Africa Market Update - October 2018

2OCTOBER 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A Financial Advisory
Company
OCTOBER 2018 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA
GHANA 4
9
13
22
RWANDA 26
KENYA
UGANDA
TANZANIA 17
Table of Contents
GHANA
• Risks lurk despite S&P’s credit ratings upgrade
• Widening deficit undermines fiscal consolidation gains
NIGERIA
• Central bank signals most hawkish inclination in two years
• Call for nationwide strike signals underlying socio-economic pressures ahead of
the 2019 general election
KENYA
• Increasing NPLs ratio needs to be addressed
• Shilling holds strong but risks remain
At a Glance
TANZANIA
• Tanzania leads peers in the region in attracting FDI
• Energy and infrastructure development driving economic cooperation agenda
between Tanzania and Uganda
UGANDA
• CiplaQCIL undertakes IPO
• Government needs to improve revenue collection efficacy
RWANDA
• Rwanda holds benchmark rate as growth in credit to the private sector lags
• Opposition representation in parliament marks dividend for political pluralism
in Rwanda
http://mutuamatheka.co.ke/wp-content/uploads/2012/04/001_NAIROBI_WEBREADY_MUTUA-MATHEKA-10.jpg
Nairobi, Kenya
© Mutua Matheka
Cover image:

Value of Deals by Country (USD)
AFRICA DEALS LANDSCAPE
January - September 2018
Source: PitchBook, StratLink Africa
Deal Activity by Industry (Proportions) Deal Activity by Types (Proportions)
Snapshot of Deals
• Egyptian International Submarine Company reached a deﬁnitive agreement to be acquired by Telecom Egypt for USD 15.0 million on September
22nd, 2018
• Provider of online doctor booking platform, Vezeeta (Egypt), raised USD 12.0 million of Series C venture funding on September 19th, 2018
• Financial services provider, Jumo (South Africa), raised USD 52.0 million of venture funding on September 18th, 20178
10.3 Billion
4.2 Billion
2.1 Billion
1.5 Billion
879.1 Million
684.8 Million
477.0 Million
374.7 Million
143.1 Million
101.4 Million
94.2 Million
60.1 Million
46.4 Million
19.4 Million
13.0 Million
8.7 Million
5.1 Million
20,000.0
South Africa
Nigeria
Egypt
Morocco
Kenya
Namibia
Senegal
Ethiopia
Ghana
Mauritius
Madagascar
Tanzania
Uganda
Congo
Ivory Coast
Lesotho
Tunisia
Niger
36.9%
36.9%
23.1%
23.1%
12.0%
12.0%
4.9%
4.9%
23.1%
23.1%
M&A Secondary transaction - private
Corporate divestiture Secondary transaction - open market
Others
16.9%
13.5%
6.4%
5.3%
4.8%
3.4%
3.1%
46.6%
Exploration, production & reﬁning
Commercial Services
Consumer non-durables
Healthcare devices & supplies
Insurance
Apparel & accessories
Agriculture
Others

RISKS LURK DESPITE S&P RATINGS UPGRADE
GHANA MARKET UPDATE

Government Steps Up Efforts to Seal Revenue
Leakages
The political environment remains stable through
end of Q3 2018 and is likely to maintain the same
through December 2018. Key developments in the
recent past have been the August 2018 provision
that all supplier, contractors and consultants
to the government be registered on the Public
Procurement Authority Central Database. The
move is expected to boost the government’s
efforts to seal revenue leakages especially through
inflation of the cost of contracts. This comes on
the back of a raft of measures provided under the
July 2018 Mid-Year Fiscal Policy Review including:
• Specialized audits in the mining, oil and
telecommunication sectors with a view to
addressing transfer mispricing
• Intensified auditing of Withholding Tax, Value
Added Tax and Rent Tax
• Adoption of the Cargo Tracking Note effective
July 01st, 2018 which is expected to enable
to enable the Ghana Revenue Authority track
imports better
These measures are significant for the country’s
risk profile in view of two considerations:
• It is a major boost in light of the fiscal
consolidation agenda which has been the key
pillar of the economy’s recovery effort. As
the concern of debt distress amongst frontier
economies mounts, strengthening tax revenue
mobilization measures casts Ghana in favorable
light
• It sends a strong signal with regard to
strengthening of institutions, in this regard the
Ghana Revenue Authority, so as to enhance the
capacity to deliver on constitutional mandates
POLITICAL OUTLOOK
Credit to the Private Sector Ticks Up
We maintain a broadly favorable outlook on
Ghana’s business environment anchored on a
general improvement in the macroeconomic
environment. This has been instrumental in
boosting investor confidence in the economy
especially with monetary policy adjustments
widely deemed to have had much needed
transmission effect.
Looming Monetary Tightening to Tighten Credit
Conditions
A major risk factor we view over the next twelve
months is that fact that, with monetary tightening
likely to resume as signs of rising headwinds
manifest, commercial bank lending rates could
reverse. Whilst Ghana has had substantial
monetary expansion since Q4 2016, the average
commercial bank lending rate has been on a
relatively slow decline.
Given that the ratio of non-performing loans
remains high at 12.3% (adjusted for the fully
provisioned loan loss category) in June 2018,
high interest rates could be a reflection of banks’
cautious optimism about the private sector.
BUSINESS ENVIRONMENT
Average Commercial Bank Lending Rate
Source: Bank of Ghana, StratLink Africa
GDP: USD 42.9 Bln | Population: 28.0 Mln
GHANA
25.0%
26.0%
27.0%
28.0%
29.0%
30.0%
31.0%
32.0%
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18

• Focusing on Ghana, this upgrade came as a
much needed vote of confidence on the policies
being implemented with the goal of steering
the economy away from headwinds. Notably, it
serves as a strong statement of Bank of Ghana’s
monetary policy adjustment which has over the
last two years, starting September 2016, been
characterized by loosening with the benchmark
rate falling from 26.0% to 17.0%². Whilst
inflation rose close to 9.9% in August 2018
(against a target ceiling of 10.0%), the decline
from 18.7% in September 2016 has served as a
strong indicator of favorable transmission
ECONOMIC OUTLOOK
Pockets of Risk Remain
Whilst the ratings bodes well for Ghana’s
macroeconomic environment, we maintain a
relatively bearish view of the economy in the
near-term pegged on its vulnerability to debt
related pressure. With external debt constituting
53.2% of the country’s public debt, the economy
is susceptible to debt related pressures.
Note: The outer circle covers 2017 data whilst the
inner one covers 2014 data
Monetary Policy Rate
Composition of Public Debt
Source: Bloomberg, StratLink Africa
GHANA
Ratings Action Countries
Upgrade Ghana, South Africa, Egypt and Benin
Downgrade Angola, Kenya, Gabon and Zambia
Resurging Inflation Calls for Caution from Central
Bank
S&P upgraded the country’s long-term foreign
and local sovereign credit rating to B from B- on
September 14th, 2018. We view this upgrade as
significant for two reasons:
• Ghana’s upgrade came in view of a spate of
downgrades in sub-Saharan African including
Zambia (Moody’s and S&P in August 2018),
Gabon (Moody’s, S&P and Fitch in June 2018),
Angola (Moody’s, S&P and Fitch in April 2018)
and Kenya (Moody’s in February 2018)1
. As
such, the upgrade came as a sigh of relief to
sub-Saharan focused investors especially given
that it applies to a commodity reliant economy
which has been in pursuit of a path to economic
recovery following the 2014 – 2016 rout
Snapshot of Action by Ratings Agencies
(Moody’s, S&P and Fitch)
1
The mentioned downgrades (Gabon, Zambia, Angola and Kenya refer to
foreign currency long-term rating
2
Bloomberg data
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
01-11-02
01-03-04
01-07-05
01-11-06
01-03-08
01-07-09
01-11-10
01-03-12
01-07-13
01-11-14
01-03-16
01-07-17
56.0%
44.0%
53.2%46.8%
External DomesƟc

Source: World Bank, StratLink Africa
Source: Ghana Debt Management Office, StratLink Africa
Fiscal Deficit (USD Mln)
Public and Public Guaranteed Debt (USD Mln)
Currency Composition of Ghana’s External Debt
DEBT MARKET UPDATE
GHANA
Ghana’s has experienced rapid growth in external
debt over the last decade, a trend that ought
to be slowed down going forward especially in
view of changes in the global macroeconomic
environment.Withmajoreconomiesinamonetary
tightening cycle, capital flight is bound to continue
piling pressure on emerging and frontier market
currencies which threatens to pile external debt
related pressures on economies such as Ghana.
Widening Fiscal Deficit and Rising Inflation
The country’s fiscal deficit is widening again
after being relatively subdued between Q4 2016
and Q4 2017. In Q2 2018, the deficit stood at
USD 931.0 million, 29.7% higher than it was in
the same period a year earlier. This suggests
the government could be losing grip of its fiscal
consolidation agenda which has been a major
tailwind for the economy’s recovery since 2016.
This widening deficit could begin to pile pressure
on yields in the fixed income market as the
government seeks to meet the revenue shortfall
in an environment where external conditions are
becoming increasingly unfavorable.
This could help explain the minimal movement
in yields, across both short-term and long-term
papers, in the fixed income market; a likely signal of
rising appetite for debt from the domestic market.
In its debt issuance calendar, the government
sought to mobilize USD 2.5 billion with available
data suggesting the government raised 85.0% of
the target.
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
18,000.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
USD Euro Chinese Yuan
GBP Yen Others
-1,000.0
-900.0
-800.0
-700.0
-600.0
-500.0
-400.0
-300.0
-200.0
-100.0
0.0
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Millions

Headline Inflation and Weakening Cedi Point to
Monetary Pressures
The mild rise in headline inflation in August
2018, inching back to the target ceiling of 10.0%,
could also be eliciting fears that inflation could
be resisting further downward pressure before it
gets firmly within the target band. These fears are
amplified by the sliding Cedi which is expected to
feed into the pressure nudging inflation upward.
The Cedi came under significant pressure in
August 2018 pushing it closer to breach the 5.0
units of exchange to the greenback.
Headline Inflation
Ghana Stock Exchange Composite Index
Sovereign Yield Curve
Source: Ghana Statistical Service, StratLink Africa
EQUITY MARKET UPDATE
Market Dips as Cedi Plunge Scares Investors
The plateau exhibited by the Composite Index
at the start of the second half of 2018 prevailed
through September 2018. Given the timing, it
could be a reflection that investors have more
confidence in the Bank of Ghana engaging a
hawkish stance going forward. In its July 2018,
the bank maintained the policy rate at 17.0% in
what has been widely perceived as a signal from
the regulator that after a prolonged dovish spell, it
was growing wary of lurking vulnerabilities in the
monetary environment.
Why a Hawkish Stance Would Prop Investor
Confidence
A hawkish stance by the bank would prop the
slidingCediandhelparrestpotentialre-emergence
of double digit inflation; issues that are bound to
dominate investor concern. With emerging and
frontier market currencies having come under
immense pressure in the recent past, Bank of
Ghana’s move is viewed as an effort to forestall
further build-up of pressure on the domestic
environment.
GHANA
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
91 Day 182
Day
364
Day
3 Year 5 Year 7 Year
Jan-18 Apr-18 Jun-18
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
31-01-15
31-05-15
30-09-15
31-01-16
31-05-16
30-09-16
31-01-17
31-05-17
30-09-17
31-01-18
31-05-18
0.0
5.0
10.0
15.0
20.0
25.0
2,200.0
2,400.0
2,600.0
2,800.0
3,000.0
3,200.0
3,400.0
3,600.0
02-01-18
02-02-18
02-03-18
02-04-18
02-05-18
02-06-18
02-07-18
02-08-18
02-09-18
Millions
Volume - RHS Composite Index

NIGERIA MARKET UPDATE
CENTRAL BANK SIGNALS STRONGEST HAWKISH INCLINATION IN TWO YEARS

Nationwide Strike Signals Underlying Pressure
Thecallforanationwidestrike,effectiveSeptember
27th, 2018, by the Nigeria Labor Congress pushing
for a hike in the minimum wage signals one of
the key headwinds the Federal Government has
to face even as it prepares for the February 2018
general election. A period of generally adverse
macroeconomic conditions, whose height was the
2016 recession, has left households vulnerable
and presented fertile ground for strife. Available
data further shows that the rate of unemployment
has been on a general rise thus aggravating the
situation.
Low Wages and Rising Unemployment to Shape
2019 Election Agenda
This is bound to be a key issues shaping the political
environment in the coming months with the
opposition keen to optimize on it to draw political
capital whilst the government seeks to defend its
economic score card. With Buhari having sought
the Presidency on a platform of reviving the
economy, the question of rising unemployment
and low wages undermines his bid for re-election
in February 2019.
POLITICAL OUTLOOK
NIGERIA
Unemployment Rate
Credit Uptake in Agriculture Signals Bright Spot
As trends in credit uptake by the private sector
continue to evoke concern, the agriculture
sector posted surprise growth in Q2 2018. This
development is important for the Nigerian
economy in view of two considerations:
• With growth in credit uptake coming from a
non-oil sector, this serves to bolster confidence
of more balanced growth in the coming
quarters. Whereas the economy’s recovery
from the recession has been resilient, we
have consistently held the view that it was
imbalanced (oil driven) and thus put the country
in a precarious position
• Growth in the agriculture sector’s uptake of
credit suggests that there are still bright spots
in the economy in spite of the headwinds
confronted especially in view of tightened credit
conditions
Industry continues to the pose the greatest
challenge with the contraction of credit uptake
deteriorating further. This is a likely drag from
lethargy in sub-sectors such as food and beverage
and textile and apparel.
BUSINESS NEWS ENVIRONMENT
Source: National Bureau of Statistics, StratLink Africa
Year-on-Year Growth in Private Sector Credit
Rate of Unemployment
Source: Nigeria Bureau of Statistics, StratLink Africa
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Q1
2014
Q3
2014
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Agriculture Industry Services

Monetary Policy Rate
Source: Central Bank of Nigeria, StratLink Africa
NIGERIA
Central Bank Signals Strongest Hawkish
Inclination in Two Years
The Central Bank held all key monetary indicators
in the September 2018 meeting in what was the
strongest hawkish signal from the bank since the
July 2016 200.0 bps hike of the benchmark rate.
In the meeting under review, there were three
votes (out of seven) to hike the Cash Reserve
Ratio by 50.0 bps and the benchmark rate by 25.0
bps. Over time, we have witnessed the declining
occurrence of a unanimous decision to hold key
rates and emergence of hawkish undertones
within the committee.
This growing bias for tightening reflects the
underlying pressure in the monetary environment
with inflation showing signs of receding after a
sustained downtrend and the Naira depreciating
against major currencies. August 2018 saw the
first uptick in the food inflation index in fifteen
months, an indicator that food prices are likely
to be nudging headline inflation upwards in the
coming months. With inflation still about 200.0
bps north of the target ceiling, the Central Bank
is likely to make a move to arrest a further rise in
double digit inflation.
ECONOMIC OUTLOOK
Inflation Trend
Naira to USD Exchange
Source: National Bureau of Statistics, StratLink Africa
Naira Ceding Ground Marginally
Beyond inflation, the Naira, like a number of
frontier and emerging market currencies in the
recent past, has depreciated marginally against
major currencies. With the risk that this trend
could pile additional inflation pressure on the
domestic environment, the Central Bank is likely
to keep a close eye on the local unit between
now and the November 2018 Monetary Policy
Committee meeting. Looking ahead, it unlikely
that the Central Bank will change the monetary
policy stance ahead of the February 2019 general
election.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
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
Aug-18
Headline InﬂaƟon Non-food Index
Food Index
359.0
359.5
360.0
360.5
361.0
361.5
362.0
362.5
363.0
363.5
364.0
01-01-18
01-02-18
01-03-18
01-04-18
01-05-18
01-06-18
01-07-18
01-08-18
01-09-18

Yields Rising as Risks Mount
The yield curve closed Q3 2018 relatively high with
deteriorating risk perception compelling investors
to demand higher returns for both the short and
long-term. The rise in inflation in August 2018,
in particular, has dimmed hopes that the Central
Bank would manage to bring inflation below the
9.0% target ceiling in the near term. There has
been a significant surge in yields for long-term
paper between Q2 2018 and Q3 2018, a fact that
helps explain the low successful subscriptions.
In its August 2018 bond issuance, only 39.4%
of subscriptions received were successful
compared to the 86.9% registered in July 2018.
This is indicative of the federal government’s
effort to stay away from expensive debt in the
domestic market. Between June 2017 and June
2018, Nigeria’s stock of external debt (Federal
Government) grew by 60.6% to USD 17.8 billion
compared to a 16.0% increase in domestic debt
to Naira 3,477.0 billion. Whilst this could suggest
the government is keener on tapping into external
credit, evolving global monetary conditions, with
advanced economies hiking rates, are bound to
render this option unsuitable going forward.
DEBT MARKET UPDATE
NIGERIA
Nigeria Stock Exchange
Market Remains Bearish
The market remained bearish in September 2018.
Foreigninvestorinflowintothemarketdecelerated
exhibited sustained deceleration with an average
of USD 77.8 million per month in the first two
months of Q3 2018 compared to USD 160.8
million and USD 190.8 million in Q2 and Q1 2018,
respectively. Diminishing appetite for the market
mimics the weakening of the local currency, an
indication that foreign investors are worried about
subdued returns going forward especially as the
external environment piles pressure on the Naira.
With advanced economies tightening monetary
policy, the appeal of frontier markets such as
Nigeria is declining thus occasioning less appetite
from investors.
Outlook
With the country heading for an election, investor
appetite is poised to remain subdued in the period
through February 2018. As mentioned in the
Economic Outlook, we do not foresee the Central
Bank tightening the benchmark rate between
now and the March 2019 meeting, something we
expect to see the Naira remain relatively weak.
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
3M 6M 1Y 3Y 5Y 7Y 10Y 15Y 20Y
Mar-25-2018 Jun-25-2018
Sep-25-2018
0.0027
0.0027
0.0027
0.0028
0.0028
0.0028
0.0028
0.0028
0.0028
0.0028
0.0028
1,200.0
1,300.0
1,400.0
1,500.0
1,600.0
1,700.0
1,800.0
1,900.0
2,000.0
2,100.0
2,200.0 02-01-18
02-02-18
02-03-18
02-04-18
02-05-18
02-06-18
02-07-18
02-08-18
02-09-18
30 Index USD to Naira (RHS)

EXCHANGE RATE UNDER SHARP FOCUS
KENYA MARKET UPDATE

POLITICAL OUTLOOK
KENYA
High NPL Ratio Could Exacerbate Credit Rationing
Kenya’s Non-Performing Loans (NPL) ratio has
steadily increased over the past few years, rising
from 4.6% in January 2015 to 11.4%1
in February
2018. Except for Uganda, this trend seems to hold
for the other East African nations depicted below.
Kenya’s average annual NPL ratio was below the
average for the same bloc of countries in 2015 but
above it in 2016 and 2017.
Furthermore, in 2017 the NPL ratio in Kenya was
above that of sub-Saharan Africa (10.1%) as well
as that of low and middle income countries (5.8%),
according to data from the World Bank.
Note: 2017 data for Rwanda is not available
AsofMarch2018,thesectorswiththehighestgross
NPLs were Trade (KES 82.1 billion), Manufacturing
(KES 46.2 billion) and Personal/household (KES
45.7 billion)².
Commercial banks are already limited in their
ability to lend to the private sector due to the
interest rate cap. Increasing NPL ratios in the long
term are likely to exacerbate creditor risk aversion
and lead to further credit rationing from banks
which would have a negative effect on growth and
the economy.
NPL Ratios, Annual Averages
Source: BMI, StratLink Africa
The Pain of Fiscal Prudence
President Uhuru Kenyatta in September 2018
assented the Finance Act 2018 thereby bringing
into law a raft of new taxes, and changes to existing
ones, aimed at raising government revenues and
narrowing the country’s budget deficit.
Some of the new taxation measures include an
eight percent Value Added Tax (VAT) on petroleum
products, higher duties on money transfers,
including increased taxes on mobile money
transfers, and a 1.5 percent tax on employee gross
monthly earnings, to be matched by employers,
that will go towards the National Housing
Development Fund aimed at tackling Kenya’s
housing deficit problem.
Kenya’s budget deficit expanded quite drastically
from 5.8% of GDP in 2010 to 9.3% of GDP in 2017,
more than tripling in size to USD 7.2 billion over
the same timeframe. This attempt to improve the
country’s fiscal management, as unpopular as
some of the measures are, is necessary to reduce
reliance on expensive borrowing, especially
externally, in order to stem the ballooning national
debt and possibly see the return of the IMF’s
stand-by facility. Fiscal prudence is a bitter but
necessary pill to swallow however, it remains to be
seen how effective the new tax measures will be in
the medium to long run.
Budget Balance
2
CBK1
BMI
-5.8%
-9.3% -10.0%
-5.0%
0.0%
-8.0
-6.0
-4.0
-2.0
0.0
2010 2017
Budget balance, USDbn
Budget balance, % of GDP (RHS)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Kenya Rwanda Tanzania Uganda
2015 2016 2017

KENYA
ECONOMIC OUTLOOK
How Vulnerable is the Shilling now?
On 13 September, 2018 the Treasury’s Stand-By
Arrangement (SBA) with the IMF, worth USD 1.5
billion, expired. This brings the presence of the
IMF’s safety net, which was instated in March
2016 and whose purpose was to provide a buffer
against balance of payments shocks, to an end.
This came as a result of the failure of government
to remove the interest rate cap thereby violating
a key condition required by the IMF to retain the
SBA.
The withdrawal of the SBA saw the shilling
temporarily slip above KES 101.0 to the greenback
on the day the facility expired. Foreign exchange
reserves as months of import cover also fell
slightly in September however, this seems to be
a continuation of a trend that began in April this
year.
KES to USD
FX Reserves, Months of Import Cover
The removal of the standby facility has potentially
farreachingconsequences.Increasedsusceptibility
of the currency to fluctuations and volatility
has a negative effect on investor sentiment.
Furthermore, while the retention of the interest
rate cap is expected to negatively impact economic
activity through restricted growth in credit to the
private sector, the challenges the government
has faced in taxing petroleum products raise
questions around the government’s ability to
raise revenues to plug the budget deficit, all of
which suppress investor confidence. Currency
instability also risks increasing Kenya’s cost of
servicing foreign-currency-denominated debt, and
with an estimated 32.9%³ external debt stock as
a proportion of GDP in 2017, this cost would be
significant.
In 2015, the shilling underwent significant
depreciation largely due to capital outflows driven
by rate hikes in the USA. The currency lost 17.2% of
its value in the first nine months of the year which
ledtoforeignexchangereservesdroppingby19.8%
in an attempt to stave off the depreciation. The
currency proceeded to close the year at a stronger
102.3 against the dollar with foreign exchange
reserves back in safe territory at 4.5 months of
import cover at the end of December. This event
highlights the risks of currency depreciation but
it is important to note that with current import
cover of 5.6 months⁴ and a relatively sound
macroeconomic environment, Kenya is fairly well
positioned to deal with currency shocks.
FX Reserves, months
KES to USD of Import Cover
a. 90.5 4.85
(2-Jan-15) (1-Jan-15)
b. 106.1 3.89
(7-Sep-15) (1-Oct-15)
% Change,
a. to b. 17.2% -19.8%
3
BMI
4
20th
September 2018
99.5
100.0
100.5
101.0
101.5
102.0
01-Apr-18
15-Apr-18
29-Apr-18
13-May-18
27-May-18
10-Jun-18
24-Jun-18
08-Jul-18
22-Jul-18
05-Aug-18
19-Aug-18
02-Sep-18
16-Sep-18
5.6
5.8
6.0
6.2
6.4
05-Apr-18
26-Apr-18
17-May-18
07-Jun-18
28-Jun-18
19-Jul-18
09-Aug-18
30-Aug-18
20-Sep-18

Interest in Bonds Picks Up
The yield curve edged down slightly on the long
term maturity end in the month to 24 September
2018. Yields on short term government securities
managed to remain subdued with the vast
majority of auctions across 91 day, 182 day and
364 day T-bills in the month of September being
oversubscribed, allowing for the Treasury to
suppress its borrowing costs.
Treasury’s bond auctions in September performed
better than the previous month’s. The two re-
opened bonds, see below, achieved a combined
subscription rate of 81.2% with investors taking
a preference for the shorter term security, the 10
year, which drew more than twice the value of
bids relative to the 20 year.
Bloomberg BVAL Yields Index
Re-Opened Bonds
Total of USD 396.0 Mn on offer
Source: CBK, StratLink Africa
Note: Bonds issued on 24 Sep 2018
DEBT MARKET UPDATE
KENYA
Bear Run at the NSE
The NSE 20 Share Index took a downward turn on
23 August, 2018 and kicked off a bear run that saw
the index shed 472.8 points (a 14.3% drop) in less
than a month after which it closed at 2,832.5 on
21 September, 2018, the lowest point the NSE 20
has hit since February, 2017.
The bear run was largely driven by a wider trend of
increased risk aversion towards assets in emerging
markets. Rising global trade tensions have
negatively impacted emerging markets, including
Kenya, that are seen as being risky while returns
on dollar-denominated assets are becoming more
lucrative especially with the anticipated hike of the
Fed rate.
Between 20 August and 26 September, the most
negatively impacted securities on the NSE 20, in
terms of the extent to which they shed points from
the overall index, were Bamburi Cement, EABL
and Nation Media Group whose prices dropped by
18.2%, 10.8% and 20.1%, respectively.
Nairobi Securities Exchange 20 Share Index
NSE 20 index percentage change
in year to 24 September 2018
-23.4%
9.0%
9.4%
9.8%
10.2%
10.6%
11.0%
11.4%
11.8%
12.2%
12.6%
13.0%
13.4%
13.8%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
24-Sep-18 24-Aug-18
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
10 Year -
FXD1/2018/10
20 Year -
FXD2/2018/20
USDMn
Bids received Amount Accepted
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2,800.0
2,900.0
3,000.0
3,100.0
3,200.0
3,300.0
3,400.0
01-Aug-18
08-Aug-18
15-Aug-18
22-Aug-18
29-Aug-18
05-Sep-18
12-Sep-18
19-Sep-18
Millions
Volume NSE 20 Index (LHS)

TANZANIA MARKET UPDATE
TANZANIA LEADS PEERS IN THE REGION IN ATTRACTING FDI

Tanzania and Uganda Enhancing their Economic
Cooperation
Besides the ongoing political undertones,
enhancing bilateral relations between Tanzania
and neighbor Uganda, is one of the key issues
pervadingthepoliticalsceneinTanzania.Tanzania’s
president and his Ugandan counterpart held talks
in Tanzania in August to discuss increasing co-
operation between the two countries, particularly,
in the areas of infrastructure and trade, reinforcing
the strengthening bilateral relations between the
two nations and their willingness to develop these
relations through stronger bilateral trade flows and
joint infrastructure development. Increasing trade
flows and steady progress on some infrastructure
projects, including the planned oil pipeline
project, underpins strong bilateral ties between
the neighbors. The oil pipeline is fundamental to
the commercial viability of Uganda’s 6.5 billion
barrels of oil reserves; meanwhile, Tanzania will
benefit through an increase in high-value trade
flows of oil from its Tanga port which at present
mostly exports agricultural products. Another
key infrastructure development that will be
instrumental in promoting bilateral relations is the
reopening in July 2018 of the Lake Victoria corridor
which, links the countries’ inland ports via a train
ferry line. The corridor, besides reducing Uganda’s
over-dependence on Kenya’s Mombasa port as a
trade route, it also supports Tanzania’s efforts as
it seeks to position itself as a key trade hub in East
Africa.
Expedite Joint Energy Plans
The energy sector is another area where the two
countries are keen on increasing bilateral relations.
In this regard, there are plans to expedite joint-
infrastructure developments in the energy sector,
including a 16.0 MW hydropower project on
the Tanzania-Uganda border. In the same vein,
Tanzania is considering a natural gas pipeline to
Uganda, in a bid to monetize its vast natural gas
reserves which, calls for expedited development of
local processing capabilities, in light of the stalled
construction of the USD30.0 billion onshore liquid
natural gas plant.
POLITICAL OUTLOOK
TANZANIA
Tanzania Leads Peers in Attracting FDI
Tanzania endured a tumultuous year in 2017
under a harsh operating environment, to trample
peers in attracting Foreign Direct Investment
(FDI). Tanzania received the largest share of FDI
at USD 1,180.0 million followed by Uganda at USD
700.0 million; Kenya at USD 672.0 million and
then Rwanda at USD366.0 million. Overall, the
East Africa region received USD7.6 billion in FDI
inflows, reflecting a 3.0% decline, year-on-year.
The growth in Tanzania FDI inflows is principally
attributed to the recovery in the price of gold,
one of its key export commodities as well as
diversified product offering. Similarly, investment
liberalization has been instrumental in supporting
FDI growth in Tanzania by making it easy to do
business in Tanzania. For instance, an online
registration system established in February 2018
which seeks to simplify investment registration
processes, significantly reducing time and costs.
Be that as it may, Tanzania recorded a 13.6% drop
in FDI inflows, year-on-year, principally attributed
to policy changes in tax administration and
extractives royalties which have seen major mining
firms like Acacia, grapple with losses, in addition
to a ban on exports of unprocessed minerals that
is bound to adversely affect the country’s foreign
mining assets in future. Likewise, the requirement
for all foreign telecommunication companies to list
at least 25.0% of their equity on the local bourse in
an effort by the government to increase domestic
ownership, may have sent jitters to some investors
in the sector as well.
FDI Inflows (USD/millions)
Source: UNCTAD, StratLink Africa
Note: EA refers to: EAC plus Comoros, Djibouti, Eritrea, Ethiopia,
Madagascar, Mauritius, Seychelles and Somalia
0.0
5,000.0
10,000.0
0.0
2,000.0
4,000.0
2012 2013 2014 2015 2016 2017
Kenya Uganda
Tanzania Rwanda
East Africa (RHS)

Recovery in the Private Sector Credit
Tanzania’s Credit to the private sector is on a
recovery path with positive trends in the quarter
to June 2018. Total domestic credit that comprises
of both credit extended to the government as well
as the private sector, grew by 1.5% during the year
to June 2018 from a contraction of 3.9% over a
similar period a year ago. Consequently, credit
to the private sector expanded by 4.0%, year-on-
year to June 2018 compared with 1.3% posted
in June 2017. The Bank of Tanzania (BoT) has
taken deliberate policy measures to incentivize
borrowing and ensure adequate liquidity in the
money market thus, supporting commercial
banks’ lending activities as well as their efforts to
reduce non-performing loans (NPLs) and resulting
credit risk. In this regard, personal loans continue
to dominate the share of credit extended by
commercial banks to the private sector; reaching
27.4% as of June 2018.
By contrast, credit to the government from the
banking system decreased on a year-on-year basis
as government borrowing from commercial banks
through issuance of government securities slowed
down; we opine part of the central bank’s plan
to increase liquidity by offering low unattractive
yields thus, compelling institutional investors like
commercial banks, to resort to other investment
sources including increase in extending personal
loans. Consequently, money supply growth picked
up in June 2018 after a moderate slowdown
Easing Lending Rates
As the money market witnesses improved
liquidity, lending rates are slowly, albeit marginally,
responding to the central bank’s monetary policy
decisions and trending southward. In the quarter
ending June 2018, interest rates charged by banks
on loans and offered on deposits were relatively
low compared to rates recorded in the preceding
quarter and corresponding quarter in 2017.
The overall lending rate averaged 17.5% in the
quarter ending June 2018 compared to an average
of 17.8% in the corresponding period in 2017.
The falling lending rates thus, impacted into the
improved credit to the private sector that grew by
4.0% in the year to June 2018 up from 1.3% in the
year ending June last year.
Stock of Broad Money Supply, year-on-year (USD Bln)
Select Banks’ Interest Rates (%) Quarterly Average
Growth in Private Sector Credit to Major Economic
Activities
ECONOMIC OUTLOOK
Source: Bank of Tanzania, StratLink Africa
TANZANIA
since February 2018, recording a year-on-year
growth of 6.0% to June 2018. Despite the slight
improvement, liquidity is still fairly tight and the
rate of non-performing loans (NPLs) remains high
at 11.3% in the year ending June 2018.
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
Personal
ConstrucƟon
Mining
Hotels
Manufacturing
Trade
Agriculture
Transport
Jun-17 Jun-18
10.0
10.2
10.4
10.6
10.8
11.0
11.2
Jun-17 Jun-18
-4.0
1.0
6.0
11.0
16.0
21.0
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Savings Rate
Overall Lending Rate
One-year Lending Rate

Yields Post Mixed Results
Investorinterestingovernmentsecuritieshasbeen
waning in recent months even as yields remain
uncharacteristically low. The low yields, besides
supportingincreased liquidityin the money market
given the drawn out liquidity crunch witnessed
for the better part of 2017, has been one of the
reasons leading to continued under-subscription
of risk free government securities where the
short-term fixed income market has witnessed
under-subscription for eight consecutive weeks,
blamed principally on the unattractively low yields
prompting institutional investors to look for other
avenues such as personal loans. In this regard,
personal loans recorded the highest growth rate of
the credit extended to the private sector, at 50.5%
in the year to June 2018. Nonetheless, the central
bank has managed to boost yields, therefore
managing to woo back long term investors thus,
leading to improving subscription rates. The one
year maturity bill received 116 bids while the six
and three months’ maturity bills received 20 and 1
bid, respectively, in the period under review.
The yield for the three months bill rose marginally
by 10.0bps to 3.0%, while the yields for the six
monthsandoneyearmaturitybillsdeclinedslightly
by 30.0 bps each to 5.0% and 7.9%, respectively,
in the period under review as inflation remained
steady at 3.3% in August 2018, mostly due to a
T-Bill Yields Trend
TANZANIA
DEBT MARKET UPDATE
slowdown in food and non-alcoholic beverages
prices. Meanwhile, the interbank rate fell by
20.0bps to 1.8% between July and August, 2018.
Exchange Rate Risks Linger
The local unit continues to face pressure from
the greenback occasioned mainly by lower
foreign exchange inflows against sizable foreign
obligations. In this regard, risks linger on the
Shilling as demand for the greenback by importers
continues to outweigh supply.
Interbank Rate , month-on-month
Shilling vs USD
Shilling depreciation,
month-on-month, as at
18th September, 2018
Shilling depreciation,
year-on-year, as at 18th
September, 2018
-0.1% -2.4%
0.0%
5.0%
10.0%
15.0%
20.0%
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
91 Day 182 Day 364 Day
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Interbankrate(Red)
VolumeinTZMlns
2,270.0
2,272.0
2,274.0
2,276.0
2,278.0
2,280.0
2,282.0
2,284.0
2,286.0
Aug-18
Aug-18
Aug-18
Sep-18
Sep-18

The Bourse Remains Bearish
The Tanzania All Share Index remained bearish in
September 2018, shedding off 7.0%, month-on-
month and 0.5%, year-on-year as of September
27th, 2018. The decline in the index is principally
attributed to declining activities by foreign
investors who contribute about 80.0% of the
market’s liquidity. The global markets have been
gaining strength recently and hence attracting
foreign portfolios back to home countries.
All Share Index, year-on-year
TANZANIA
All Share Index Change,
month-on-month, as at
27th September, 2018
All Share Index Change,
year-on-year, as at 27th
September, 2018
-7.0%
-0.5%
Source: Dar es Salaam Stock Exchange, StratLink Africa
All Share Index, month-on-month
Sector Indices month-on-month
Sector Indices Decline
The sector indices, on the other hand, posted
mixed results. The Industrial and Allied Index
fell by 690.0 bps to 5657.9; the Banking Index
closed at 2,524.1 points, up by 10.0bps. While,
the Commercial Services sector Index declined
by 70.0bps to 2315.3 units, in the period under
review.
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
Aug-18 Sep-18
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Price(Red)
VolumeinTZMillions
1,900.0
1,950.0
2,000.0
2,050.0
2,100.0
2,150.0
2,200.0
2,250.0
2,300.0
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Aug-18
Sep-18
Sep-18
Sep-18
Sep-18
Price(Red)
VolumeinTZMillions

GOV MUST IMPROVE REVENUE COLLECTION EFFORTS
UGANDA MARKET UPDATE

The State of Political Risk in Uganda
Uganda scores highly in BMI’s policy continuity
metric which is defined as a reflection of
constitutional and unconstitutional change and is
one of the measures used to determine the Short
Term Political Risk Index (STPRI). The removal of
the Presidential age limit ensured Museveni’s
eligibility to run in the next elections in 2021,
and any beyond then, thereby allowing for a
possible lifetime presidency. In addition to that,
President Museveni remains a dominant force in
the National Resistance Movement (NRM) and has
built enough political capital over years of being
at the helm that his position within the party is
secure, unlikely to be vulnerable to the efforts of
potential rivals within the NRM, while opposition
parties stand at a stark disadvantage.
While this allows for strong policy continuity,
Uganda’s social stability score is below that of
African peers with the events around Bobi Wine’s
arrest representing the latest form of public unrest
within the country.
The British Premier and German Chancellor did
not visit Uganda in their recent African tours and
the country’s questionable record as a democracy
is a likely to have played a part in that.
POLITICAL OUTLOOK
UGANDA
Short Term Political Risk Index (STPRI)
Note: 0 = worst, 100 = best
Pharmaceuticals Industry Poised for Growth
Cipla Quality Chemical Industries (CiplaQCIL)
recently undertook a successful IPO and is
expected to increase activity and participation in
the Uganda Securities Exchange as well as boost
the country’s pharmaceutical industry with its
new capital injection.
Pharmaceutical sales growth, year-on-year,
averaged 0.8% between 2014 and 2017 with
annual sales of USD 414.0 million in 2017, USD
19.0 million less than the equivalent figure for
2014.
CiplaQCIL is the first African manufacturer to
produce triple-combination antiretroviral (ARV)
treatment for HIV, at WHO standards, and the
company also produces medicine for malaria.
Africa has 70% of all HIV/AIDS cases and 90% of
global malaria cases, but manufactures only 29%
of the required medicines¹, hence with its current
reachof13countriesineasternandsouthernAfrica
and plans to expand further, CiplaQCIL is poised
to become one of the leading pharmaceutical
companies in the region and drive the growth of
the pharmaceutical industry in Uganda.
Pharmaceutical Sales in Uganda
1
BMI
30.0
40.0
50.0
60.0
70.0
80.0
90.0
STPRI, Policy
ConƟnuity
STPRI, Social Stability
Kenya Rwanda Tanzania Uganda
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
0.0
100.0
200.0
300.0
400.0
500.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
PharmaceuƟcal sales, USD Mn (LHS)
PharmaceuƟcal sales, % Change y-o-y

Government Revenue Collection Efforts Fall
Short of Target
The Uganda Revenue Authority’s (URA) Taxpayers’
Appreciation Week took place in September,
2018, raising questions around the state of the
government’s revenue collection efforts and what
might be done to improve on their efficacy. Tax
non-compliance has been an issue for the URA
leading to reduced revenues as well as wasted
resources employed in trying to collect taxes owed
by unwilling taxpayers.
With total government revenue as a percentage
of GDP at 14.5%, Uganda under-performs relative
to regional peers such as Kenya where the
corresponding proportion is 18.5% and South
Africa, a relatively more advanced economy,
where government revenues equate to almost a
quarter of GDP.
In FY 2017/18, net revenue fell short of target
by 4.0% despite having raised 13.7% more net
revenue than the previous financial year. What
is also of concern is that the rate of growth in
revenue collections has been slowing down over
the past few years which is clearly depicted in the
downward sloping curve below.
Source: URA, StratLink Africa
Total Gov Revenue as % of GDP 2017e
URA Net Revenue Growth, y-o-y
ECONOMIC OUTLOOK
UGANDA
Domestic net revenue collections fell
short of target by 6.7% in FY 2017/18.
The shortfall in domestic collections was heavily
influenced by the under-performance of Value
Added Tax (VAT) that was shy of its target by 14.4%,
with varying performance across industries.
Within the manufacturing sector there were
significant VAT collection deficits in: sugar (UGX
45.8 billion) due to a fall in prices; beer (UGX
31.7 billion) due to increased competition from
imported alternatives; cement (UGX 29.6 billion)
partially due to subdued demand for the product;
and bottled water (UGX 22.1 billion). Within the
services sector, VAT collections from phone talk
time produced the most significant deficit (UGX
58.3billion)asaresultofmoreandmoreconsumers
substituting towards data usage and as a result of
falling prices due to increased competition within
the telecommunications sector.
International trade net revenue
collections registered a surplus of
0.3% in FY 2017/18.
It is hoped that the anticipated Domestic Revenue
Mobilization Strategy by the Ministry of Finance
will improve revenue collection efficacy although
we will have to wait until at least FY 2019/20,
when it will likely be implemented, to find out.
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
SouthAfrica
Rwanda
Kenya
Tanzania
Uganda
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2017/18
2016/17
2015/16
2014/15

CiplaQCIL Undertakes IPO
The All Share Index slidto 1,726.1on 24 September
2018, the lowest level it has been since November
2017, before regaining some ground. The index
was down 12.0% in the month to 27 September
2018. Emerging markets have experienced capital
outflows on the back of rising interest rates in the
US and fears of the effects of rising global trade
tensions.
Uganda’s Cipla Quality Chemical Industries Limited
(CiplaQCIL), a pharmaceutical firm, completed its
IPO on 14 September, 2018. High demand from
local and foreign institutional investors led to the
institutional pool being oversubscribed while the
allotment rate of shares for the retail pool was
88.1%, raising a total of USD 43.3 million.
Investor Interest in Short Term Government
Securities Remains Strong
The yield curve saw rates fall on one year bonds in
the month to 26 September, 2018 while the rest of
the curve remained relatively stable.
The auction for short term government securities
held on 12 September, 2018 resulted in
subscription rates of 305.1%, 250.4% and 267.5%
for the 91-Day, 182-Day and 364-Day T-bills,
respectively, with the government only taking the
exact amount offered and nothing more.
The over-subscription of these indicates that
investors believe that they are making worthwhile
real returns. This is likely because inflation, which
registered 3.8% in August, is still low but is unlikely
to remain subdued over the medium term. Core
inflation rose to 3.5% in August, up from 2.5% in
the previous month and the highest it has been
since October 2017, an indication that demand
in the economy is picking up and higher price
pressures are likely to follow despite the fact that
inflation on food crops and related items was
negative in September.
The Treasury bond auction held on 5 September,
2018 had three year and ten year government
securities on offer yielding subscription rates
of 118.0% and 120.7%, respectively, indicating
investor interest in longer term government
securities.
All Share Index
CiplaQCIL IPO - Allocation of Shares
Source: CiplaQCIL, StratLink Africa
EQUITY MARKET UPDATEDEBT MARKET UPDATE
UGANDA
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-Sep-18 27-Aug-18
1,600.0
1,700.0
1,800.0
1,900.0
2,000.0
2,100.0
2,200.0
1-Aug-18
8-Aug-18
15-Aug-18
22-Aug-18
29-Aug-18
5-Sep-18
12-Sep-18
19-Sep-18
26-Sep-18
100.0%
88.1%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
0.0
10.0
20.0
30.0
40.0
50.0
InsƟtuƟonal Pool Retail Pool
Gross Proceeds USD Mn Allotment Rate (RHS)

RWANDA MAINTAINS BENCHMARK RATE AS GROWTH IN PRIVATE SECTOR CREDIT DECELERATES
RWANDA MARKET UPDATE

RPF Win Cements its Dominance over Political
Landscape
As expected, the Rwandan Patriotic Front (RPF)-led
alliance which, comprises of six other small parties
won the legislative elections with a landslide
garnering 74.0% of the vote slightly lower than the
76.2% won in the previous election in 2013 and
securing forty of the 53 seats. Of note, women
won majority of the seats at 61.0% of the total
representation, a reduction however, compared to
64.0%representationintheoutgoingchamber,but
still remains the highest female representation in
any parliament globally. In what can be described
as a dividend for political pluralism in Rwanda, four
other parties— the Social Democratic Party, the
Liberal Party, the Parti Social Imberakuri and the
Democratic Green Party of Rwanda — managed to
secure at least 5.0% of the popular vote, the level
required to gain parliamentary representation.
However, despite forming part of the opposition,
PSD and the PL remain loyal to the ruling RPF,
hence, only PS-Imberakuri and the DGPR, who
won two parliamentary seats each, offer genuine
opposition to the ruling party and their victory,
albeit marginal, marks the emergence of a
genuine parliamentary opposition representation
in Rwanda. The RPF, with 36 seats, emerged as the
single largest party in the lower house yet again,
further cementing it’s dominance. In this regard,
we maintain our long held view that despite
other political parties gaining parliamentary
representation RPF is set to remain the dominant
party while the opposition parties will remain
firmly in the minority, thus, having little impact
on governance and policy trajectory. Likewise,
Rwanda still has a long way to go for effective
political pluralism in the country as the political
environment remains highly restrictive marked
by intimidation and imprisonment of perceived
challengers to government. Nonetheless, the
release of long time political prisoner Victoire
Ingabire coupled with the election of opposition
members to parliament marks a good start for
opening up of political space in Rwanda.
POLITICAL OUTLOOK
RWANDA
Amended Mining Law Favors Large Players
The discovery of minerals in the region has elicited
increased scrutiny and review of sector laws by
host countries seek to protect their resources
from perceived foreign exploitation. Rwanda is
borrowing a leaf from Tanzania, which last year
amended its mining laws to increase government
controloverthesectorbesidesearningthecountry
more revenues. Rwanda on its part has amended
the mining law in a bid to streamline the industry
through improved governance and worker safety,
especially given that artisanal miners make up
about 50.0% of the industry players. While mining
in Rwanda is 100.0% private-sector run with very
little government participation. Minerals are
second-highest foreign exchange earner after tea
and coffee and a key sector in the country’s bid
to reach middle income status by 2025. In this
regard, government plans to increase the mining
sector’s contribution to GDP from the current 1.2%
to 5.2% by the end of the year. Likewise, Rwanda
generated USD 158.0 million export earnings from
minerals in 2016 and intends to increase this figure
more than two fold to USD 400.0 million by the
end of this year. Hence, such an ambitious target
can only be achieved if the government realizes
its target of increasing investments in the sector.
The law that was gazetted in August, recommends
among others, measures to protect miners and
scrap issuance of artisanal miners’ licenses. In as
much as this will be a welcome development for
governance and accountability for the sector as
well as workers in the sector, scrapping issuance
of artisanal miner’s licenses is bound to hurt the
country’s production and the mineral export
targets given that Rwanda like other African
producers, export minerals in their raw form,
which fetches less at the international market.

Rwanda Maintains Benchmark Rate at 5.5%
In its quarterly monetary policy meeting, Rwanda
maintained its benchmark rate at 5.5%, a rate that
has been maintained since December 2017, on
the back of moderate inflation, subdued exchange
rate pressures as well as liquidity and improved
macroeconomic environment; the economy
expanded by 6.7% in the second quarter of 2018
relative to a 4.0% growth over a similar period in
2017.
Rwanda has witnessed benign inflation trends for
the better part of the year supported by subdued
exchange rate pressures. Inflation for August 2018
wasrecordedat2.1%whiletheFranchasremained
resilient against the greenback for the better
part of the year depreciating by 2.5% against the
greenback at the end of August 2018 compared
to 1.8% depreciation in the same period in 2017.
ECONOMIC OUTLOOK
RWANDA
Source: National Institute of Statistics of Rwanda, StratLink Africa
Source: Bloomberg, NISR, StratLink Africa
Source: National Bank of Rwanda, StratLink Africa
Real GDP vs Sectoral Growth
Inflation vs Franc
Monetary Trends (USD/Bln)
The Central bank made periodic rate cuts in 2017
aimed at encouraging commercial bank lending
to the private sector and consequently, stimulate
economic growth. Nonetheless, available official
data indicates these policy moves are yet to
achieve the expected outcomes: The overall loan
rejection rate was estimated at 20.4% in the first
half of 2018 up from 16.6% in a similar period
in 2017 as banks sought to mitigate credit risks.
Consequently, outstanding credit to the private
sector posted a slower growth of 7.3% in the year
ending June 2018, against a growth of 8.0%, over
a similar period in 2017.
Money Supply Posts Slower Growth, year-on-
year
Growth in money supply witnessed similar lagging
trends; rising by 9.5% in the year ending June 2018,
320.0 bps lower than a similar period in 2017.
However, liquidity conditions at the banking level
remain favorable supported by increased liquidity
injection by the central bank. The Repo rate,
interbank and Treasury bills yields, respectively
shed off 10.0 bps, 150.0 bps and 90.0 bps to 4.1%,
5.6% and 6.2% in the first half of 2018 compared
to December 2017.
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2014Q2
2014Q4
2015Q2
2015Q4
2016Q2
2016Q4
2017Q2
2017Q4
2018Q2
Real GDP
Services Agriculture
Industry
0.0%
1.0%
2.0%
3.0%
4.0%
820.0
830.0
840.0
850.0
860.0
870.0
880.0
890.0
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Exchange rate InﬂaƟon (RHS)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Broad money
Net domesƟc assets
Net Foreign Assets

RWANDA
T Bill Yields
Yields Rise
Yields for the short term government instruments
trended northward in September 2018 on the
back of benign inflation rise: Inflation rose slightly
to 2.1% in August from 2.0% in July 2018. On the
interbank market, during the first seven months
of 2018, the market recorded transactions worth
USD 369.8 million compared to USD 281.5 million
recorded in the same period of 2017. The rate
rose slightly by 10.0bps to 5.7% in August 2018.
The trends in the variables informed the yield
trajectory. The increase in interbank transactions
is attributed to the introduction of the Financial
Markets Operations Committee which is expected
to be instrumental in the planned implementation
of a price-based monetary policy framework that
is expected to kick-off by end 2018.
Consequently, the 91 Day, the 182 Day and the
364 Day papers’ yields rose by 20.0bps, 12.0bps,
45.0bps to 5.2%, 6.6% and 7.3%, respectively, in
the period under review.
DEBT MARKET UPDATE
Subdued pressure on the Franc
Downward pressure on the Franc, relative to the
greenback, has eased in recent months, a trend
we think will continue for most of the forecast
period buoyed by robust inflows and strong
export earnings from agricultural and mineral
exports. However, the Franc slipped in September
2018 giving in to pressure from the greenback
to depreciate by 0.9%, month-on-month and
5.0%, year-on-year even as inflationary pressures
remained subdued.
Franc vs USD
Franc depreciation, month-on-month,
as at 18th September, 2018
Franc depreciation, year-on-year,
as at 18th September, 2018
-0.9%
-5.0%
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
860.0
865.0
870.0
875.0
880.0
885.0
890.0
Aug-18
Aug-18
Aug-18
Sep-18
Sep-18

Rwanda All Share Index year-on-year
Trading Activities at the Bourse (FRW/Mln)
Bank of Kigali Prospecting Improved Earnings
The Bank of Kigali reported 17.8% in net earnings
to USD 15.5 million compared to the industry
earnings of USD 26.6 million in the first half of
2018, highlighting the importance of the bank
withintheindustry.Thebankmaintainsdominance
over the local banking industry as well as market
capitalization of the local bourse and is targeting a
yearly profit of USD 32.3 million.
Meanwhile planned cross listing of Bank of Kigali
shares on the Nairobi Securities Exchange has
been delayed until December 2018. We expect
that effecting of the cross listing should help
improve liquidity at the bourse. Meanwhile, the All
Share Index stagnated at 131.6 units, month-on-
month, pointing towards the continued inactivity
of the bourse.
128.0
129.0
130.0
131.0
132.0
133.0
134.0
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
0
20000
40000
60000
0.0
500.0
1,000.0
1,500.0
2,000.0
2013 2014 2015 2016 2017 2018
No of Deals (RHS) Volume (FRW/Mln)
Turnover

StratLink in the News:
StratLink’s Director for SME and Impact Finance, Julio De Souza, participated in the
August 2018 Alpbach Forum which converged 40 though leaders with the aim of
accelerating steps towards adoption of a common framework for impact finance.
This is in line with StratLink Growth’s mission of helping unlock the potential of
impact finance in invigorating private sector activity in frontier markets.
Following this conference, Julio De Souza and Senior Research Analyst, Julians
Amboko, published an article with leading impact finance focused blog, Next
Billion (an initiative of the William Davidson Institute at the University of Michigan),
discussing what such a framework would mean for frontier markets.
Towards a Guiding Framework for Impact Finance

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 - Vice President - Transaction Advisory Services
kyle.drexler@stratLinkglobal.com
Benson Njeri - Senior Analyst
benson.njeri@stratLinkglobal.com
Gianluca Storchi - Senior Research Analyst
gianluca.storchi@stratLinkglobal.com
Sophia Sifuma - Research Analyst
sophia.sifuma@stratLinkglobal.com
Peter Mutisya - Director of Graphic Design
peter.mutisya@stratLinkglobal.com
Sandra Kayaki - Administration Specialist
sandra.kayaki@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 - October 2018

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