Berlin yesterday. “But you only have to ask if they’re going to pay back their debt. And I say they’ll do it.”
The yield on Nigeria’s Eurobond due in July 2023 jumped to a nine-month high of 6.13 percent on Dec. 1. Rates on Angolan debt climbed to 6.46 percent on the same day, the highest since June 2013, while yields on Gabon’s December 2024 securities reached an 11-month high on Dec. 2.

Low Debt
Nigeria and Angola, both members of OPEC, have been among the continent’s fastest-growing economies in the past decade. Nigeria’s growth is expected to slow to 4.7 per cent in 2015 from 6.8 per cent this year, while the Angolan government’s proposal to cut fuel subsidies, long criticized as wasteful, is “a sign of the changing times,” according to Standard Chartered
“The outlook has certainly worsened,” Standard Bank’s Bailey-Smith said. “Their growth will be slower and they’ll have to compensate.”