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May 2018 Africa Market Update

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This report covers macroeconomic and investments trends in Ghana, Nigeria, Kenya, Tanzania, Uganda and Rwanda.

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May 2018 Africa Market Update

  2. 2. 2MAY 2015 | MARKET UPDATE – AFRICA A Financial Advisory Company MAY 2018 | MARKET UPDATE – AFRICA NIGERIA GHANA 5 10 15 23 RWANDA 27 KENYA UGANDA TANZANIA 19 Table of Contents GHANA • Why Banking Reference Rate needs greater clarity • Plans to issue sixth eurobond at odds with the economic recovery strategy NIGERIA • Business environment to be propped by surge in price of oil • Reforms momentum risks deceleration as electoral cycle commences KENYA • Talks around constitutional amendment • Interoperability of mobile money services set to increase competition in the market • Shilling gains on the dollar At a Glance TANZANIA • Performance of the fiscal account buoyed by rising revenue collections • New online content law undermines freedom of expression and stifles budding ICT sector UGANDA • Controversy around proposed tax on mobile money transactions • 2017 was a bumper year for remittances • Economic activity maintained momentum in last quarter of 2017 RWANDA • Defusing tension between Rwanda and Uganda bodes well for regional economic integration • Export access fund to boost SME financing • Agricultural transformation to boost trade balance Nairobi, Kenya © Mutua Matheka Cover image:
  3. 3. 3MAY 2018 | MARKET UPDATE – AFRICA Value of Deals by Country (USD) AFRICA DEALS LANDSCAPE January - April 2018 Source: PitchBook, StratLink Africa Deal Activity by Industry (Proportions) Deal Activity by Types (Proportions) Snapshot of Deals • TradeDepot (Nigeria): The company raised USD 3.0 million of venture funding on April 26th, 2018 • Africa’s Talking (Kenya): The company raised USD 8.6 million in deal led by the International Finance Corporation • Eureka Gold Mine (Zimbabwe): The company was acquired by Dallaglio Investments for USD 4.5 million on April 20th, 2018 Health devices & supplies Insurance Communications & networking Metals, minerals & mining Exploration, production & refining Energy services Apparel & accessories Commercial products Others 3.1 Billion 1.3 Billion 1.2 Billion 948.0 Million 386.0 Million 374.7 Million 142.6 Million 94.2 Million 69.4 Million 55.0 Million 45.0 Million 34.8 Million 10.5 Million 10.0 Million 7.7 Million 1.1 Million South Africa Nigeria Morocco Egypt Senegal Ethiopia Ghana Madagascar Kenya Tanzania Mauritius Namibia Congo Ivory Coast Lesotho Uganda 20,000.0Niger 38.3% 38.3% 28.1% 28.1% 14.2% 14.2% 6.4% 6.4% 3.8% 3.8% 2.5% 2.5% 1.8% 1.8% 4.9% 4.9% Merger/Acquisition Secondary Transaction - Private Corporate Divestiture IPO Acquisition Financing PIPE Asset Acquisition Others 13.5% 10.2% 9.8% 6.3% 5.4% 4.6% 4.4% 4.3% 41.5%
  4. 4. 4MAY 2018 | MARKET UPDATE – AFRICA Rwanda’s stance on phasing out importation of second hand clothing and ramifications with regard to AGOA sanctions has elicited considerable interest. This development is significant for a number of reasons two of which are: • Rwanda’s action was informed by the Joint Communique of the 17th Ordinary Summit of East African Heads of State which, in part, agreed to promote vertically integrated industries in the textile and apparel sector with a view to phasing out importation of used textiles. In 2017, Rwanda’s exports under AGOA stood at USD 2.0 mln compared to Kenya’s USD 403.0 mln and Tanzania’s USD 41.0 mln, indicating that Rwanda was punching below its peers in tapping into the USA market. With the likelihood that other economies in the region could be reconsidering their stand on importation of second hand clothing, this development brings to focus the tight rope that is management of regional heterogeneity in East Africa • Between 2012 and 2013, StratLink Africa Ltd was contracted by a USA based multinational to undertake research whose goal was to inform efforts to widening its apparel sourcing footprint to include East Africa. One of the key factors that informed the multinational’s interest in East Africa was the duty free access availed under the AGOA arrangement. Rwanda’s stance is poised to begin casting the region in a different light as the push for strengthening domestic industry gains momentum and presents a potential threat to the AGOA arrangement Used Clothing Imports from USA (USD) : APPAREL IN EAST AFRICASECTOR LE Source: USAID, StratLink Africa 11,402,000 19,467,000 7,190,000 1,001,000 47,283,000 25,576,000 11,264,000 2,071,000 101,077,000 66,879,000 27,151,000 4,272,000 0 Kenya Tanzania Uganda Rwanda Burundi 1997 2007 2015 18,151,000 32,870,000 62,730,000
  6. 6. 6MAY 2018 | MARKET UPDATE – AFRICA Plans Underway to Issue Sixth Eurobond In the period under review the country has maintained a favorable political risk profile with concern over the March 2018 move by the Parliament to approve plans to issue a USD 1.0 billion Eurobond to meet the government’s funding needs. If it sees the light of day, this will be the country’s sixth Eurobond and prods us into a cautious stance on the policy environment especially with regard to debt sustainability. In the run-up to the 2016 election, the New Patriotic Party’s manifesto spoke, in part, to the exposure to debt distress that the country faced and pledged to address the same. As such, the recent development makes for a stark departure from the planned agenda. Surging External Debt Ghana’s external debt-to-GDP ratio stands at 40.2%, having risen from 19.2% in 2009 , and is higher than peer economies such as Kenya (27.7%), Tanzania (30.3%) and Zambia (35.2%). Whereas fiscal consolidation under the New Patriotic Party has thus far been a good score for the policy environment, failure to slow-pedal the country’s external debt binge is bound to expose it to vulnerabilities in the years ahead. POLITICAL OUTLOOK Ghana Eurobond Issuances Source: Bloomberg, StratLink Africa Diversifying Product Mix Bodes Well for Mobile Money Investment MFS Africa, a company which partners with mobile network operators to facilitate cross-border remittances, raised USD 4.5 million in April 2018 with the goal of accelerating its expansion across Africa. We believe this deal is significant for two reasons: • It is indicative of the investment opportunities in the mobile payments space in the continent especially with the uptake of mobile wallets and cashless payments • Therearesignsthatovertime,sub-SaharanAfrica (SSA) is experiencing gradual diversification in mobile money transactions from person-to- person transfers to larger portions being taken up by bill payment and merchant payments. In view of this, we foresee significant opportunity in the mobile payments space especially with untapped markets such as Ethiopia BUSINESS ENVIRONMENT Mobile Money Transactions SSA (Value) Source: GSMA, StratLink Africa GDP: USD 42.9 Bln | Population: 28.0 Mln GHANA 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 2011 2016 P2P transfer Merchant payment InternaƟonal remiƩance Bulk disbursement Bill payment AirƟme top-up USD 750.0 Mln Issued in 2016 USD 1.0 Bln issued in 2013 USD 1.0 Bln issued in 2014 USD 1.0 Bln issued in 2015 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 0 5 10 15 20 YieldatIssuance Tenor (Years)
  7. 7. 7MAY 2018 | MARKET UPDATE – AFRICA Bank of Ghana Adopts Reference Rate Bank of Ghana has adopted a Banking Reference Rate, with its maiden rate set at 16.8%, with a view to providing a guide to commercial banks on the pricing of credit. It is a signal that the economy is facing challenges in monetary transmission with commercial bank lending rate failing to reflect changesinthemonetarypolicystance.Onetailwind that Bank of Ghana could ride in this effort is that over the last two years the proportion of public debt held by commercial banks has declined from 27.9% to 15.6% as shown in the chart below. What this implies is that over the period, commercial banks have had greater capacity to lend to the private sector as their lending to the government decreased. This creates a need for banks to adopt favorable pricing to attract retail borrowers. Note: The inner circle represents January 2018 whilst the outer represents December 2016. A potential hurdle that we foresee in the reference rate helping to nudge lending rates downwards is the scarcity of information as to how the rate is determined. In the Kenyan experience in 2015, it was public knowledge that the reference rate was computed based on the 91 Day T-Bill rate and Source: Bank of Ghana, StratLink Africa Holders of Public Debt ECONOMIC OUTLOOK The slash is an indicator that with inflation having fallen to 10.4% in March 2018, the central bank is confident of a sustained downtrend towards the target band of 6.0% - 10.0% in the near-term. the monetary policy rate. This was important in helping inform expectations based on movements of the 91 Day T-Bill and the benchmark rates. Bank of Ghana Slashes Rate Bank of Ghana slashed the benchmark rate by 200.0 bps in its March 2018 meeting, a slash whose margin was larger than we expected in view of the cautious undertones that characterized the January 2018 meeting. This marks the second time the bank has slashed the rate by 200.0 bps since it began the unwinding cycle in Q4 2016. Bank of Ghana Benchmark Rate Slash Headline Inflation Source: Bank of Ghana, StratLink Africa Source: Ghana Statistical Service, StratLink Africa GHANA 15.6% 19.5% 25.9% 39.0% 27.9% 24.7% 25.5% 21.9% Banks Bank of Ghana Non-Banks Non-residents Month Slash (Basis Points) November 2016 50.0 March 2017 200.0 May 2017 100.0 July 2017 150.0 November 2017 100.0 March 2018 200.0 10.0% 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 Bank of Ghana’s target inflaƟon ceiling
  8. 8. 8MAY 2018 | MARKET UPDATE – AFRICA Source: Debt Management Office, StratLink Africa Slowdown in Trimming of Debt Appetite Government paper yields exhibited minimal change in the period between June 2017 and January 2018. This trend could be driven by a number of factors two of which are: • After a steady decline in the government’s appetite for domestic debt, the Q2 2018 issuance calendar indicates that the trend could be reversing. This trend is likely to be keeping yields at levels witnessed towards the tail end of 2017 and at the start of 2018 Bank of Ghana Policy Rate Sovereign Yield Curve Government Issuance of Domestic Debt (USD) Source: Bloomberg, StratLink Africa Source: Bank of Ghana, StratLink Africa DEBT MARKET UPDATE Monetary policy rate as at the March 2018 Monetary Policy Committee meeting Target issuance of local debt for Q2 2018 per the Bank of Ghana issuance calendar 18.0% USD 2.5 Bln GHANA • It is also likely that investors had already priced in the decline in inflation in view of Bank of Ghana’s policy unwind between Q4 2016 and Q2 2017. By the start of by June 2017, Bank of Ghana had slashed the benchmark rate by 350.0 bps. We hold the view that the policy rate still has significant headroom for slashing, with a high likelihood of two additional slashes in 2018, given the present trends shown by inflation and the resilience exhibited by the Cedi. Like most currencies in sub-Saharan Africa, the Cedi has held firm against the greenback year-to-date supported by the rebound in commodity prices (especially for oil exporting economies such as Ghana) and the relative weakening of the greenback. 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 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% Nov-02 Mar-04 Jul-05 Nov-06 Mar-08 Jul-09 Nov-10 Mar-12 Jul-13 Nov-14 Mar-16 Jul-17 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 91 Day 182 Day 364 Day 3 Year 5 Year 7 Year Dec-16 Jun-17 Jan-18
  9. 9. 9MAY 2018 | MARKET UPDATE – AFRICA Source: Bloomberg, StratLink Africa Market Sustains Rally Appetite for the equities has remained high with the Composite Index rallying through April 2018. This is reflective of the fact that investor sentiment remains bullish as the economy rebounds and policy becomes more accommodative of further growth momentum. This notwithstanding, with fixedincomeyieldsnowshowingsignsofresistance to further decline, the rally could moderate as some investors shift focus to the debt segment. Ghana Stock Exchange Financial Services Index Ghana Stock Exchange Source: Bloomberg, StratLink Africa Source: Bloomberg, StratLink Africa EQUITY MARKET UPDATE Meanwhile, Energy Bank has indicated plans to list on the exchange in the near future. This listing would be timely given that it comes against the backdrop of efforts by the central bank to strengthen the banking sector through raising the capital threshold. Banking stocks have since witnessed a rally and, on the whole, outperformed the market’s index. Ghana Stock Exchange Composite Index, year-on-year, gain as at April 26th, 2018 Ghana Stock Exchange Composite Index, year-to-date, gain as at April 26th, 2018 83.7% 33.8% GHANA 0.0 5.0 10.0 15.0 20.0 25.0 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 Jan-18 Feb-18 Mar-18 Apr-18 Millions Volume - RHS Composite Index 0.0 500.0 1,000.0 1,500.0 2,000.0 2,500.0 3,000.0 3,500.0 Jan-18 Feb-18 Mar-18 Apr-18 0.0 10.0 20.0 30.0 40.0 50.0 60.0 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 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Billions Volume - RHS Composite Index
  11. 11. 11MAY 2018 | MARKET UPDATE – AFRICA Reforms Risk Being Decelerated as Electoral Cycle Commences The political risk environment remains broadly favorable with President Buhari reported to have made public his intention to seek re-election in the 2019 poll. Our prime concern looking into the remaining part of the year is the possibility that rising political rhetoric could derail the momentum that has been gathered by the economy as it rebounds from the 2015/16 slump. Notably, debate over the scheduling of the elections has taken center stage in the recent past. Over the last four years, Nigeria has experienced acceleration of favorable reforms in the policy environment, a trend that now risks being decelerated as the country enters the 2019 electoral cycle. Some of the key reform measures include: • Passage of the Petroleum Industry and Governance Bill in May 2017 was a major step in longoverduereformoftheoilsector.Forasector that has been plagued by mismanagement of the country’s key resource, the policy seeks to initiate the process of streamlining operations and ensuring Nigeria optimizes the potential presented by its oil sector • Approval of the National Gas Policy by the cabinet on July 5th, 2017. The policy is particularly important for the country coming at a time when it seeks to diversify from reliance on oil through increasing investment in exploration of gas These policy changes have been pivotal in casting the economy in positive light especially after the economic slump. It is important that this momentum be sustained through the electoral cycle so as to consolidate the gains that could be realized. POLITICAL OUTLOOK GDP: USD 481.1 Bln | Population: 187.0 Mln NIGERIA Unemployment Rate OPEC Basket Races towards USD 70 per Barrel The Organization of Petroleum Exporting Countries (OPEC) basket price is on a steady trajectory towards USD 70 per barrel, a high last witnessed in 2014. This trend presents a significant tailwind for the country’s business environment which has taken a major hit from the concentration of private sector credit in the oil and gas sector (taking the lion’s share of all credit at 30.0% as at December 2017) amidst surging non-performing loans. The business environment has experienced tight lending conditions in what we assess is a reflection of caution by commercial banks over the high proportion of bad loans. The upswing in the price of oil could be instrumental in changing this stance. Failure to Meet Production Targets to Spook Optimism We note, however, that the country in March 2018 failed to meet its oil production target, realizing 2.02 million barrels per day against the target 2.3 million, indicating that the economy still faces a constraint as it looks to reap from the surge in the price of oil. BUSINESS NEWS ENVIRONMENT Source: Bloomberg, StratLink Africa OPEC Basket Price (USD per Barrel) 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18
  12. 12. 12MAY 2018 | MARKET UPDATE – AFRICA Federal Government Borrowing, USD (Bonds) Source: Debt Management Office, StratLink Africa NIGERIA Government Appetite for Debt Subdued We shift focus from the monetary environment to assess developments on the fiscal front. Government appetite for domestic debt has been on the decline with the amount borrowed through bonds exhibiting a sustained downtrend in Q1 2018. In the first three months of 2018, the government borrowed USD 704.3 million through bonds, a 58.7% decline from the same period in 2017. This is a likely result of the government’s efforts in 2017 to tap into alternative sources of revenue mobilization, notably the issuance of a USD 3.0 billion Eurobond and the Federal government’s debut Naira 100.0 billion (USD 279.0 million) Sukuk. We expect this trend to provide the much needed support for the Central Bank’s goal of addressing tightened lending conditions without piling pressure on the Naira. With government appetite for debt getting subdued, commercial banks will likely be compelled to revise high lending rates as they target retail borrowers. As indicated in our outlook for 2018, the Central Bank is likely to bid its time longer, into Q3 2018, before engaging an expansionary monetary stance owing to the risk of perverse outcomes. ECONOMIC OUTLOOK Policy Rate and Commercial Bank Lending Rate Non-Performing Loans Ratio Source: Central Bank of Nigeria, StratLink Africa Source: Debt Management Office, StratLink Africa Concern over Bad Loans Lingers A fact that could derail this is the growth in non- performing loans ratio, to 15.5% as at October 2017, which still sends a signal of relatively high risk in the business environment. Lending to the oil and gas sector, in particular, is reported to be on the decline in what we assess is a likely indicator that banks could be wary of possible sectoral concentration of non-performing loans. Average commercial bank lending rate in January 2018 17.5%0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 Jan-18 Feb-18 Mar-18 Millions 0.0% 5.0% 10.0% 15.0% 20.0% Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 Commercial Bank Lending Rate Monetary Policy Rate 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
  13. 13. 13MAY 2018 | MARKET UPDATE – AFRICA Evolution of the Sovereign Yield Curve Source: Bloomberg, StratLink Africa Spread between Short and Long-term Papers Thinning Out The spread between short-term and long- term papers is narrowing sending a signal that a correction of the inverted yield curve is imminent. Nigeria’s yield curve has been inverted for the better part of the last two years driven by pervasive bearish sentiment over the overall macroeconomy with notable pressure emanating from the monetary front. With the economy on rebound and inflation getting under control, investors’ short-term expectations of the economy are improving. On the whole, yields are set to continue trending downwards with March 2018 inflation data having relayed an important signal which is reinforcing the expectation of subdued inflation going forward. The decline in headline inflation seems to be picking pace, with a 100.0 bps fall between February 2018 and March 2018, after the lethargy witnessed for the better part of 2017. DEBT MARKET UPDATE NIGERIA Inflation Naira to USD Exchange Source: Debt Management Office, StratLink Africa Source: Bloomberg, StratLink Africa Naira Holds Firm On the foreign exchange front, the Naira remained resilient in the period under review. With the interbank rate at 26.2%, the Central Bank is likely to be keeping liquidity conditions relatively tight to prop the Naira. 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 3M 6M 1Y 3Y 5Y 7Y 10Y 15Y 20Y Dec-14-2016 Apr-19-2017 Nov-17-2017 Apr-19-2018 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 Headline InflaƟon Non-food Index Food Index 280.0 290.0 300.0 310.0 320.0 330.0 340.0 350.0 360.0 370.0 380.0 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18
  14. 14. 14MAY 2018 | MARKET UPDATE – AFRICA Foreign Investment Inflow to Outflow Ratio Nigeria Stock Exchange 30 Index Source: Nigeria Stock Exchange, StratLink Africa Source: Bloomberg, StratLink Africa Market Moderates after February Slide Foreign investor inflow slowed down in the first two months of 2018 to USD 254.9 million and USD 124.7 million in January and February, respectively, compared to the average USD 282.5 million in Q4 2017.Atthesametime,outflowfromtheexchange was on a gradual rise standing at USD 207.4 million and USD 106.5 million in January and February, respectively. This, in part, explains the slowdown in the rally witnessed in the market at the tail end of 2017. With GDP growth numbers now pointing at sustained emergence from the 2016 recession, the effect of pricing in the economy’s upswing is receding. EQUITY MARKET UPDATE Year-on-year gain of the 30 Index as at April 19th, 2018 Year-to-date gain of the 30 Index as at April 19th, 2018 62.2% 5.4% Nigeria Stock Exchange 30 Index Source: Bloomberg, StratLink Africa With the general election season, 2019, on the horizon, we expect to see the market trend further down especially with growing debate over the scheduling of the polls. 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 1,550.0 1,600.0 1,650.0 1,700.0 1,750.0 1,800.0 1,850.0 1,900.0 1,950.0 2,000.0 2,050.0 2,100.0 Jan-18 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Millions Volume - Right Hand Axis 30 Index 0.0% 100.0% 200.0% 300.0% 400.0% 500.0% 600.0% Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 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 1,000.0 1,200.0 1,400.0 1,600.0 1,800.0 2,000.0 2,200.0 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 Millions Volume - Right Hand Axis 30 Index
  16. 16. 16MAY 2018 | MARKET UPDATE – AFRICA POLITICAL OUTLOOK GDP: USD 63.4 Bln | Population: 47.3 Mln KENYA Shifting Landscape in Telecommunications Industry Recent conversations around a possible merger between Telkom Kenya and Bharti Airtel have raised questions around Safaricom’s dominance of the telecommunications and mobile money space. In the last quarter of 2018, Safaricom held 69.1% of mobile subscriptions against a combined 26.2% for Airtel and Telkom while in the mobile money market Safaricom held an even larger stake of 79.9% of the value of transactions. A merger between Airtel and Telkom could lead to considerable cost savings and economies of scale that would increase competition for Safaricom and benefit the end user. However, some progress towards increased competition has already been made with the advent of interoperability of mobile money services between telecommunications firms. This is expected to remove barriers to users joining networks other than Safaricom thus promoting competition. BUSINESS NEWS ENVIRONMENT Market Share for Mobile Subscriptions, Q4 2017 Mobile Money - Value of Transactions, % Share Q4 2017 Source: Communications Authority of Kenya (CA), StratLink Africa Debate over Constitutional Amendment The country continues to ride the tailwind presented by the truce between the two key protagonists in the last election. However, undercurrents of succession uncertainty seem to be taking center stage with emerging consideration of a possible amendment to the constitution in a bid to change the structure of government. Coming in quick succession to the conclusion of the protracted 2017 electoral cycle, debate over a possible amendment to the constitution is deflecting focus from key issues affecting the country and could potentially derail the government as it settles into its second term anchored on its Big Four agenda – affordable housing, enhancing food security, bolstering manufacturing and realizing universal health coverage. Devolution as a Growth Driver One area which we expect to be of considerable interest going forward is the need to spur devolution as a catalyst for growth. Whereas funds allocated to the county governments have grown over the last four years, hurdles such as delayed disbursement on the side of the central government and below target absorption rates, for both recurrent and development expenditure, have stood out as impediments to the role of the devolved units as growth drivers. Source: Commission on Revenue Allocation, StratLink Africa Budget Allocation to County Governments (USD) 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 2013/14 2014/15 2015/16 2016/17 Billions 69.1% 17.2% 9.0% 4.5% 0.2% Safaricom Airtel Telkom Finserve Other 79.9% 19.9% 0.1%0.1% M-Pesa Equitel Money Other Airtel Money
  17. 17. 17MAY 2018 | MARKET UPDATE – AFRICA KENYA Select EAC Currencies to USD, (Baseline=100, Jan-2017) Source: Bloomberg, StratLink Africa monthly inflow of remittances to the country, USD 210.4 million, according to data going back to 2004¹ representing a significant expansion of 47.5% relative to receipts from the same month in the previous year. The Kenya shilling has outperformed regional peers against the greenback with the Ugandan, Tanzanian and Rwandese currencies depreciating by2.6%,3.8%and4.3%betweenJanuary,2017and April² this year while the Kenyan unit appreciated by 2.0% over the same time-frame. Inflation is currently within the lower end of the Central Bank’s target band of two and a half percent either side of 5.0%, having come in at 4.2% in March, 2018. However, StratLink anticipates that inflation will pick up going forward thus eroding real yields on government securities and putting depreciatory pressure on the shilling. Indications from the Federal Reserve Bank of the USA regarding their rate hike schedule for 2018 suggest there may be currency outflows from Kenya towards increasingly attractive American bonds, thereby weakening the shilling. However, the record high 6.4 months of import cover³ (FX reserves) are enough to counter currency volatility going forward plus the recent political truce will strengthen investor confidence and in turnsupport the local unit. ECONOMIC OUTLOOK Shilling Strengthens Against Dollar The local currency dipped below 100.0 shillings to the dollar reaching 99.98 on 23 April, 2018, the strongest position it has held against the greenback since July, 2015. Further support for the shilling has come in the form of strong inflows of hard currency from remittances. February, 2018 recorded the largest The local unit has appreciated against the dollar, year-on-year, since the beginning of 2018. This trend has been supported by a narrowing current account deficit which fell from USD 5.2 billion in October, 2017 to USD 4.9 billion in January, 2018. Source: Bloomberg, StratLink Africa Source: Central Bank of Kenya, StratLink Africa KES to USD Current Account, USD Million 90.0 92.0 94.0 96.0 98.0 100.0 102.0 104.0 106.0 108.0 01-Jan-15 01-Apr-15 01-Jul-15 01-Oct-15 01-Jan-16 01-Apr-16 01-Jul-16 01-Oct-16 01-Jan-17 01-Apr-17 01-Jul-17 01-Oct-17 01-Jan-18 01-Apr-18 -5,200.0 -5,000.0 -4,800.0 -4,600.0 -4,400.0 -4,200.0 -4,000.0 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 97.0 98.0 99.0 100.0 101.0 102.0 103.0 104.0 105.0 Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 KES UGX TZS RWF 1 Central Bank of Kenya (CBK) 2 As of 23 April, 2018 3 As of 19 April, 2018
  18. 18. 18MAY 2018 | MARKET UPDATE – AFRICA Subdued Borrowing Appetite by Government to Keep Rates Stable The yield curve remained static in the month to 23 April, 2018 and StratLink expects that interest rates will remain stable in the near term because the government is approaching its borrowing targets for the current financial year and the Kenya Revenue Authority is on track to approach revenue collection targets for the second half of the financial year. A lack of inflationary pressure will also encourage stable yields. Subscription rates on government papers reached a high of 162.5% during the 19 April, 2018 auction, up from 87.1% during the previous week on the back of improved liquidity in the market, evident in the interbank rate which fell by 1.5% to 4.8% between the beginning of the month and 24 April, 2018. Bloomberg BVAL Yields Index Interbank Rate Source: Bloomberg, StratLink Africa Source: Bloomberg, StratLink Africa DEBT MARKET UPDATE KENYA Equity Prices Take a Slight Dip The NSE 20 Share index has fallen since it peaked at 3,862.3 in March, registering a 3.4% decline in the month to 23 April, 2018. The downward trend was driven by a fall in the stock prices of ARM Cement, Centum Investment, Safaricom and the Kenya Electricity Generating Company (KENGEN) which were down 18.4%, 10.3%, 9.5% and 9.4%, respectively, in the month to 25 April, 2018. Innovation in Financial Markets NairobirecentlyhostedtheseventhBuildingAfrican Financial Markets (BAFM) seminar organized by the African Securities Exchange Association (ASEA) which focused on the role of innovation in the growth and sustainable development of financial markets. The Nairobi Securities Exchange (NSE) discussed plans to release a mobile phone application that will provide simple to understand information on capital markets and how to invest in them. This follows the same trend in Kenya that saw the first ever issuance of a government bond, M-Akiba, via mobile phone. The point being to leverage on technology and high mobile phone penetration to make investing more widely available. However, considering the mixed success of M-Akiba, it remains to be seen whether this initiative will be effective. EQUITY MARKET UPDATE Nairobi Securities Exchange 20 Share Index Source: Bloomberg, StratLink Africa 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 23-Apr-18 23-Mar-18 4.0% 4.4% 4.8% 5.2% 5.6% 6.0% 6.4% 6.8% 01-Mar-18 08-Mar-18 15-Mar-18 22-Mar-18 29-Mar-18 05-Apr-18 12-Apr-18 19-Apr-18 0.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0 80.0 90.0 100.0 3,650.0 3,700.0 3,750.0 3,800.0 3,850.0 3,900.0 02-Jan-18 16-Jan-18 30-Jan-18 13-Feb-18 27-Feb-18 13-Mar-18 27-Mar-18 10-Apr-18 Millions Volume NSE 20 Index (LHS)
  20. 20. 20MAY 2018 | MARKET UPDATE – AFRICA GDP: USD 45.6 Bln | Population: 55.2 Mln New Online Content Law Undermines Freedom of Expression The tussle between government and opposition supported by Magufuli’s perceived overly firm hand endures going by the recent events where government arrested eight opposition members of parliament over alleged sedition and incitement, a trend that has recently become common practice in Tanzania. In another seemingly retrogressive development and what may be seen as a culmination of President Magufuli’s government’s clampdown on media outlets and online social media use in the country, all parties interested in online blogging will now require government certification besides being charged an annual fee of about USD 900.0, under the new Electronic and Postal Communications (Online Content) Regulations 2018, before commencing operations. We are bound to witness increased clampdown on government critics in light of the fact that this regulation gives government autonomous powers to police the web as it (government) seeks to tighten its grip on both digital and traditional media sources, a move that sets back the country’s democracy strides as well as the budding ICT sector. Set-Back for the budding ICT Sector The continued strangle-hold on the media sector is also bound to negatively impact Tanzania’s budding ICT sector and derail the country’s efforts of competing with peers in the region. Restrictive regulatory policies have been stated as some of the reasons why Tanzania is lagging behind peers in ICT, and such laws, in as much as they serve to streamline the sector, they also stifle growth of the industry if not effectively implemented. POLITICAL OUTLOOK TANZANIA BUSINESS NEWS ENVIRONMENT The key issues on the Tanzania business scene include: Tanzania backs out of deal on Second Hand Clothes Tanzania and neighboring Uganda will continue to benefit from the duty free benefits stipulated under the African Growth and Opportunity Act (AGOA) on the basis that the two nations took steps to eliminate used clothes tariffs unlike their counterpart Rwanda, who stood her ground on the import ban. Tanzania and Uganda are following in the footsteps of their East Africa Community (EAC) counterpart, Kenya, who also rescinded the decision by the members to effect used clothes and shoes tariffs by 2019. The decision by Tanzania and her contemporaries to tone down on their 2016 stance to completely ban importation of second-hand clothing into the region follows a threat by the United States of America (USA) to temporarily suspend the duty-free access to USA under AGOA for all eligible exports if the ban holds. The best option is for Tanzania and her EAC partners to focus on boosting the textile and footwear manufacturing in the region through measures that will not jeopardize the AGOA benefits. Otherwise, all the decisions being made by individual member states indicate lack of economic cooperation among member states. Efficiency at the Port drives Rising Revenues Continuous efforts being put in place by government to improve operations at the Port have seen revenues at the Tanga port rise by 25.0% to USD 185.0 Million between July 2016 and February 2018 attributed to efficiency in cargo clearance which, saw a rise in cargo passing through the port, in the period under review. The region has seen an influx of investors with many opting for neighboring Kenya as their entry point. In this regard, Tanga Port is looking to increase its cargo handling capacity more than threefold; from its current 750,000 tonnes per year to 2.0 Million tonnes in the coming two years, to enable it to cope with envisaged cargo increase as investments in the region and its hinterland rise. ICT as a % of GDP Source: Bank of Tanzania, StratLink Africa 0.0% 10.0% 20.0% 30.0% 2006 2009 2012 2015
  21. 21. 21MAY 2018 | MARKET UPDATE – AFRICA Rising Revenue Collections to Prop Fiscal Balance Tanzania Revenue Authority reported an 8.5% rise in revenue collection, year-on-year, to USD 5,194.1 Million in the first nine months of the 2017/18 financial year against a full financial year target of USD 7,543.6 Million which, the Revenue Authority remains optimistic of attaining. The improved performance has been attributed to transparency in tax collection coupled with sealing of tax loopholes through adoption of the electronic fiscal devices by businesses. The Revenue Authority is seeking an additional six million tax payers by June 2018; in this regard, new small businesses will be allowed a grace period of three months before they can commence paying tax. The Increasing revenue collections should support the budget balance which is expected to widen to -4.1% in 2018. Subdued Exchange Rate Risks Pressure on the local unit remains subdued even as the Shilling slipped by 50.0 bps, month- on-month, to trade at 2,264.8 units against the greenback. In October 2017, the government directed that henceforth, all pricing in the country will be denominated in the local unit; a directive that has played a major role in stabilizing the local unit. Comparative Headline Inflation Quarterly Revenue Collection (USD Mlns) Budget Balance Against Total Revenue (USD Mlns) ECONOMIC OUTLOOK Source: Relevant Bureaus of Statics, StratLink Africa Source: Tanzania Revenue Authority, StratLink Africa Source: Tanzania Revenue Authority, StratLink Africa TANZANIA 1,480.0 1,500.0 1,520.0 1,540.0 1,560.0 1,580.0 1,600.0 Q12017 Q22017 Q32017 Q42017 Q12018 -5.0% -4.0% -3.0% -2.0% -1.0% 0.0% -4.0 -2.0 0.0 2.0 4.0 6.0 8.0 10.0 2014 2015 2016 2017 2018 e Total Revenue Budget Balance Balance Budget as % of GDP (RHS) Inflation Trends to a 14-Year Low as the Shilling Slips The March 2018 inflation dropped to 3.9% from 4.1% recorded in February 2018, a 14-year low and comfortably below the Central bank’s medium target of 5.0% for financial year 2018/19. The decline was driven by both food and non- food inflation with the former having significant influence due to satisfactory harvests in most parts of the country during 2016/17 crop season leading to low food prices. Likewise, inflation among East Africa Community (EAC) counterparts has been trending south and below the 5.0% general inflation target for the partners: Rwanda recorded the lowest inflation rate at 0.9%; Uganda at 2.0% and Kenya with the highest at 4.18%, in the period under review. 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Kenya Uganda Tanzania Rwanda Shilling depreciation, month-on-month Shilling depreciation, year-on-year -0.2% -1.4%
  22. 22. 22MAY 2018 | MARKET UPDATE – AFRICA Sustained Bid Over-subscription despite Shrinking Yields The short-term government instruments sustained shrinking yields in a fairly liquid environment with all indicators pointing south: The interbank rate declined by 50.0 bps to 1.0% while inflation slid further south to 3.9% thus, supporting low yields. The declining yields notwithstanding, investors continue exhibiting strong appetite for government securities offering better returns as opposed to the equities market. Consequently, the yields for three months, six months and one year papers declined by 60.0bps, 30.0bps and 70.0bps, month-on-month, to 2.2%, 3.2% and 5.1%, respectively, in the period under review. We anticipate a further decline in yields on the back of increased appetite for government fixed income instruments and subdued inflation. The overnight interest rate decreased by 50.0 bps, month-on-month, to an average of 1.0% in March 2018. Source: Bank of Tanzania, StratLink Africa Source: Bank of Tanzania, StratLink Africa T-Bill Yields Trend Interbank Rate TANZANIA DEBT MARKET UPDATE 0.0% 5.0% 10.0% 15.0% 20.0% Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 91 Day 182 Day 364 Day 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 0.0 10.0 20.0 30.0 40.0 50.0 60.0 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 InterbankRate(Red) VolumeinTZMilions All Share Index Stays in the Green The All Share Index (DSEI) stayed in the positive territory in April 2018, similar to the previous month. The Index rose by 2.0% month-on- month and 7.0%, year-on-year, to 2,460.4 points buoyed by gains of share prices among cross listed companies, including Acacia which, posted a strong performance in the first quarter after a tumultuous period that began last year. Foreigners continue dominating the market, commanding 95.0% of the overall value of buying activities and 67.0% on the selling side, in the first quarter of the year. Sector Indices Rise Maintaining trend, sector indices recorded positive performance in the period under review. The Industrial and Allied index rose by 0.3% to 5,455.3 units while the Banking index rose by 0.2% to 2,543.9 units. The Commercial Services index, in contrast, remained unchanged at 2,463.9 units. Source: Bloomberg, StratLink Africa Source: Dar es Salaam Stock Exchange, StratLink Africa All Share Index Sector Indices, month-on-month EQUITY MARKET UPDATE 1,500.0 1,700.0 1,900.0 2,100.0 2,300.0 2,500.0 2,700.0 0.0 10.0 20.0 30.0 40.0 50.0 Apr-17 Jun-17 Aug-17 Oct-17 Dec-17 Feb-18 Apr-18 Price(Red) VolumeinTZMillions 0.0 2,000.0 4,000.0 6,000.0 8,000.0 Industrial Index Commercial Services Index Banking Index Mar-18 Apr-18
  24. 24. 24MAY 2018 | MARKET UPDATE – AFRICA Government Proposes Controversial Tax Uganda’s Ministry of State Planning has proposed a raft of tax amendments which are expected to generate USD 207.4 million. The proposed measures will affect Bills pertaining to income tax, value added tax, excise duty, gaming, stamps duty, and traffic and road safety, among others. One particular proposal to tax mobile money transactions has been contentious. It proposes a tax of 1.0% on the value of mobile money transactions including receiving money, making payments as well as withdrawals of money. The issue here lies in the negative effect that this will have on those that rely on the service the most and who are not able to access more formal financial services; the lower income segment of the population. While 27.8% of Ugandan adults have an account at a financial institution, a more significant 35.1% have mobile accounts. Also, while only 11.7% of Ugandans send domestic remittances through financial institutions, 69.4% do so via mobile money transfers. The burden of this proposed tax is likely to be unfairly skewed towards low income groups and will likely be very unpopular among the voting masses. POLITICAL OUTLOOK GDP: USD 27.5 Bln | Population: 40.3 Mln UGANDA Source: World Bank and Global Findex, StratLink Africa Financial Inclusion Indicators (2014, % population aged 15+) Improved Global Output Drives Remittance Growth Remittance receipts in Uganda grew substantially in 2017, expanding by 37.8% relative to the previous year, to USD 1.4 billion thus providing an important source of foreign exchange that will buffer against currency volatility. There was an uptick in remittance inflows across low and middle income countries in 2017 on the back of improved economic performance globally, especially among high income countries hence enabling migrants residing there to repatriate more money. Sub-Saharan Africa (SSA) has been listed as the most expensive region to send money to with transactions costing 9.4% on average¹. In order to exploit the recent uptick in global GDP, Uganda would be wise to push for policies to cut remittance costs such as support for technologies (e.g. mobile applications and blockchain) that improve the efficiency of transfers. BUSINESS NEWS ENVIRONMENT Remittance Inflows, % Change y-o-y Top SSA Remittance Receivers 2017, USD Billions Source: World Bank, StratLink Africa Source: World Bank Migration and Development Brief 29, StratLink Africa 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% AccountatFinancial InsƟtuƟon MobileAccount DomesƟcRemiƩance viaFinancialInsƟtuƟon DomesƟcRemiƩance viaMobile -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 2010 2011 2012 2013 2014 2015 2016 2017 0.0 5.0 10.0 15.0 20.0 25.0 Nigeria Senegal Ghana Kenya Uganda 1 World Bank Migration and Development Brief 29
  25. 25. 25MAY 2018 | MARKET UPDATE – AFRICA Food Prices Fall in Consecutive Months Inflation has continued to slow hitting 2.0% in March, 2018, down from 2.1% in the previous month, the lowest it has been in over three years. The main driver behind the subdued price growth has been decreasing food prices with food crops and related items recording inflation rates of -0.7% and-1.7% in February and March this year, respectively. Core inflation has been very low, registering 1.7% in both February and March this year which, according to available data from the Bank of Uganda (BoU), is the lowest it has been since prior to 2006. This points towards a lack of demand-pull inflation in the economy. Economic Activity Shows Promise Subdued inflation in the first quarter of the year is somewhat in contrast with data on economic activity. The last quarter of 2017 saw the economy expand by 6.6%, a significantly higher figure than the 2.8% GDP growth attained in the same quarter of the previous year. Improvements in economic output occurred across all sectors with services, industry and agriculture expanding by 8.9%, 7.3% and 3.5%, respectively, in the fourth quarter of 2017, out-pacing their respective growth figures for the same quarter of 2016. Source: BoU, StratLink Africa Source: BoU, StratLink Africa Source: BoU, StratLink Africa Inflation Decomposed GDP Growth Sector GDP Growth ECONOMIC OUTLOOK UGANDA Favorable weather conditions drove food crop growth of 7.1% in Q4 2017, a trend that is likely to have continued into 2018 and led to the deflation in food prices seen in February and March. Growth in industry was driven by crude oil mining and exploration activities while the services sector was buoyed by financial and insurance activities. The Monetary Policy Committee (MPC) maintained the key rate at 9.0% in their April meeting citing that, barring external shocks such as oil price pressure, inflation is expected to increase organically towards target. However, despite improved economic output, very low core inflation indicates that there may be room for monetary easing in the near term to boost demand in the economy. -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Jan-18 Feb-18 Mar-18 Food Crops and Related Items Core InflaƟon Energy, Fuel and UƟliƟes InflaƟon Headline InflaƟon 6.6% 7.5% 6.5% 4.6% 2.8% Q42017 Q32017 Q22017 Q12017 Q42016 -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Agriculture, Forestry and Fishing Industry Services Q4 2016 Q4 2017
  26. 26. 26MAY 2018 | MARKET UPDATE – AFRICA Uganda Securities Exchange Hits 20 Years The Uganda Securities Exchange (USE) recently celebrated their 20th anniversary where discussions were held around the lack of companies listing on the stock exchange and it was suggested that more research into the issue needs to be carried out. Better collaboration between members of the East African bloc was one of the recommendations put forward to develop the region’s financial markets. The All Share Index peaked at 2,269.5 on 6 April, 2018 before descending to close at 2,192.9 on 24 April, 2018. Steady Inflation Supports Stable Yields The yield curve remained mostly stationary in the month to 24 April, 2018. The MPC’s latest decision to keep the key rate constant as well as low and relatively constant inflation will keep yields stable in the short term. However, the anticipated strong economic performance through the rest of 2018 will drive demand and increase price pressures with support from the pass-through effect of rate cuts made in 2017. As a result, StratLink expects that higher inflation in the medium term will put upward pressure on yields. Short term papers were heavily demanded in the past month with subscription rates of 142.9% and 164.5% in the first and second auctions held in April, respectively. Between September, 2017 and March, 2018 inflation fell by 3.4% while the 91 Day T-Bill dropped by 1.0% thus boosting real yields which have kept investor appetite for government papers high. All Share Index Sovereign Yield Curve 91-, 182- and 364-Day T-Bill Subscription Rates Source: Bloomberg, StratLink Africa Source: Bloomberg, StratLink Africa Source: BoU, StratLink Africa EQUITY MARKET UPDATEDEBT MARKET UPDATE UGANDA All Share Index month – on – month change as at 24 April 2018 All share index year – on – year change as at 24 April 2018 0.6% 39.2% 8.0% 9.0% 10.0% 11.0% 12.0% 13.0% 14.0% 3M 6M 1Y 2Y 3Y 5Y 10Y 24-Apr-18 23-Mar-18 0.0% 20.0% 40.0% 60.0% 80.0% 100.0% 120.0% 140.0% 160.0% 180.0% 12-Apr-18 26-Apr-18 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 3-Jan-18 17-Jan-18 31-Jan-18 14-Feb-18 28-Feb-18 14-Mar-18 28-Mar-18 11-Apr-18
  28. 28. 28MAY 2018 | MARKET UPDATE – AFRICA Defusing Tension Bodes well for Regional Economic Integration Presidents Kagame and Museveni have recently made commendable attempts at resolving the rising tension between the neighbors that was threatening not only their (Uganda and Rwanda) bilateralrelations,butalsotheregionalintegration, especially in light of the recently launched African Continental Free Trade Area Treaty (AFCFTA), whose success is strongly hinged on increased regional integration in order to facilitate cross border trade. In a strong expression of goodwill, President Kagame made the first move through a one-day visit to Uganda soon after his counterpart snubbed the Free Trade Area Treaty summit held in Kigali in March, in what was considered a retaliatory move following the latter’s decision to ignore the East Africa Summit meeting in Kampala a month earlier. Increased Economic Bargaining Power The greatest cost for both nations, from an escalated dispute, will be losing out on the all important collective bargaining muscle in global markets, a tool that is necessary for the realization of economic bargaining power and regional integration and which, can only be achieved through regional cooperation. Thus, the renewed resolve is an indication of the two countries’ appreciation of the importance of collective bargaining especially, in the wake of the stalled Economic Partnership Agreement trade deal with the European Union and the recent mixed signals being channeled by the EAC partners regarding the African Growth Opportunities Act (AGOA) pact with the United States of America where the failure by partners to speak with one voice weakened their collective agreement leading to potential loss of economic benefits besides hurting regional integration. Hence, we opine that the combined commitment and efforts of African leaders is key in improving the region’s economic negotiating power in light of the opportunities that come with the visible emergence of Africa markets. POLITICAL OUTLOOK GDP: USD 8.1 Bln | Population: 11.9 Mln RWANDA Export Access Fund to Boost SME Financing Access to funding remains a major challenge for Small and Medium Enterprises (SMEs) in Rwanda which, has been keen on supporting industries as it looks to promote its exports and in turn increase export receipts, consequently, narrowing the balance of payments gap which, stands at USD -1.2 billion as of 2016¹. In line with this, Rwanda has reviewed the eligibility for financing from the Export Growth Fund to enable export-oriented SMEs to tap into foreign markets. This was informed by the restrictive existing criteria; for instance the requirement for businesses to have previously exported 40.0% of their products in order to qualify for financing, is punitive to start- up SMEs. The government has since removed this requirement, thus, creating more opportunities for new start-ups that intend to export and who have already secured a ready market outside Rwanda, to have access to the subsidized loan. The Export Growth Fund was established about two years ago with the aim of promoting exports through facilitating local producers and exporters to expand their market across borders. In the same breath Rwanda, in collaboration with private development partners such as, the United States Agency for International Development (USAID), hassetuptheRwandaInnovationFund(RIF)which, will extend support amounting to circa USD 30.0 million to SMEs, an intervention that we expect should also support SMEs to raise investment capital besides addressing working capital funding gaps. Thus, we should see more SMEs listing at the Exchange in the medium term once these interventions are successfully implemented thus, increasing linkages between SMEs and capital markets. BUSINESS NEWS ENVIRONMENT 1 The World Bank Data
  29. 29. 29MAY 2018 | MARKET UPDATE – AFRICA agriculture value-addition, and in turn increasing exports. Promotion of the export of semi- processed or finished products compared to exports of primary agricultural products which, are less competitive on the global market should also help narrow the current account deficit. Ongoing export promotion has contributed to significant growth in Rwanda’s exports value rising from USD 400.0 Million in 2007 to about USD1.6 Billion in 2016² buoyed by growth in non-traditional exports. Agricultural Transformation to support Trade Balance A sectoral shift from reliance on primary agriculture exports revenue to diversified manufacturing sector exports through value addition to agriculture is necessary, if Rwanda‘s economy is to gain from external trade given that diversification in manufacturing holds the key to narrowing of the trade balance. Rwanda’s annual agriculture sector growth rate increased by 300.0bps, year-on-year, to 7.0% in 2017 while its contribution to GDP rose to 31.0% in 2017 from 28.0% in 2010, a reflection of the increasing value of the sector as Rwanda seeks to promote non-traditional exports in its quest to reduce over- reliance on a few primary commodity exports and cushion against susceptibility to commodity price shocks and weather changes. In November 2017, the Ministry of Agriculture and Animal Resources announced plans to launch the fourth phase of the Strategic Plan for the Transformation of Agriculture (PSTA 4) in financial year 2018/19 with a view to boosting the sector through value addition in line with Rwanda’s third Economic Development and Poverty Reduction Strategy (EPDRS 3) for the period 2018-2024. These investments in Agriculture are essential for developing the manufacturing sector through Rwanda holds Benchmark Rate as External Sector Improves The improved performance of the external sector in the first two months of 2018 where the export value grew by 31.0% compared to a slower import rise of about 13.2%, supported by a benign inflationary environment, was one of the drivers behind the Central Bank’s decision to hold the benchmark rate at 5.5%, since December 2017, to encourage the banking sector to continue financing the economy. It is envisaged that agricultural productivity will benefit from sector- focused infrastructural developments, with the government shifting its focus to infrastructure and services,coupledwithplannedfiscalconsolidation. ECONOMIC OUTLOOK RWANDA Source: National Institute of Statistics of Rwanda, StratLink Africa Source: National Institute of Statistics of Rwanda, StratLink Africa Growth Comparison Total Trade vs Trade Balance 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1 2017Q2 2017Q3 2017Q4 GDP Agriculture Manufacturing -400.0 -350.0 -300.0 -250.0 -200.0 -150.0 -100.0 -50.0 0.0 500.0 550.0 600.0 650.0 700.0 750.0 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 TradeBalance(USDmln)-Red TotalTrade(USDmln) 2 The World Bank September 2017: Rwanda Economic Update
  30. 30. 30MAY 2018 | MARKET UPDATE – AFRICA RWANDA Source: National Bank of Rwanda, StratLink Africa Interbank Rate Marginal Yield Movements Rwanda’s short-term government instruments continue to post lower yields backed by low inflation and easing liquidity conditions. Inflation, despite rising marginally, remains low, recorded at 0.9% in March 2018 from 0.7% in February, 2018. Similarly, the interbank rate continues to trend south, shedding off 30.0 bps to 5.2%, in the period under review. The Central Bank held constant the benchmark rate at 5.5% for Q2, 2018, in its March meeting, on the back of subdued inflation supported by a stable exchange rate. We expect yields to remain low in the medium term as the expansionary policy decisions by the Central Bank gain traction. Yields of short term government securities recordedmarginalandmixedmovementsbetween April and May, 2018. The 91 Day paper’s yield rose by 0.1% to 5.1%, while the 182 Day and 364 Day papers’ yields fell by 0.1% and 0.4% to 6.2% and 6.6%, respectively, in the period under review. DEBT MARKET UPDATE Easing Pressure on the Franc As other key pointers remain subdued, the franc maintained resilience against the greenback, appreciating by 60.0 bps to trade at 855.9 units against the greenback. The ease in exchange rate pressure is mainly attributed to improving external environment. Source: National Bank of Rwanda, StratLink Africa Source: NISR, StratLink Africa T Bill Yields Franc to USD Franc’s change, month-on- month, as at April 16th, 2018 Franc’s change, year-on-year, as at April 16th, 2018 0.6% -3.8% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17 Mar-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 91 Day 182 Day 364 Day 820.0 825.0 830.0 835.0 840.0 845.0 850.0 855.0 860.0 865.0 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18
  31. 31. 31MAY 2018 | MARKET UPDATE – AFRICA Rwanda All Share Index Rwanda All Share Index Source: Bloomberg, StratLink Africa Source: Bloomberg, StratLink Africa Rwanda Stock Exchange Remains Docile The All Share Index is still recording marginal activitywithlessthanhalfofthecountersrecording any movements in trading volumes. Consequently, the All Share Index depreciated slightly by 0.1%, month-on-month and gained 4.3%, year-on-year between March and April, 2018 SME Segment to Boost Activity at the Bourse We highlighted the collaboration by government and the private sector to increase capital market sensitization in Rwanda in a bid to encourage participation in equity and fixed income trading. Available data indicates that Rwanda Stock Exchange is banking on the Small and Medium Segment (SME) to infuse liquidity and activity at the increasingly lackluster bourse, where government remains the biggest mover of volumes through quarterly bond issuances, by providing investors a variety of asset classes to invest in. The SMEs will be allowed to list for free at the bourse to encourage them to raise capital as government seeks to remove listing hurdles faced by small companies. We expect that these measures should help drive activity at the bourse going forward. EQUITY MARKET UPDATE 120.0 122.0 124.0 126.0 128.0 130.0 132.0 134.0 136.0 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 133.0 133.1 133.1 133.2 133.2 133.3 133.3 Mar-18 Mar-18 Mar-18 Apr-18 Apr-18
  32. 32. 32MAY 2018 | MARKET UPDATE – AFRICA StratLink in the News: A look into Kenya’s Post-Election Environment Shoprite’s entry shows Kenya is still a sweet spot for retail investment in Africa – In this article, StratLink looks into the entry of Shoprite into Kenya’s retail sector against the backdrop of woes that have plagued large home grown players. Zimbabwe in 2018: steering a difficult path to recovery – The take-over of power from Robert Mugabe has been a matter of great interest to investors. In this article, StratLink considers some of the key issues likely to shape the new government’s reform agenda. In the period under review, StratLink provided commentary on the transition underway in Zimbabwe and the state of the retail segment of Kenya’s economy.
  33. 33. 33MAY 2018 | MARKET UPDATE – AFRICA STRATLINK - AFRICA TEAM Konstantin Makarov – Managing Partner Dina Farfel – Partner Julio De Souza - Director of SME and Impact Finance Kyle Drexler – Associate Benson Njeri – Analyst Julians Amboko – Senior Research Analyst Gianluca Storchi – Senior Research Analyst Sophia Sifuma – Research Analyst Peter Mutisya – Director Graphic Design 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.
  34. 34. 34MAY 2018 | MARKET UPDATE – AFRICA ©StratLink Africa Limited 2018
  35. 35. ContactDetails STRATLINK AFRICA StratLink - Africa, Limited. Delta Riverside, Block 4, 4th Floor, Riverside Drive, Nairobi, Kenya +254202572792
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This report covers macroeconomic and investments trends in Ghana, Nigeria, Kenya, Tanzania, Uganda and Rwanda.


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