Africa Market Update - August 2018

2AUGUST 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A Financial Advisory
Company
AUGUST 2018 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA
GHANA 4
9
15
24
RWANDA 28
KENYA
UGANDA
TANZANIA 19
Table of Contents
GHANA
• Inflation ticks up back to target ceiling derailing Bank of Ghana’s expansionary
stance
• Possible tax hikes to disenfranchise the ruling party’s political constituency
NIGERIA
• Central Bank defies our expectation to signal tightening in the near term
• Foreign investor outflows from stock exchange hit second highest level since
January 2015
KENYA
• Parliamentary committee rejects President’s nominee for SRC chair
• Q1-2018 sees accelerated GDP growth
At a Glance
TANZANIA
• Debt sustainability burden as TRA misses revenue targets. Respite, however,
from narrowing current account deficit
• Tanzania to renew land policy to ease ownership process
UGANDA
• Constitutional Court upholds removal of Presidential age limit
• Positive first quarter GDP figures
RWANDA
• Increased bilateral visits to Rwanda as it courts economic and diplomatic
allies; China, India and Mozambique
• Rwanda struggles to attract FDI
• Agriculture and services sector to drive future economic growth
http://mutuamatheka.co.ke/wp-content/uploads/2012/04/001_NAIROBI_WEBREADY_MUTUA-MATHEKA-10.jpg
Nairobi, Kenya
© Mutua Matheka
Cover image:

AFRICA DEALS LANDSCAPE
January - July 2018
Source: PitchBook, StratLink Africa
Snapshot of Deals
• Zambia: BQ Metals acquired the Pangeni Project for USD 2.2 million on July 24th, 2018
• Tanzania: SimuSolar raised USD 470,000 of convertible debt funding from undisclosed investors on July 20th, 2018
• Kenya: Sokowatch raised USD 3.28 million of seed funding in a deal led by 4DX Ventures on July 20th, 2018
Deal Activity by Industry (Proportions) Deal Activity by Types (Proportions)
South Africa
Nigeria
Egypt
Morocco
Kenya
Senegal
Ethiopia
Ghana
Namibia
Mauritius
Madagascar
Tanzania
Congo
Ivory Coast
Lesotho
Swaziland
Uganda
Niger
5.0 Billion
2.1 Billion
1.8 Billion
1.3 Billion
874.3 Million
389.0 Million
374.7 Million
142.6 Million
136.2 Million
101.4 Million
94.2 Million
56.8 Million
10.9 Million
10.0 Million
8.7 Million
8.3 Million
1.1 Million
20,000.0
Value of Transactions by Country (USD)
31.8%
31.8%
22.6%
22.6%
11.6%
11.6%
7.4%
7.4%
6.6%
6.6%
5.5%
5.5%
14.5%
14.5%
M&A Secondary transaction - Private
Corporate Divestiture Growth & Expansion
Initial Public Oﬀer PIPE
Others
9.2%
8.1%
7.2%
6.2%
5.1%
4.9%
4.6%
3.1%
2.5%
49.1%
Health devices
& Supplies
Insurance
Exploration, production
& reﬁning
Communication &
networking
Metals, Minerals
& Mining
Apparel
& accessories
Capital markets
Energy services
Commercial
banks
Others

UPRWARD NUDGE IN INFLATION THREATENS BANK OF GHANA’S EXPANSIONARY STANCE
GHANA MARKET UPDATE

Potential Tax Hikes Threaten Social Pressure
Ghana maintains a favorable political risk profile
with mitigated risks in the near and medium-term.
Possible hikes in various taxes in the following
the medium-term budget 2018 threaten to inflict
pressure on the political profile for two reasons:
• The New Patriotic Party won the 2016 general
election,inpart,onaplatformofaraftoftaxcuts
aimed at improving the business environment
and lowering the cost of living. Initiating tax
hikes would undermine the party’s credibility
especially within its political constituency. This
development is in line with StratLink’s January
2017 position in which we cautioned that the
state of the economy lacked sufficient fiscal
space to allow tax cuts. In effect, the pledge for
tax cuts set the country for a disenfranchised
citizenry, potentially presenting risks to its
political environment
• Tax hikes are bound to aggravate the situation
in view of the rise in inflation experienced
between May and June 2018. With pressure
already stemming from the weakening Cedi,
it is important that the economy is cushioned
from further inflation drivers such as hikes in
various taxes. Ghana could soon find itself with
Value Added Tax (VAT) rates as high as those of
peer economies such as Uganda and Tanzania
POLITICAL OUTLOOK
Credit to the Private Sector Ticks Up
Whereas the broader macroeconomy has over the
last two months indicated a build-up in underlying
pressures (inflation and foreign exchange), the
business environment is favorable. Available data
suggests growth in credit to the private sector
could be gathering momentum after lethargy at
the start of 2018. As discussed in the Debt Market
section (page 7), the proportion of domestic debt
held by commercial banks declined from 53.0% in
2016 to 35.2% in 2017, a trend we believe signals a
shift in focus by banks from targeting government
paper to retail lending.
This, however, faces the risk of a resumption of
tightening by the Bank of Ghana in the near term.
Two factors could inform this switch in policy
stance:
• Should inflation continue rising to high double
digits
• If the Cedi’s slide against major currencies
continues and threatens to pile pressure on
the economy’s recovery from the 2014 – 2016
commodity price rout
BUSINESS ENVIRONMENT
Growth in Private Sector Credit (Y-o-Y)
Source: Bank of Ghana, StratLink Africa
GDP: USD 45.1 Bln | Population: 28.8 Mln
GHANA
Source: Ernst & Young, StratLink Africa
VAT Rates Comparison
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
SouthAfrica
Ghana
Zambia
Kenya
Tanzania
Uganda
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18

Resurging Inflation Calls for Caution from Central
Bank
After two months in the single digit horizon,
headline inflation resumed an uptick to 10.0% in
June 2018. This development has elicited concern
as it threatens to erode the confidence that was
building up with regard to Ghana’s policy direction
between 2017 and 2018. As noted in our reports
earlier this year (February 2018 and May 2018),
undertones of inflationary pressure have been
visible in the economy. Our May 2018 Update, in
particular, observed that the 200.0 bps slash of the
benchmark rate in March 2018 was larger than we
expected in view of the inflation pressure that was
lurking.
A number of factors could be behind the
resurgence of inflation. We note, for instance, that
in the foreign exchange market, the Cedi has come
under intense pressure for the better part of 2018.
As at June 16th, 2018, the Cedi had depreciated
7.4% YTD pushing it to lows last witnessed in Q1
2017 at a time when the economy was grappling
with depressed commodity prices. The country’s
foreign exchange reserves stood at USD 5.0 billion
as at end of April 2018, compared to a peak of USD
6.3 billion in May 2017 signaling waning capacity
to shield the local currency from growing pressure
even as investors grow wary of emerging and
frontier markets.
ECONOMIC OUTLOOK
In view of this, we expect to see two key
developments in the remaining part of 2018:
• Bank of Ghana is likely to slow down its
expansionary monetary adjustments in a bid
to tame inflation before it soars to high double
digits. In the July 2018 meeting, the benchmark
rate was retained with a likelihood of a modest
hike in the next meeting contingent upon trends
in inflation
• Bank of Ghana is likely to tighten liquidity
conditions in the money market thus raising the
interbank rate. The interbank rate could resume
the 19.0%- 20.0% band within the next month
Cedi to USD Spot Exchange Rate
Interbank Rate
Headline Inflation
GHANA
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Depreciation registered by the
Cedi to the greenback YTD as
at July 16th, 2018
7.4%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18

Government Issuance of Domestic Debt (USD)
Sovereign Yield Curve
Debt Profile
Domestic Debt by Holder
Source: Debt Management Office, StratLink Africa
Source: Bloomberg, StratLink Africa
Source: Debt Management Office, StratLink Africa
Significant Changes in the Debt Profile
Besides movement in the yields, there are two
significant changes in the country’s debt profile:
• There is a shift towards more medium and
long-term debt with a view to relieving
the government off the pressure that has
been experienced due to debt that matures
relatively fast. This is particularly important
for a commodity reliant economy which is
periodically susceptible to depressed revenue
due to volatility of commodity prices
• The proportion of domestic debt held by
commercial banks is contracting. This bodes
well for an economy that is in need of a catalytic
effect in its private sector. Between 2014 and
2016, commercial bank lending focused on
government debt as a way to hedge against
risky retail lending
Banks Non-banks Foreigners
2016 53.0% 25.3% 21.7%
2017 35.2% 26.3% 38.5%
GHANA
0.0
1.0
2.0
3.0
4.0
5.0
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Billions
Short-term Yields
Whereas yields on the long-term end of the curve
declined between January and April 2018, the
short-termendpostedmarginalmovement.Noting
that appetite for domestic has been moderated
between Q2 2017 and Q2 2018, it is likely that
investors are pricing the reversion of disinflation
experienced starting Q4 2016 thus assuming a
cautious position with regard to the short-term
whilst maintaining a favorable one regarding the
long-term. As indicated in the foregoing section,
depreciation of the Cedi presents particular risk
from an inflation standpoint.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
91Day
182Day
364Day
3Year
5Year
7Year
Jun-17 Jan-18 Apr-18
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2016 2017
Short-term Medium-term Long-term
DEBT MARKET UPDATE

Ghana Stock Exchange Composite Index vs USD to
Cedi Exchange
Market Dips as Cedi Plunge Scares Investors
The market continues to tumble in what we assess
is informed by the exit of foreign investors jittered
by the depreciation of the Cedi. Depreciation of
the local unit is undermining returns especially
for foreign investors who now increasingly need
more units of the Cedi to realize a single dollar.
As such, the Composite Index has mimicked the
trend exhibited by the USD to Cedi exchange as
can be observed in the chart below. Unless we
see strong intervention to stem the slide by the
local unit, such as a rate hike by Bank of Ghana,
this trend is bound to persist through end of Q3
2018. Additionally, emerging and frontier markets
have in the recent past been on the receiving end
of adverse perception by investors, a factor which
we believe has fueled the rout being witnessed in
a number of sub-Saharan Africa stock exchanges.
Banking Stocks Index
Banking Stocks Show Resilience
Even as the market tumbled, banking stocks
showed resilience with the index on a plateau.
We assess that investors are likely to be assuming
a relatively bullish stance with regard to banking
stocks based on three key considerations:
• As indicated in our report earlier this year, the
hike in capital requirements for commercial
banks (by 233.3% to USD 83.2 million) is likely
to have bolstered investor confidence in the
banking sector. Investors are likely to be taking
positions in various banking stocks with the
new capital requirement set to take effect on
December 31st, 2018
• Towards the end of 2017, Bank of Ghana
began implementation of a bank supervisory
framework guided by Basel III provisions. This
is expected to help strengthen the sector and
stave off capital adequacy related risks
GHANA
0.20
0.21
0.21
0.22
0.22
0.23
0.23
0.24
2,200.0
2,400.0
2,600.0
2,800.0
3,000.0
3,200.0
3,400.0
3,600.0
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Ghana Stock Exchange
Composite Index, year-to-date,
gain as at July 16th, 2018
11.2%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
EQUITY MARKET UPDATE

NIGERIA MARKET UPDATE
CENTRAL BANK DEFIES OUR EXPECTATION TO SIGNAL TIGHTENING IN THE NEAR TERM

NOTE
Central Bank Defies Expectation, Signals Tightening
Our outlook on Nigeria for 2018 has essentially been anchored on the anticipation that the Central Bank would begin
unwinding its hawkish stance in Q3. As such, we anticipated that 2018 would wind up either with the benchmark
rate at 13.0% or a dovish tweak in the Cash Reserve Ratio. This view has been informed by indications of favorable
trends in the monetary environment ─ headline inflation has been on general decline whilst the thinning out of
the premium between exchange rates in the formal and parallel markets has suggested dollar aridity is increasingly
coming under control in the market. Additionally, two factors prodded us to believe the Central Bank would begin
engaging an expansionary gear in 2018 ─ one, whereas growth data has been definitive that the economy has
shrugged off the recession, non-oil growth has been weak indicative of a fragile rebound propelled, principally, by
the up-turn in the price of oil. Two, muted growth in credit to the private sector suggests that whereas the broader
macroeconomic environment is improving, banks have maintained a clenched fist. It was against this backdrop that
we expected the MPC to send a signal that would trigger thawing out of tightened credit conditions in the market.
In its July 2018 MPC statement, however, the Central Bank opted to hold firm all key rates (the benchmark rate,
the Cash Reserve Ratio and the Liquidity Ratio) citing a build-up of inflation pressures in the economy. In our view,
the Central Bank has adopted a precautionary stance given the evidence of a slowdown, and in some instances
reversion, of the disinflation season as has been witnessed in economies such as Zambia and Ghana. Additionally,
with inflation not having been tamed within the target band (6.0% ─ 9.0%) in spite of a prolonged period of
contractionary policy (the benchmark rate was raised to 14.0% in July 2016), the Central Bank is wary of runaway
double digit inflation should it fail to mitigate the pass-through effects of underlying pressures. Further to this,
the last two months have been characterized by growing pressure on emerging and frontier market currencies. In
Nigeria, the Central Bank is inclined to adopt a stance that seeks to forestall massive capital flight. In May 2018,
the Nigeria Stock Exchange reported the second largest capital outflow since January 2018 at USD 362.2 million.
What does this mean?
This development calls for consideration of two things regarding Nigeria’s outlook:
• Looking forward, any tightening cycle is likely to be characterized by modest hikes of less than 100.0 basis points
as the Central Bank treads a tight rope between safeguarding the macro environment from a surge in inflation
and tightening already constricted lending channels in the economy. It will also be of interest to observe growth
numbers for the non-oil segment of the economy starting Q4 2018
• It is our view that the signal from the Central Bank for a bias towards tightening calls for growing focus on the
evolution of money supply between now and January 2019, especially in view of the February 2019 general
election. Ideally, we would have anticipated minimal, if any, policy adjustments in the last two MPC meetings of
2018 (24th – 25th September and 19th – 20th November) given the proximity to the 2019 poll

Defections Indicate Rising Political Activity
The country’s political risk profile remains broadly
favorable. The country has greatly benefited from
reduced incidences of insurgent attacks from Boko
Haram and other militia, a fact we are cautiously
optimistic will prevail through the election period
to allow a favorable climate for the polling exercise.
The key protagonists in the looming political
contents, the People’s Democratic Party (PDP)
and the All Progressives Congress (APC), are set
to step up efforts to consolidate their footholds
in respective political constituencies. Defections
could, however, present a greater threat to the
APC than it would to PDP given that over the last
two years, the incumbent’s profile has been greatly
undermined by a number of factors, notably
perceived mismanagement of the economy and
President Buhari’s absence on account of medical
leave.
Neutrality of State Agencies to Come Under
Focus
Going forward, the neutrality of stage agencies
such as the police and military is bound to come
under sharp scrutiny as the country looks forward
to the election. The 2019 general election will, yet
again, present a litmus test of Nigeria’s institutional
preparedness to conduct a polling exercise that is
deemed to be free and fair. We expect the country
to build up from the strong foundation established
by the 2015 general election which saw the
stable transfer of power from a losing incumbent.
Specifically, the preparedness of the Independent
National Electoral Commission will be a key factor
to consider with regard to risks to the stability of
Nigeria’s political environment.
POLITICAL OUTLOOK
NIGERIA
1
Central Bank of Nigeria
Rising Oil Price Eases Foreign Exchange Crunch
As argued in our forecast at the start of the year,
foreign exchange pressures have receded in 2018
with a key driver being the uptick in the price of
oil which has buoyed inflow of hard currency into
the economy. As at June 13th, 2018, gross foreign
exchange reserves at the Central Bank stood at
USD 47.6 billion¹, 22.8% higher than they were at
the start of the years.
On the whole, however, we maintain the view
that the business environment is not yet out of
the woods. Access to credit now stands as one of
the main challenges facing businesses with banks
having tightened lending conditions in the face of
high non-performing loans and a hawkish stance
by the Central Bank. The next monetary policy
meeting (September 2018) is likely to be keenly
watched iven that the Central Bank has now
signalled the likelihood of monetary tightening
going forward..
BUSINESS NEWS ENVIRONMENT
Price of Crude Oil (USD per Barrel)
Source: Energy Information Administration, StratLink Africa
0.0
20.0
40.0
60.0
80.0
100.0
120.0
Jan-14
Jul-14
Jan-15
Jul-15
Jan-16
Jul-16
Jan-17
Jul-17
Jan-18

Inflation
Growth in Public and Private Sector Credit
and Ghana. This circumspect stance over inflation
is informed by a number of factors including:
• Inflation is still 220.0 bps above the target
ceiling and potential reversal of the downtrend
over the last seven months would imply a return
to high double digits. A bias for tightening at a
time when inflation is on a general downtrend
seeks to mitigate the risk of having to tighten
aggressively should inflation begin to rise
• A rise in inflation threatens to reverse the yield
curve’s correction at a time when short-term
yields have been on a steady decline, creating
room for the government to tap into short-
term credit at relatively favorable cost. Failure
to arrest a rise in inflation in good time could
see the ongoing correction of the yield curve
disrupted
• Whereas improvements in the foreign exchange
market have been reassuring over the last
twelve months, a bias for tightening by the
Central Bank suggests that the market regulator
is wary of the capital outflow being witnessed in
emerging and frontier markets
Central Bank Defies Our Expectation
The Central Bank of Nigeria held its July 2018
Monetary Policy Committee meeting defying our
expectation of dovish signals from the regulator.
In its statement, the Central Bank decided to hold
all key rates with the benchmark, cash reserve
ratio and liquidity ratio retained at 14.0%, 22.5%
and 30.0%. Our anticipation of commencement
of an unwinding cycle of the tightened monetary
policy has been predicated on indications of
considerably tightened credit conditions in the
face of imbalanced recovery in the economy. As
such, our expectation has been that the Central
Bank would adopt a gradual dovish stance with a
view to catalyze private sector activity.
Our view was further anchored on improvement
on the foreign exchange market with the premium
in the parallel foreign exchange market having
thinned out progressively, suggesting that hard
currency scarcity in the market has declined.
Central Bank Assumes Cautious Stance over
Inflation
We view the move by the Central Bank as a
precaution taken in light of the resurgence of
inflation pressures in economies such as Zambia
ECONOMIC OUTLOOK
Source: National Bureau of Statistics, StratLink Africa
Source: Central Bank of Nigeria, StratLink Africa
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Private Sector Public Sector
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-14
Jun-14
Nov-14
Apr-15
Sep-15
Feb-16
Jul-16
Dec-16
May-17
Oct-17
Mar-18
Headline InﬂaƟon Non-food Index
Food Index

NIGERIA
Source: Central Bank of Nigeria, StratLink Africa
Interbank Rate
Low Appetite for Long-term Paper by Investors
We expect to witness a general rise in yields in the
coming months following indications of a potential
uptick in inflation and tightening of liquidity in
the money market. The tightening of liquidity
corroborates our view that part of the Central
Bank’s reason for holding a bias for tightening lies
in foreign exchange related concern. Available data
shows that the interbank rate surged to a 26.1%
in May 2018 compared to a monthly average of
17.3% in the first five months of 2018.
Investor appetite remained concentrated on
the short-term end of the market, a factor that
reflects the much higher yields attracted by the
instruments. The five year and ten year bond
issuances in June 2018, in particular, reported a
performancerateof41.4%and54.5%,respectively.
We expect to witness growing appetite for fixed
income instruments, especially for the short-term
paper, based on the following:
• The slump in the stock market in likely to push
investors to focus on the fixed income market
• With the Central Bank signaling a bias for
tightening at a time when the economy needs
loosened policy, investors are likely to opt for
the safe position availed in the fixed income
market
DEBT MARKET UPDATE
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Foreign Investor Capital Outflow from NSE
Source: Nigeria Stock Exchange, StratLink Africa
Profit Taking by Foreign Investors Subdues
Market
May 2018 reported the second largest capital
outflow by foreign investors from the Nigeria
Stock Exchange at USD 362.2 million since January
2015. This capital flight was triggered by the
growing jitters over emerging and frontier markets
with Nigeria suffering the adverse perception of
susceptibility to external shocks especially from
a commodity reliance standpoint. Available data
shows that outflows moderated in June 2018 but
still stood higher than inflows with a ratio of 1:1.1
(inflow-outflow ratio). Investors’ profit taking, as
they capitalize on capital gains following the 2017
rally, is poised to keep the market subdued for the
better part of the second half of 2018.
The Nigeria Stock Exchange 30 Index fell to lows
last witnessed in mid- 2017 closing July 25th, 2018
at 1,632.5 being a 6.6% decline year-to-date.
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0 Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
May-18
Millions
Average foreign investor outflow from the Nigeria
Stock Exchange between January and June 2018,
70.6% higher than the same period in 2017.
USD 193.5 Mln

Banking Stocks Index
NIGERIA
Nigeria Stock Exchange 30 Index
Source: Nigeria Stock Exchange, StratLink Africa
Counters in the banking sector slid further in the
period under review with the key risks, in our
view, remaining constraints in access to foreign
exchange and the high non-performing loan ratios.
Banking Stocks: MPC Signals Portends Tightened
Credit Conditions
Oil and Gas Index
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
1,400.0
1,500.0
1,600.0
1,700.0
1,800.0
1,900.0
2,000.0
2,100.0
Tuesday,
July 4, 2017
Wednesday,
July 4, 2018
Millions
Volume - RHS Last Price
Year-on-year gain of the Nigeria
Stock Exchange 30 Index as at
July 24th, 2018
4.0%
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
300.0
350.0
400.0
450.0
500.0
550.0
600.0
650.0
04-07-17
04-09-17
04-11-17
04-01-18
04-03-18
04-05-18
04-07-18
Billions
Volume - RHS Banking Index
With the Central Bank having opted to hold all
rates, in the July 2018 Monetary Policy Committee
meeting, with a bias for tightening going forward,
we expect credit conditions to tighten further in
the coming months.
Oil and Gas: Shares Slump on External Risks
0.0
5.0
10.0
15.0
20.0
25.0
30.0
200.0
220.0
240.0
260.0
280.0
300.0
320.0
340.0
360.0
380.0
400.0
04-07-17
04-09-17
04-11-17
04-01-18
04-03-18
04-05-18
04-07-18
Millions
Volume - RHS Index

FIRST QUARTER GROWTH SHOWS PROMISE
KENYA MARKET UPDATE

POLITICAL OUTLOOK
KENYA
Rate Cap Repeal Likely to Boost Economy
Pressure to repeal the interest rate cap has
intensified even as some MPs have promised to
fight its removal. Growth in credit to the private
sector, year-on-year, hit 2.8% in April 2018 which
was woefully below the average growth in the
same metric over the 12 months prior to the
introduction of the legislation in August 2016
(15.6%).
Some sectors have felt the credit crunch more
than others (i.e. mining, business services and
agriculture) as they are likely perceived as riskier.
A repeal of the rate cap is expected to encourage
monetary easing, given the current modest
inflation, and boost lending which will provide
tailwinds to the economy.
Credit to Private Sector, % Change y-o-y
Credit to Private Sector Growth by Sector,
Average May-17 to Apr-18
Source: BMI, StratLink Africa
Source: BMI, StratLink Africa
President’s Nominee to Chair SRC Rejected by
Parliamentary Committee
President Uhuru Kenyatta’s nominee to chair the
Salaries Remuneration Committee (SRC), Dr. Ben
Chumo who formerly headed Kenya Power and
Lighting Company (KPLC), has been rejected by a
parliamentary committee on Finance and National
Planning. The committee noted that while Dr.
Chumo possesses the required professional
experience and academic credentials, he does not
meet the ethical threshold necessary to hold the
position of chairman of the SRC.
The decision to reject Dr. Chumo’s nomination
was based on him being charged with fraudulently
acquiring faulty transformers while he headed
KPLC, which is a conspiracy to commit an economic
crime, as well as his refusal to vacate his position as
the Chairperson of the Egerton University Council
after having received the aforementioned charge.
Parliamentary Autonomy, Leadership and
Integrity
The outcome of the parliamentary committee’s
assessment of Dr. Chumo’s nomination by the
President is important for the following reasons:
• Critics of the government have bemoaned the
influence the Executive branch of government
has on the Legislative and Judiciary arms
however, the rejection of Dr. Chumo’s
nomination is a reassuring and much needed
signal of parliament’s autonomy from the
Executive arm of the establishment
• At a time when the government is dealing
with a number of corruption allegations, it
is encouraging to witness the committee’s
adherence to Kenya’s guidelines on leadership
and integrity, as detailed in chapter 6 of the
Constitution
0.0%
5.0%
10.0%
15.0%
20.0%
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
Average for Aug-15 to Jul-16
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
MiningandQuarrying
BusinessServices
Agriculture
TransportandComm.
FinanceandInsurance
ConsumerDurables
PrivateHouseholds
ConstrucƟon
Manufacturing
Trade
RealEstate

KENYA
Most Improved Sectors by GDP Growth Acceleration
Worst Performing Sectors by GDP Growth
Deceleration
Source: KNBS, StratLink Africa
Slowed growth in the transport and storage,
and financial and insurance sectors are of
concern considering the two jointly accounted
for a significant 12.2% of GDP in Q1-2018.
Accommodation and restaurants recorded the
steepest deceleration in growth however, this is
due to the large expansion it underwent in Q1-
2017 (24.5%) as the sector recovered from security
concerns and even now continues to perform
strongly. Economic output through the rest of the
year is likely to remain resilient, benefiting from
a stable macroeconomic environment with low
inflation and a stable exchange rate.
ECONOMIC OUTLOOK
Accelerated Growth in First Quarter
First quarter GDP growth in 2018 accelerated
to 5.7% from 4.8% in the same quarter of 2017,
beating the average growth rate achieved over the
first quarters spanning 2013 to 2017. The sectors
that contributed the most towards GDP in Q1-
2018 were agriculture, manufacturing, real estate
and trade which accounted for 25.5%, 9.6%,
8.3% and 7.0% of GDP, respectively. The sectors
that recorded the most significant slowdown
include transport and storage, mining, financial
and insurance as well as accommodation and
restaurants.
Agriculture played a key role in driving economic
expansion in the first quarter of the year having
undergone growth of 5.2%, up from the 1.0%
growth the sector underwent in Q1-2017. Gains
came on the back of improved weather conditions
that saw increased volumes of tea produced
(10.7%) despite weak coffee outputs, higher
horticulture exports (up 39.1% in value) as well as
better milk volumes (22.8%).
Manufacturing grew by 2.3% in the period under
review, buoyed by improved agro-processing
activity as well as more credit being advanced
to the sector. The Financial Intermediation
Services Indirectly Measured (FISIM) sector
improved between Q1-2017 and Q1-2018 despite
contracting by USD 283.1 million in the first three
months of this year.
First Quarter GDP Growth Rates
5.7%
4.8%
4.2%
4.4%
4.6%
4.8%
5.0%
5.2%
5.4%
5.6%
5.8%
20182017
2013-2017 Average Q1 Growth
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Agriculture
FISIM
Professional,
Admin&
SupportServices
Trade
Q1-2017 GDP Growth
Q1-2018 GDP Growth
Change in Q1 GDP Growth from 2017 to 2018
-15.0%
-5.0%
5.0%
15.0%
25.0%
Transport
&Storage
Mining
&Quarrying
Financial
&Insurance
OtherServices
AccommodaƟon
&Restaurants
Q1-2017 GDP Growth
Q1-2018 GDP Growth
Change in Q1 GDP Growth from 2017 to 2018

Investor Preference for T-Bills Continues
Yields on Treasury Bills edged down slightly in the
month to 19 July, 2018 while rates along the rest of
the yield curve remained relatively constant. Yields
on government papers in the primary market
have fallen since the start of the year. Between
1 January, 2018 and 16 July, 2018 yields on 91
day, 182 day and 364 day T-Bills at government
auctions fell by 0.4%, 1.3% and 0.8%, respectively,
with investors seeming to take a preference for
short term government securities as seen in high
subscription rates for the same.
As illustrated below, the proportion of government
domestic debt in T-Bills increased by 4.0% between
January and July this year while the proportion
in bonds decreased by 4.0% indicating investor
preferences for the former. The upward trend in
yields is in line with inflation that began to rise in
May and is expected to continue edging upward in
the medium term.
Bloomberg BVAL Yields Index
Government Domestic Debt by Instrument
Source: CBK, StratLink Africa
DEBT MARKET UPDATE
KENYA
Equity Turnover Dips in Q2
The NSE 20 share index remained relatively
unchanged in July, closing at 3,313.8 on the 25th
of the same month, compared to the previous
month where the index averaged 3,322.2.
The second quarter of 2018 saw equity market
turnover dip by 22.9% relative to the preceding
quarter which was driven by a relatively significant
dip in equity prices in May and June this year.
However, equity turnover in Q2 2018 remained
27.2% above the same quarter in 2017.
Nairobi Securities Exchange 20 Share Index
Equity Market Turnover
KES Billion
Source: Capital Markets Authority, StratLink Africa
Change in NSE 20 Share index
in month to 26 July 2018
0.3%
10.4%
10.8%
11.2%
11.6%
12.0%
12.4%
12.8%
13.2%
13.6%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
19-Jul-18 19-Jun-18
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
26-Jan-18 06-Jul-18
T-Bills Treasury Bonds
CBK OverdraŌ to Govt Other DomesƟc Debt
0.0
20.0
40.0
60.0
80.0
100.0
3,200.0
3,300.0
3,400.0
3,500.0
3,600.0
3,700.0
3,800.0
3,900.0
03-Apr-18
17-Apr-18
01-May-18
15-May-18
29-May-18
12-Jun-18
26-Jun-18
10-Jul-18
24-Jul-18
Millions
Volume NSE 20 Index (LHS)
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
Q2-2018Q1-2018Q2-2017

TANZANIA MARKET UPDATE
DEBT SUSTAINABILITY AMIDST MISSED REVENUE COLLECTION TARGETS

TanzaniatoRenewLandPolicytoEaseOwnership
Process
Government has reduced land title deed levy from
2.5% to 1.0%, a move intended to ease the land
ownership process, besides issuing electronic land
titledeedstoensuresustainablelandmanagement
systems and also to simplify the tax collection
process. Tanzania is in the process of revising its
land policy of 1995 with a new draft National Land
Policy 2016 which, attempts to address the core
problems related to poor implementation of the
working Land Policy of 1995. Land in Tanzania is
leased from the government, rather than owned
outright through a freehold system. Nonetheless,
the existing laws governing land tenure serve as
a disincentive to long-term investment as they
provide insecurity of land tenure, thus, should
be addressed in the final land policy. However,
the draft National Land Policy 2016 still provides
conflicting data on land ownership in Tanzania; on
the one hand, the policy states that non-citizens
and foreign companies can be granted land and/
or purchase unit titles for investment purposes,
but on the other hand, they are restricted from
acquiring village land; a policy that serves as a
major barrier for access to financing for holders
of Certificates of Customary Rights of Occupancy.
The draft land policy also seems to divert land
resources away from small producers in favor
of medium and large producers and does not
provide adequate protection of vulnerable groups
which puts government in a precarious position;
government is facing a delicate balancing act that
includes safeguarding smallholders’ land rights on
the one hand and securing land for state-owned
enterprises and their international investment
partners on the other hand, a case in point, the
recent policy reforms in the extractive sectors
which, not only have strengthened the role of
government in governing the sector but also, raises
questions about the legitimacy and willingness of
the government to mobilize and appropriate land
and other resources to facilitate investments in
the extractive sectors. Therefore, we expect that
the current developments should help address
these shortcomings and eventually improve the
investment environment.
POLITICAL OUTLOOK
TANZANIA
Tanzania Looking to Improve the Business
Environment
Efforts to improve the business environment
are set to benefit from government plans to
implement recommendations from a blueprint
for regulatory reforms, aimed at harmonizing
and simplifying procedures for payment of taxes,
fees and levies in a bid to improve the business
environment and support the private sector.
The decision comes in the wake of Tanzania’s
poor performance in the World Bank’s Ease of
Doing Business rankings following its potentially
unfavorable business environment in 2017 where
Tanzania is ranked 137 among 190 economies
deteriorating five points from 2016, owing to
notably poor performance in starting a business
and trading across borders, ranking 182 and 162,
respectively. Key features of the blueprint include
shortening time and bureaucratic procedures in
registration of businesses and companies as well as
reducing the high start-up and operating business
costs due to multiplicity of taxes, fees and levies.
Consequently, the government has come up with
an initiative, Tanzania Business Clinic, to speed
up the process of improving Tanzania’s business
climate. Full implementation of the blueprint
will stimulate industrial development in order to
attract private sector investments.
Exporters in the Textile Industry wary of Heavy
Levies
Even as government remains keen on improving
the business environment, exporters in the
leather industry are decrying high levies and
tax overburden, particularly, the 10.0% levy on
leather which was introduced during the financial
year 2015/16, and which is making them lose
business to neighboring Kenya and Uganda who
are considered to have more favorable terms. The
issue of tax collection has been identified as an
impediment for businesses in Tanzania with a far
reaching implication on the economy. We opine
that for Tanzania to achieve the middle income
status in 2025, government should create more
space for investors who could potentially steer
the country towards the target by resolving these
challenges.

Narrowing Current Account Deficit even as Debt
Stock Rises
Tanzania’s current account deficit continued to
narrow last year buoyed by increased earnings
from tourism and declining imports. The current
account deficit narrowed by 43.8% year-on-year,
to USD 1,210.5 million in 2017. Consequently, the
balance of payments recorded a surplus of USD
1,649.0 million in 2017, compared to a surplus of
USD 305.5 million in 2016¹.
Meanwhile, external debt increased by 12.5%,
year-on-year, from USD 17,802.6 million recorded
at the end of April 2017. However, official data
shows that external debt to GDP ratio was
19.7% as at June 2017, below the international
sustainability threshold of 40.0%².
Be that as it may, Tanzania’s debt levels remain
expensive owing to its reliance on commercial
loans that pose a risk to its currency in the long
run. Nonetheless, Tanzania has maintained its
Debt Sustainability amidst Missed Revenue
Targets
Tanzania’s growing national debt has fueled public
debate regarding its sustainability against the
country’s ability to finance the debt as well as fund
the budget, amidst missed revenue targets despite
increasing collections. The Tanzania Revenue
Authority (TRA) missed the 2017/18 revenue
collection target by 9.4%, collecting USD 6.8
billion, attributed to poor business performance
due to liquidity squeeze and increased tax arrears.
TRA has a higher target of USD 7.9 billion for the
current financial year to partly finance the USD
14.3 billion 2018/19 budget.
foreign reserves above the East Africa threshold
of at least 4.5 months of imports with foreign
account reserves totaling USD 5,906.2 million,
an increase of 36.9% from 2016, supporting 5.4
months of import cover.
Government should contain any further rise in the
debt burden in the short-medium terms and direct
limited domestic resources towards development
budget funding to improve creditor perception on
Tanzania’s ability to repay its debt.
Gross National Foreign Reserves (USD/Mln)
Tax Revenue Collections (USD/Bln)
Balance of Payments (USD/Mln)
Central Government Debt Stock (USD/Mln)
ECONOMIC OUTLOOK
Source: Monetary Policy Statement June 2018, StratLink Africa
Source: Tanzania Revenue Authority, StratLink Africa
Source: Bank of Tanzania, StratLink Africa
TANZANIA
-6000
-4000
-2000
0
2000
2012 2013 2014 2015 2016
Current Account Trade Balance BOP
0.0
20,000.0
Jan-17 Jan-18
External Debt DomesƟc Debt
0.0
2,000.0
4,000.0
6,000.0
8,000.0
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
0.0
2.0
4.0
6.0
8.0
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013
FY2014
FY2015
FY2016
FY2017
FY2018
1
Ministry of Finance and Planning; Bank of Tanzania
2
Monetary Policy Statement, June 2018

Low Appetite for Short-term Government
Instruments
Investors in the fixed income market have
continued to shun the short term government
papers which continue to post unattractively low
yields. The yield for the 91 Days and 182 Days
maturity bills stagnated at 2.9% and 2.7%, with 0
and 1 bid each, respectively, while the 364 Days
bill’s yield rose slightly by 60.0bps to 7.3%, in July
2018. The 364 Day posted 83 bids,emphasizingthe
investor preference for long term securities and
much favorable yields. Likewise, transactions in
the inter-bank market declined slightly by 0.1% to
an average of 1.8% between May and June, 2018.
Inflation is also trending on fifteen-year historical
lows at 3.4% in June 2018, thus supporting lower
yields.
The recently floated 15-year Treasury bond
posted 48.9% subscription despite higher yields
where the weighted average coupon yield rose
to 14.6% from 14.4%. Future higher yields should
be supported by expected increased issuance of
government securities for budget financing.
Shilling Strengthens against the Greenback
The Shilling depreciated marginally in July 2018
against the greenback, but remained broadly
stable, as exports for traditional crops pick up
coupled with increasing tourism receipts in the
high season, a momentum we project will be
sustained in the foreseeable future.
T-Bill Yield Trend
TANZANIA
DEBT MARKET UPDATE
Shilling vs USD
Interbank Rate, month-on-month
Shilling depreciation,
month-on-month, as at
19th July, 2018
Shilling depreciation,
year-on-year, as at 19th
July, 2018
-0.3%
-2.2%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
91 Day 182 Day 364 Day
2,264.0
2,266.0
2,268.0
2,270.0
2,272.0
2,274.0
2,276.0
2,278.0
2,280.0
2,282.0
Jun-18
Jun-18
Jul-18
Jul-18
Jul-18
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
InterbankRate(Red)
VolumeinTZMilions

Improving Performance of the Bourse
The general improved performance of listed
securities at the Dar es Salaam stock exchange
supported the rise in performance of the bourse
in July, 2018. Most listed securities stayed in the
green territory with Vodafone, TBL and DSE,
trading the greatest volumes in the period under
review supporting the good performance by
the All Share Index which closed the month at
2,299.8 units compared to 2,310.8 in the previous
month. While the domestic Tanzania Share
Index gained 0.7% to close the month at 4,207.4
units. Nonetheless, foreign investors continue
dominating both the buying and selling sides of
the bourse. However Acacia mining woes endure
amid wrangles with government as the company’s
net earnings dropped by 51.0% to about USD 30.9
million leading to a 5.0% drop in the share price on
the date of announcement.
All Share Index, year-on-year
Sector Indices Post Mixed Results
The sector indices, on the other hand, posted
mixed results. The Industrial and Allied Index rose
by 130.0 bps to 6,238.6; the Banking Index closed
at 2,519.9 points, down by 50.0bps. While the
Commercial Services Sector Index stagnated at
2,331.3 points, in the period under review.
Source: Dar es Salaam Stock Exchange, StratLink Africa
Sector Indices, month-on-month
TANZANIA
All Share Index Change,
19th July, 2018
year-on-year, as at 19th
July, 2018
-0.3%
5.8%
2,000.0
2,050.0
2,100.0
2,150.0
2,200.0
2,250.0
2,300.0
2,350.0
2,400.0
2,450.0
2,500.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Price(Red)
VolumeinTZMillions
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
Industrial
Index
Commercial
Services Index
Banking Index
Jun-18 Jul-18

UPTICK IN Q1 GDP GROWTH
UGANDA MARKET UPDATE

The Stage is set for Lifetime Presidency
The Constitutional Court has ruled in favor of the
removal of the presidential age limit of 75 whereas
the extension of parliamentary and local council
terms was rejected.
President Museveni took home a win when the
team of five justices reached a majority verdict
ruling (4 to 1) that MPs acted in accordance with
the law in amending the Constitution to remove
the age ceiling for a President, essentially paving
the way for Museveni to run for re-election
without hindrance and possibly rule for life.
On the other hand, the five justices unanimously
ruled against the extension of terms for Parliament
and local government councils from five to seven
years stating that because MPs were elected by
voters to their positions for a five year stint, it
would undermine good governance to extend
their tenure without first receiving consent from
the electorate.
Removing the presidential age limit has been a
contentious issue with opposition leaders, civil
society and religious leaders passionately fighting
the move. It remains to be seen whether further
legal challenges will be put forward but ultimately
naysayers may have to resort to the next round of
polls to see a change in the country’s leadership.
POLITICAL OUTLOOK
UGANDA
Source: Parliament of Uganda, StratLink Africa
Ruling from Five Justices
New Organic Fertilizer Plant Underway
East Africa’s largest organic fertilizer plant is
set to begin production in October this year in
Uganda’s Tororo district. The plant sits on 600
acres of land with a total investment of USD 650
million and is expected to provide 2,000 jobs once
it becomes fully operational in 2019. Uganda
imports vast amounts of fertilizer, in 2014 the
value of manufactured fertilizer imports was USD
15.3 million, over 54 times the amount of organic
fertilizer that was brought in during the same year.
Uganda will benefit greatly from requiring less
fertilizer imports as well as from increased use
of the organic fertilizer designed to suit the local
soil that will be manufactured at the new Sukulu
fertilizer factory.
The rest of Eastern Africa¹ relies heavily on
manufactured fertilizer imports as well, see below,
which possibly presents a future market for the
new Sukulu plant.
Fertilizer Imports (2014) USD ‘000
Eastern Africa Fertilizer Imports (2014), USD ‘000
Source: FAO, StratLink Africa
Source: FAO, StratLink Africa
1
Burundi, Ethiopia, Madagascar, Malawi, Mauritius, Mozambique, Rwanda,
Tanzania, Zambia, Zimbabwe. (Uganda excluded from data)
0 1 2 3 4 5
PresidenƟal Age Limit
Removal was Lawful
Extend Local Council
and Parliament Terms
Yes No
0.0
5,000.0
10,000.0
15,000.0
Manufactured
FerƟlizers
Organic FerƟlizers
99.0%
1.0%
Manufactured FerƟlizer Organic FerƟlizer

First Quarter GDP Growth Picks Up
GDP growth in the first quarter of the current
calendar year was 6.4%² which surpassed the
4.5% achieved over the same quarter in 2017.
The services and industry sectors of the economy
saw improved GDP growth rates of 8.2% and 9.7%,
respectively, in Q1 2018 relative to Q1 2017 while
the agriculture sector expanded at a slower rate of
0.8% during the period under review.
The services sector, which makes up over half of
the country’s GDP, sustained improved economic
output as a result of strong ICT performance which
grew by 15.6% in the first quarter. The industry
sector’s expansion in Q1 2018 was the most rapid
among the three, buoyed by crude oil mining and
exploration activities that led to growth rates in
mining and quarrying, and construction of 27.2%
and 10.2%, respectively, over the period under
review. The agriculture sector as a whole expanded
at a decelerated rate relative to the same quarter
in 2017 despite agricultural support services
growing by 6.6% during the period in question due
to favorable weather conditions.
Source: BOU, StratLink Africa
First Quarter GDP Growth Rates
First Quarter GDP Growth Rates by Sector
First Quarter Inflation and CBR
ECONOMIC OUTLOOK
UGANDA
The first quarter of 2018 benefited from lower
inflation and a lower Central Bank Rate relative to
the same quarter of 2017. Improved agricultural
output led to subdued food prices during the
quarter under review thus allowing for looser
monetary policy which in turn supported increased
provision of credit and boosted economic output.
Ongoing government investment in infrastructure
guided by the Second National Development Plan
(NDP II) is expected to sustain growth in 2018
and beyond. Near term risks to economic output
include further deterioration and volatility of the
exchange rate that may lead to import driven
inflation on top of the possibility of rising oil prices.
2
GDP Growth Rates are Original Unadjusted Estimates- Uganda Bureau of
Statistics
6.4%
4.5%
4.0%
5.7%5.7%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
20182017201620152014
0.0% 2.0% 4.0% 6.0% 8.0% 10.0%
Agriculture
Industry
Services
Q1-2017 Q1-2018
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Q1 2018Q1 2017
Average InﬂaƟon Average Central Bank Rate

China Investors Offer to Buy Umeme
The All Share Index underwent modest
deterioration in the month of July 2018 but is still
performing well relative to the same period last
year.
Chinese investors have offered to buy Uganda’s
main electricity distribution company, Umeme, for
USD 3 Billion. Beyond complications arising from
safeguarding shareholder interests, the removal
of Umeme from the Uganda Securities Exchange
would be detrimental considering its significant
market cap of USD 144.7 million, as of 27 July
2018, as well as the significant volume of trading
activity it accounts for.
Yields Up in Consecutive Months
The yield curve underwent another significant
upward shift in the month to 26 July, 2018 with
rates going up across the entire range of maturities
on government securities.
The government’s sustained appetite for debt
contributed to the increase in yields seen above.
Investors were able to capitalize on the same in
the Treasury bond auction held on 11 July 2018
where both the three year and ten year securities
were in demand with subscription rates of 129.9%
and 120.9%, respectively. Positive first quarter
GDP figures together with June’s uptick in inflation
and the continued pass-through effect of loose
monetary policy are likely to generate expectations
of future price growth and thus sustain these
higher yields going forward
All Share Index
Sovereign Yield Curve
Treasury Bond Auction Held on 11-Jul-18
Source: BoU, StratLink Africa
EQUITY MARKET UPDATEDEBT MARKET UPDATE
UGANDA
All Share Index month –
on – month change as at
26 July 2018
All Share Index year –
on – year change as at
26 July 2018
-2.2%
20.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
3M 6M 1Y 2Y 3Y 5Y 10Y
26-Jul-18 26-Jun-18 25-May-18
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
3 Years 10 Years
SubscripƟon Rate
Amount Accepted / Bids Received
2,000.0
2,050.0
2,100.0
2,150.0
2,200.0
2,250.0
2,300.0
2,350.0
3-Apr-18
10-Apr-18
17-Apr-18
24-Apr-18
1-May-18
8-May-18
15-May-18
22-May-18
29-May-18
5-Jun-18
12-Jun-18
19-Jun-18
26-Jun-18
3-Jul-18
10-Jul-18
17-Jul-18
24-Jul-18

CHINA AND INDIA MAKE LANDMARK VISITS AS RWANDA COURTS MOZAMBIQUE
RWANDA MARKET UPDATE

President Xi Jinping in Maiden State Visit to
Rwanda
Staying with Rwanda’s international relations,
July 2018 witnessed increased bilateral visits to
Rwanda by its trade and diplomatic allies seeking
to foster bilateral relations. Chinese President Xi
Jinping visited Rwanda on a two-day state visit,
the first ever visit by a Chinese head of state to
Rwanda. The visit is part of a four-nation visit on
the African continent as China looks to expand its
inroads into Africa in search for deeper military and
economic ties. The two countries are expected to
signvariousbilateralmemorandaof understanding
and agreements, aimed at further strengthening
relations between the two countries: China
remains a strong trading partner for Rwanda,
being the top import origin for Rwanda accounting
for circa 17.5% of Rwanda’s imports¹. Likewise, the
Chinese have initiated more than 21 investment
projects worth about USD 420.0 million in Rwanda
over the past decade.
Indian Prime Minister also makes Landmark Visit
as Rwanda Courts Mozambique
President Xi’s visit comes after Rwanda hosted the
PresidentofMozambiqueonareciprocalthree-day
visit following a similar trip by President Kagame in
2016 where the two countries agreed to speed up
the implementation of the areas of cooperation,
including having the Rwanda National carrier,
RwandAir, commence flights to the Southern
Africa country. Both countries signed five bilateral
pacts in a bid to strengthen their relations and
partnership. These visits were followed by another
landmark two-day state visit by the Indian Prime
Minister, Narendra Modi. Both India and China are
moving to further reinforce their roles as Africa’s
closest economic and diplomatic partners. Despite
reservations over China’s real intentions in Africa,
the continent can still exploit mutually beneficial
alternative bilateral opportunities that compete
with western interests.
POLITICAL OUTLOOK
RWANDA
Rwanda Struggling to Attract FDI
Rwanda’s aggressive investment promotion
strategy notwithstanding, the country is still
struggling to attract foreign direct investments
(FDI). Official data shows that FDI decreased
by 17.2% year on year to USD 379.8 million in
2015—representing approximately 4.6% of GDP
—a pointer towards low private investment to
influence economic growth. Similarly, Foreign
Portfolio investment inflows decreased from USD
5.6 million in 2014 to USD 2.5 million in 2015.
Hence, we highlight some of the areas that we
believe are lacking and efforts being implemented
by government to ignite a private investment push
from investors.
Ease of doing business: Rwanda is keen on making
red tape less evident in the country, by making it
easier to start a business as well as acquire and
register property, benchmarking against the World
Bank’s doing business report. However, Rwanda
should look into harmonizing the cost of doing
business and the cost of infrastructure which,
impact doing business despite not being covered
by the World Bank report.
Inadequate affordable and reliable
infrastructure: Political stability and regulatory
environment are key factors influencing the high
investor confidence in Rwanda as an investment
destination. However, infrastructure and logistics
remain a key area of concern for investors as high
costs of transport and energy reduce profitability,
particularly for investors in the manufacturing
sector. To improve on these areas, ongoing
investments in the energy sector should help
Rwanda increase its energy capacity from the
current 190.0MW to 563.0MW by end of the
year as it seeks to bring down the cost of power
by 50.0% to about 10.0 to 12.0 cents per kilowatt
hour.
1
OEC Trade data, 2016

economic transformation through the 4th
Strategic Plan for the Transformation of Agriculture
(PSTA4), to be implemented from 2018 to 2024.
The objective of the Plan is to significantly increase
farm productivity and promote value addition to
food while also targeting a 75.0% increase in
coffee production, Rwanda’s major export crop
- from 2.8 to 5.0 kilograms per tree, while tea
yield is expected to rise from 7.0 to 9.0 metric
tonnes (MT) per hectare. Coffee exports continue
to increase from 22,000.0 tonnes in 2016 to
23,000.0 tonnes in 2017 and is expected to reach
24,500.0 tonnes this year buoyed by strong rains
and increased commodity prices after a series of
droughts weighed on output between the end of
2016 and the first quarter of 2017.
Consequently, Rwanda’s trade deficit reduced by
1.4%, year-on-year, between January and May,
2018, attributed to an increase in formal exports
receipts by 29.0% which outweighed the 9.0% rise
in formal imports.
Agriculture and Services Sectors to Support
Future Growth
The economy maintained performance and
expanded by 10.6% in the first quarter of 2018,
a continuation of the 10.5% growth from the
last quarter of 2017 and an indication that the
economyhasfullybouncedbackfromalowgrowth
of 1.7% recorded in the first quarter of 2017. The
growth was driven by positive performance in the
agriculture and services sectors where a rise in
exports supplemented by a good harvest season
sawtheagriculture sector expandby 8.0%,upfrom
3.0% in a similar quarter in 2017. Services grew
by 12.0%, supported by a recovery in the trade
and transport sectors to post a growth of 26.0%
from a contraction of 7.0% in quarter one of 2017.
For its part, the industrial sector growth of 7.0%
is attributed to the recovery in the construction
sector after a less than attractive performance in
2017.
Increase in Coffee Production to Offer Tailwinds
to Agriculture
We expect the growth momentum to be
maintained buoyed by expansion of the services
and agriculture sectors. Services will benefit from
low levels of inflation and stronger credit growth.
At the same time, the agriculture sector is also set
to benefit from increased government funding
towards the sector intended for promoting
ECONOMIC OUTLOOK
RWANDA
Source: NISR, StratLink Africa
Real GDP vs Sector Growth
Volume of Tea and Coffee in MT
Exports vs Imports (Mlns)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
Real GDP Agriculture
Industry Services
10000.0
12000.0
14000.0
16000.0
18000.0
20000.0
22000.0
24000.0
26000.0
28000.0
2010
2011
2012
2013
2014
2015
2016
2017coﬀee Tea
0.0 400.0 800.0
Exports
Imports
Jan-May, 2018 Jan-May, 2017

RWANDA
Source: National Bank of Rwanda, StratLink Africa
Evolution of the Interbank Rate
T Bill Yields
Declining Yields
Major indicators in the money market trended
southinJuly2018:Yieldsmaintainedthedowntrend
witnessed over the past months, even as the
short term market registered over-subscription
in the month under review. Similarly, there was
slight liquidity loosening as the interbank rate
fell slightly by 20.0bps between May and June to
5.6%. Inflation figures too maintained southward
movement witnessed since the beginning of the
year, falling slightly by 10.0bps to 2.9% in June.
The short term government securities posted
marginal movements between April and May,
2018. The 91 Day and the 182 Day papers’ yields
rose marginally by 20.0bps and 17.0bps to 5.5%
and 6.5%, respectively. The 364 Day paper yield,
on the other hand, fell by 40.0bps to 7.0%, in the
period under review.
DEBT MARKET UPDATE
Coupons for treasury bonds have also been
declining on the back of comparatively low
inflationcoupledwithlessappetiteforgovernment
borrowing in a fairly liquid money market.
Franc Appreciates against the Greenback
Exchange rate pressure remains subdued propped
bythenarrowingofthetradedeficit.Consequently,
the Franc appreciated by 130.0 bps against the
greenback in July 2018.
T-Bond Yields
Franc vs USD
Franc depreciation, month-on-
month, as at July 20th, 2018
Franc depreciation, year-on-
year, as at July 20th, 2018
1.3%
-2.6%
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
91 Day 182 Day 364 Day
11.0%
11.5%
12.0%
12.5%
13.0%
2017 2018
5-Year 7-Year
800.0
810.0
820.0
830.0
840.0
850.0
860.0
870.0
880.0
890.0
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18

Bourse Remains Bullish
The All Share Index posted positive results in July
2018 compared to the previous month where the
Exchange gained 5.8%, year-on-year and remained
unchanged at 131.7 units, in the month to month
change.
July 18th, 2018
year-on-year, as at July
18th, 2018
0.0%
5.8%
RWANDA
Rwanda All Share Index, year-on-year
120.0
122.0
124.0
126.0
128.0
130.0
132.0
134.0
136.0
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
131.4
131.4
131.5
131.5
131.6
131.6
131.7
131.7
131.8
Jun-18 Jun-18 Jul-18 Jul-18 Jul-18
Rwanda All Share Index month-on-month

StratLink in the News:
Zimbabwe in 2018: steering a difficult path to recovery
As throngs poured into the streets of Harare in seeming euphoria following the November 2017 military takeover of
power from Robert Mugabe, there was little, if any, consensus as to whether the unfolding events constituted a coup
or not. The prospect of a general election in 2018 offers hope that the residual sky-high optimism could finally find vent
in a legitimate ballot process. However, concern abounds that this could well make for a poisoned chalice for a country
attempting to haul itself from over a decade of economic disrepair. This is because Zimbabwe’s recovery demands a
number of unpopular decisions that could prove costly for a political faction seeking election. Some of these issues
include:
• Expenditure overrun and the public sector wage bill conundrum
With a debt overhang, Zimbabwe was excluded from access to balance of payment support from the Africa Development
Bank, International Monetary Fund and World Bank. The country needs to ramp up tax collection to meet fiscal demands.
Available data suggests that the economy has reassuringly maintained a path to fiscal mend for the better part of the last
decade, with a discernible slowdown in the growth of tax revenue between 2014 and 2016.
However, expenditure overrun (i.e. actual exceeding planned expenditure) remains a pressure point, having stood at $
902.2 million in 2016. With employment costs accounting for 65 per cent of aggregate expenditure, the new government
is set for the litmus test of adopting unpopular policy adjustments that could see it slash its wage bill in the coming
months.
Figure 1. Annual revenue collection ($ ‘000)
Source: Ministry of Finance and Economic Development, Zimbabwe

As shown in the chart below, Zimbabwe confronts the combination of low tax revenue and a high public sector wage
bill as a proportion of both revenue and expenditure. To create more fiscal space for the government to support growth
enabling capital expenditure, there will be need for more rationalization of expenditure on public sector wage bill.
Figure 2. Central government wage bill and tax revenue
Source: World Bank. Note: Size of bubble denotes average central government wage bill as a percentage of public expenditure.
• Potential overreach with the bond note programme and a rush to de-dollarise the economy
In May 2016, the Reserve Bank of Zimbabwe rolled out an Export Bonus Scheme through which it would award exporters
up to 5 per cent of realized receipts. The scheme, backed by a $ 200 million facility from the Africa Export Import
Bank, would see the awards remitted to exporters in Zimbabwean bond notes (with the country having adopted a multi-
currency regime in 2009).
In essence, the move was aimed at addressing two mutually reinforcing hurdles.
On one hand, the economy is caught in the stranglehold of dollar scarcity in a dollarised environment, the net effect of
which has been disequilibrium in demand and supply for hard currency. The greenback exchange rate reached a premium
as high as 25 per cent (Reserve Bank of Zimbabwe, August 2017) in the informal exchange market.
On the other hand, the Export Bonus Scheme bespeaks the urgent need for Zimbabwe to boost exports. Failure to do so
will ensure a widening current account deficit, which could potentially amplify already tightened foreign currency liquidity
conditions. Between inception and December 2017, $ 290.2 million worth of bond notes were disbursed through the
Export Bonus Scheme.
In this regard, one misstep that should be avoided is a possible rush to de-dollarise the economy through the bond notes
programme. Sustainable de-dollarisation should be anchored on improvement in the macroeconomic environment,
through measures such as the aforementioned fiscal consolidation, to bolster confidence and attract investment.

Figure 3. Proportion of bond notes issued through export bonus scheme by sector, December 2017
Source: Reserve Bank of Zimbabwe
From a policy standpoint, there is growing evidence of efforts to boost investment. The Incentive for Diaspora Investment
Accounts, for instance, seeks to harness the potential of remittances through a 7 per cent incentive in addition to the
interest extended by banks. The more daunting question is whether Zimbabwe can take advantage of its position in the
Southern African Development Community (SADC) to potentially enhance revenue inflows. With SADC consuming 68.5
per cent of Zimbabwe’s exports, it is an opportune moment to pivot the trade integration lever. Addressing both tariff
and non-tariff barriers such as border delays could potentially extend the reach of traders into wider destination markets
within the region. This will be particularly important given Zimbabwe’s low performance in trade integration as shown in
the illustration below.
Figure 4. Africa Regional Integration Index 2016
Source: Africa Regional Integration Index 2016. Note: The index ranks from 0 (low performance) to 1(high performance)

Coming against the backdrop of the Statutory Instrument 64 (2016) which barred importation of select goods from
South Africa, the onus will be on Zimbabwe to demonstrate commitment to a U-turn from the trade protectionism
that undermined its integration in the region. Given the relatively underdeveloped state of the country’s manufacturing
sector, it is unlikely that the new administration will front-load such a policy stance at the risk of a backlash from domestic
industry. In the medium to long-term, however, deeper trade ties with the region will be one of the pillars through which
the economy will fend off balance of trade pressures.
Figure 5. Zimbabwe merchandise trade balance ($)
Source: International Trade Centre
• The fluidity of reform implementation
Reforming a country is not an easy task. Zimbabwe faces such a challenge today. It is not enough for a country to find
itself at a juncture fertile for much needed reforms. History suggests that even in instances where bold and well-intended
reforms are scheduled for implementation, the twin risks of lethargy in execution and counterproductive sequencing, or
pacing, could derail any reform agenda.
With considerable socio-economic odds and manic expectation from the public, Zimbabwe’s government ought to be
aware of the perils of quick fixes and the imperative trade-off between short-term respite and a more stable long-term
path to recovery. In view of the much anticipated general election, it is important that the government delivers a credible
poll which not only lends credence to the perception of a stark break away from the past but more importantly infuses
confidence in the capacity of state institutions to lead from the front in charting the way forward.
Potential risks notwithstanding, Zimbabwe could benefit from the tailwind of an upswing in commodity prices to roll out
a raft of reforms. For now, higher commodity prices have subdued the monetary and fiscal pressures encountered in the
recent past, thus bringing about a growth spurt in Sub-Saharan Africa.
This article was first published by the London School of Economics Business Review.

STRATLINK - AFRICA TEAM
Konstantin Makarov – Managing Partner
konstantin.makarov@stratLinkglobal.com
Dina Farfel – Partner
dfarfel@stratLinkglobal.com
Julio De Souza - Director of SME and Impact Finance
julio.desouza@stratLinkglobal.com
Kyle Drexler – Associate
kyle.drexler@stratLinkglobal.com
Benson Njeri – Analyst
benson.njeri@stratLinkglobal.com
Julians Amboko – Senior Research Analyst
julians.amboko@stratLinkglobal.com
Gianluca Storchi – Senior Research Analyst
gianluca.storchi@stratLinkglobal.com
Sophia Sifuma – Research Analyst
sophia.sifuma@stratLinkglobal.com
Peter Mutisya – Director Graphic Design
peter.mutisya@stratLinkglobal.com
STRATLINK AFRICA LTD - WHO WE ARE
StratLink is an Africa focused financial advisory company
with Capital Raising Advisory, Corporate Advisory and
Market Research as our core business lines. We believe in
the growth potential of sub-Saharan African economies and
partner with our clients to execute their vision by providing
quality services and access to capital. We recognize
opportunities in the region and connect the fastest growing
middle market companies with leading global investment
banks, private equity firms and family offices. We value the
importance of making informed decisions and leverage our
regional knowledge to the advantage of our clients.
Sub-Saharan Africa: In-depth macro and microeconomic
research
Within our purview of coverage are nine economies –
Kenya, Tanzania, Uganda, Rwanda, Ethiopia, Nigeria, Ghana,
Angola and Gabon. We undertake incisive research and
analysis of each of the countries’ macro and microeconomic
environment, debt and equity markets. We also conduct
sector specific research and analysis shedding insight on
market landscape, existing gaps and opportunities as well
as potential challenges.
Our guarantee: Competent team, reliable data
Our research is anchored in a competent and versatile
team traversing the fields of economics and finance with
qualifications from globally recognized institutions. The
team is backed by subscription to reliable databases such
as Business Monitor International, Bloomberg, Thomson
One Research, World Economics and The World Today.
As such, our guarantee is reliable and up to date data in
an increasingly dynamic region. Further, we reach out to
relevant bodies in concerned markets including Central
Banks, ministries and state departments.
Authoritative voice on regional economics
StratLink has become an authoritative voice for commentary
and opinion on issues pertaining to Sub-Saharan African
economies and investment. Reputable media including
CNBC Africa, Nation Media Group, CCTV and Bloomberg
have reached out to the company for opinion and analysis.
Where we are based
Our head office is in Nairobi, Kenya with satellite offices in
New York, Kampala and Kuala Lumpur.

ContactDetails
STRATLINK AFRICA
StratLink - Africa, Limited.
Delta Riverside, Block 4,
4th Floor, Riverside Drive,
Nairobi, Kenya
nairobi@stratlinkglobal.com
www.stratlinkglobal.com
+254202572792

Africa Market Update - August 2018

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