We are pleased to release the February 2019 Africa Market Update covering the economies of Zambia, Nigeria, Kenya, Tanzania, Uganda and Rwanda. With the general election in Nigeria set for February 16th, 2019, this issue takes an incisive look at the risk environment in the country and what this election means for an economy grappling with lethargic rebound from the 2016 recession.
3. 3FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Value of Disclosed Transactions in January 2019 (USD)
AFRICA DEALS LANDSCAPE
Source: PitchBook, StratLink Africa
Transaction Activity by Sector Transaction Activity by Deal Type
Snapshot of Deals
• Nigeria: Non-alcoholic beverages manufacturer, Chi, was acquired by Coca Cola for USD 5.1 billion on January 30th, 2019
• South Africa: Laboratory operator, Lancet, was acquired by CerbaHealthcare for USD 123.0 million on January 10th, 2019
• Mauritius: Operator of educational platforms, Africa Leadership University, was raised USD 30.7 million in Series B venture funding through a combination of
debt and equity on January 6th, 2019
97.0%
2.3%
0.7%
Consumer Non-durables
Healthcare Services
Others
Nigeria
South Africa
Mauritius
Angola
Kenya
Ghana
5,700,000,000
123,000,000
30,700,000
30,000,000
13,890,000
9,730,000
92.60%
92.60%
2.20%
2.20%
5.20%
5.20%
Merger & Acquisition
Corporate Divestiture
Others
5. 5FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
National Dialogue Process Faces Litmus Test
Zambia’s political risk profile remains favorable
with growing focus on how the National Dialogue
and Reconciliation process will help bridge the
divide that the country continues to grapple
with following the 2016 general election. In the
latest development, a faction of political parties
announced withdrawal from the Zambia Centre
for Interparty Dialogue on February 2nd, 2019.
This notwithstanding, we hold the view that the
National Dialogue Process presents the country
with a unique opportunity to address underlying
challenges in its political environment and should
be harnessed ahead of the next election in 2021.
More important in the near-term, the government
is set to face a policy steering test in 2019 as it
looks to mitigate the challenges the economy is
confronting.
Whilst the Patriotic Front commands the majority
in the National Assembly and faces minimal
vulnerability to a test in passing policy, securing
the opposition’s buy-in especially in the spirit of
national dialogue and reconciliation is bound to be
a key test.
POLITICAL OUTLOOK
Zambia National Assembly by Parties
Source: National Assembly of Zambia, StratLink Africa
GDP: USD 24.9 Bln | Population: 17.6 Mln
ZAMBIA
Promising Outlook with Lurking Risks
We maintain a broadly optimistic view of the
country’s business operation environment but
remain cautious over susceptibility to adverse
external conditions. On the whole, businesses will
continue to grapple with the hurdles amplified by
domestic macroeconomic challenges even as a
more stable environment in 2019 creates room for
better performance. Notably, the sluggish growth
in retail sales remains a key point of concern as it
signals subdued spending power.
Business Exposed to Foreign Exchange Risk
The foreign exchange front with the Kwacha
starting 2019 on a fairly resilient note presents a
major source of encouragement regarding 2019.
We note, however, that underlying fundamentals
remain weak given the thinned out reserves and
a widening trade imbalance. These leave the
local unit, and businesses by extension, exposed
to rising risk. Budget implementation in 2019
and how the government deploys fiscal tools to
support businesses will be a point to watch out for
in the months ahead.
BUSINESS ENVIRONMENT
Source: Bank of Zambia, StratLink Africa
Year-on-Year Growth in Retail Sales
PatrioƟc Front
United Party for NaƟonal Development
Others
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
6. 6FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Why Copper is Fueling Fiscal Constraints in 2019
Our January 2019 issue was anchored on the
view that the economy of Zambia would be hard
pressed to undertake fiscal consolidation. This
issue seeks to table a case for minimal fiscal space
given the softening price of copper in the global
market and subdued output of copper for the
better part of 2018.
This trend in the output of copper and its price in
the global market piles additional fiscal pressure
on the economy at a time when there is need to
enhance revenue and rationalize expenditure.
It is worth noting, however, that the Kwacha has
held firm since the start of 2019 mitigating the
likelihood of the pass through effects of imported
inflation as a deteriorating trade balance weighs
on the local unit.
Source: Ministry of Finance, StratLink Africa
Source: World Bank, StratLink Africa
Copper Output and Price in Global Market
Zambia’s Export Revenue
ECONOMIC OUTLOOK
Country’s External Position taking a Beating
This is likely to be a key factor driving the widening
trade imbalance therefore amplifying the
monetary headwinds the economy is confronting.
Of note, the resurgence of inflationary pressure
presents a key challenge for the economy in 2019
as Bank of Zambia looks to purse a monetary
policy path that would be accommodative to drive
private sector growth. January 2019 headline
inflation stood at 7.9%, posting no change from
the preceding month, even as food inflation
nudged up marginally to 8.2%.
Trade Balance (USD)
Kwacha to USD Exchange Rate
Source: Ministry of Finance, Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
ZAMBIA
5,400.0
5,600.0
5,800.0
6,000.0
6,200.0
6,400.0
6,600.0
6,800.0
7,000.0
7,200.0
7,400.0
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
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Output (MT) Price (USD/MT) - RHS
Copper Others
(250.0)
(200.0)
(150.0)
(100.0)
(50.0)
0.0
50.0
100.0
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Millions
11.8
11.8
11.8
11.9
11.9
11.9
11.9
11.9
12.0
01-Jan-19
08-Jan-19
15-Jan-19
22-Jan-19
7. 7FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Source: Bank of Zambia, StratLink Africa
Yields Post General Rise
Two trends are worthy of note with regard to the
fixed income market at the start of 2019:
• There has been a rise in yields across all tenors
between September 2018 and February 2019.
This is consistent with rising risk aversion
regarding the economy and the uptick in
inflation which is prodding investors to demand
a premium
• Equally of note is that with the exception of
the 364 Day paper and the 10 year paper, the
sovereign yield curve started February 2019
with little variation in yields across the curve.
This flattening out, with yields in the short-term
being almost the same as those in the long-
term, is a pointer to likely uncertainty around
the trajectory the economy is bound to take.
The flattening is driven by a relatively fast rise
in the short-term end of the curve and is a
likely indication of imminent transition into an
inversion in the medium-term
With the next Monetary Policy Committee meeting
set for February 18th – 19th, 2019, the market is
hopingforasignalfromtheBankofZambiathatwill
help allay fears of a deteriorating macroeconomic
environment. This will be especially significant
given the decline in the country’s foreign exchange
reserves.
Lusaka Stock Exchange All Share Index
Sovereign Yield Curve
Source: Bloomberg, StratLink Africa
ZAMBIA
DEBT MARKET UPDATE
Market Picks in January 2019
The Lusaka Stock Exchange All Share Index is up
8.2% year-to-date¹ buoyed by positive corporate
actions. In the period under review, ZCCM
Investment Holdings announced a final dividend
of Kwacha 0.61 per share for the period ending
March 31st, 2018.
Further to this, First Quantum Minerals released
Q4 2018 numbers which signaled favorable trends
in production and sales of minerals such as Copper
and Zinc. These two (ZCCM Investment Holdings’
dividend announcement and First Quantum
Minerals Q4 2018 production and sales numbers)
have served as a boost for the exchange coming
against the backdrop of a largely bearish period in
2018.
Margin by which the Lusaka Stock Exchange All Share
Index has gained, year-to-date, as at January 25th, 2019
Margin by which the production of copper by First
Quantum Minerals grew between Q4 2017 and Q4 2018
8.2%
2.6%
EQUITY MARKET UPDATE
First Quantum Minerals
Source: First Quantum Minerals, StratLink Africa
1
As at January 25th, 2019
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
182
Day
364
Day
2
Year
3
Year
5
Year
7
Year
10
Year
15
Year
Sep-30-2018 Feb-01-2019
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
4,700.0
4,800.0
4,900.0
5,000.0
5,100.0
5,200.0
5,300.0
5,400.0
5,500.0
5,600.0
5,700.0
5,800.0
02-Jan-19
09-Jan-19
16-Jan-19
23-Jan-19
Millions
Volume - RHS All Share Index
148,000.0
150,000.0
152,000.0
154,000.0
156,000.0
158,000.0
160,000.0
Copper ProducƟon
(Tonnes)
Copper Sales
(Tonnes)
Q4 2017 Q4 2018
9. 9FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A case for guarded optimism as Nigeria heads for general elections
POLITICAL OUTLOOK
GDP: USD 417.2 Bln | Population: 196.0 Mln
NIGERIA
INSTITUTIONAL RISK
We are cautiously optimistic about Nigeria’s
institutional strength ahead of the February 16th,
2019 general election. This view is based on the
following:
1. The suspension of the Chief Justice by President
Buhari just three weeks to the election does
not augur well for the judiciary’s preparedness
and autonomy ahead of the poll. The Electoral
Act of 2010 vests the Supreme Court and Court
of Appeal with the power to hear petitions
arising from an election therefore putting the
autonomy of the courts at the core of risk
consideration
2. The August 2018 attempt by a section of
legislators to reorder the 2019 general election
also signaled potential challenge for the
Independent National Electoral Commission in
executing its mandate
ECONOMIC RISK
Despite the rebound posted by Nigeria’s economy
following the 2016 recession, a number of factors
present potential pressure points ahead of the
election:
1. The trend in the price of oil in the global
market is a key factor to watch out for as it
weighs significantly on the performance of the
economy. This could be aggravated by weak
performance in the non-oil segment of the
economy
2. The rise in unemployment ever since President
Buhari assumed office following the 2015
general election is a key point of concern as
it points at a growing mass of disenfranchised
persons who could be easily manipulated to
meet adverse political ends
VULNERABILITY TO EVENT RISK
Despite the country enjoying an environment
more favorable than it did ahead of the 2015
general election, developments in the recent past
suggest the country is not out of the woods yet:
1. The January 25th, 2019 attack on three military
bases in the North Eastern part of the country
points for lurking susceptibility to event risk
even as the country enters the homestretch in
preparing for the general election
2. The fragile political situation in neighboring
Cameroon creates an external risk factor which
could create an avenue for amplifying domestic
risks
ELECTION OUTCOME RISK
We believe that Nigeria needs a credible process
which yields a decisive winner within the first
round of the presidential poll. As indicated in
preceding issues, there are factors that present
both headwinds and tailwinds in this regard:
1. Tailwind: The 2015 general election set a
favorable precedent with regard to transfer
of power within a stable environment. It
is imperative that the gains availed by this
precedent are built on
2. Headwind: Since the 2007 general election,
the proportion of valid votes secured by the
winning candidate has been on a general
decline approaching the 50.0% mark. Should
the 2019 presidential poll fail to yield an
outright winner in the first round, the country
will find itself navigating uncharted waters
10. 10FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Unemployment Rate
Nigeria Losing Ground as West Africa’s
Investment Hub
Nigeria has experienced steady decline in inflow
of Foreign Direct Investment since 2012, an
indicator of the changing business environment
both domestically and externally. On the domestic
front, concerns have mounted over the economy’s
imbalance given its reliance on oil as the driving
engine which exposes it to the vagaries of its price
in the global market.
On the external front, West Africa focused
investors are increasingly looking at alternative
destinations with Ghana gaining prominence as
given its growing piece of the pie in the region’s
foreign direct investment inflow.
BUSINESS NEWS ENVIRONMENT
Source: UNCTAD, StratLink Africa
Source: UNCTAD, StratLink Africa
Foreign Direct Investment Inflow (USD Mln)
West Africa Foreign Direct Investment
Can Nigeria Regain Pole Position?
To regain its pole position, two things will be
imperative for Nigeria:
• There will be need to accelerate the economy’s
recovery from the present fragility
• The economy will need to demonstrate more
even growth across both oil and non-oil sectors.
This will be crucial in showing investors that
there exist alternative investment avenues
beyond the traditional oil which has dominated
interest
Source: National Bureau of Statistics, StratLink Africa
Source: Nigeria Bureau of Statistics, StratLink Africa
GDP Growth
Agriculture and Manufacturing
NIGERIA
0.0
2 000.0
4 000.0
6 000.0
8 000.0
10 000.0
2000
2002
2004
2006
2008
2010
2012
2014
2016
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2000 2005 2010 2015 2017
Ghana Nigeria Others
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Manufacturing Agriculture
11. 11FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Gross Foreign Exchange Reserves (USD)
Monetary Policy Rate, Headline Inflation and Food
Inflation
Source: National Bureau of Statistics, StratLink Africa
Source: National Bureau of Statistics, StratLink Africa
NIGERIA
Central Bank Holds Key Rates in First 2019
Meeting
In line with our forecast in Q3 2018, the Central
Bank opened its first Monetary Policy Committee
meeting in 2019 by holding all key rates. The
benchmark rate was retained at 14.0%; the
asymmetric corridor was retained at +200/-500
bps around the benchmark rate; the Cash Reserve
Ratio was retained at 22.5% and the Liquidity Ratio
was retained at 30.0%. This conforms to our view
that it was unlikely that the Central Bank would
make any monetary policy adjustments twelve
months to a general election. This decision was
undertaken even as headline inflation flat- lined
at the tail-end of 2018, evoking fears of a reversal
of the decline that dominated the period 2016 to
2018.
Going forward, investors will be curious to
know what are some of the likely scenarios that
monetary policy is bound to follow in the event
that a new administration took charge after the
February 2019 general election. We expect the
following to be some of the key issues shaping
monetary policy should incumbent President,
Buhari, lose the election.
What Next for the Naira?
Opposition candidate, Atiku Abubakar, has
indicated dissatisfaction with management of the
currency presently and the likelihood of a pursuing
a more flexible exchange rate regime should he
win the election. Should this see the light of day,
we would expect to see the following:
• The Naira would weaken against major
currencies in the global market as the local
unit comes under the pressure of demand and
supply. In this regard, we would most likely
witness a steady decline in the country’s foreign
exchange reserves as the Federal Government
engages in efforts aimed at propping the local
unit. This could be amplified by softening oil
prices in the global market
• Depreciation of the local unit would fan
the benign inflation pressure existing in the
economy
• The Central Bank would be compelled to tighten
the monetary environment in a bid to arrest the
slide of the Naira and mitigate inflation
ECONOMIC OUTLOOK
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-12
Aug-12
Mar-13
Oct-13
May-14
Dec-14
Jul-15
Feb-16
Sep-16
Apr-17
Nov-17
Jun-18
Monetary Benchmark Rate
Headline InflaƟon
Food InflaƟon
40.0
41.0
42.0
43.0
44.0
45.0
46.0
47.0
48.0
49.0
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Billions
12. 12FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Sovereign Yield Curve
Naira to USD Exchange Rate
Growth in Stock of Money in Circulation
Source: National Bureau of Statistics, StratLink Africa
Source: Central Bank of Nigeria, StratLink Africa
Source: Bloomberg, StratLink Africa
Normalized Yield Curve
The correction of the sovereign yield curve has
been one of the defining features of the Buhari
administration. This has happened against the
backdrop of lifting the economy from the 2016
recession. By the end of Q1 2018, there were clear
signals that the yield curve was normalizing after
a protracted period of the short-term attracting
higher yields than the long-term.
Going forward, the challenge on keeping the yield
curve normalized is two-fold:
• The Central Bank of Nigeria has ensure that
inflation is checked so as to keep expectations
favorable in the near to medium-term. One
immediate risk being confronted in this regard
is that headline inflation seems to be moving
further away from the 6.0%- 9.0% target band
• Whereas there is pressure on the government
to ensure it focuses on domestic borrowing
owing to foreign exchange risk, the state
should be wary of pushing yields upwards
through high appetite for debt. Under the
Buhari administration, the country has had
relatively low appetite for foreign currency
denominated debt. This reflects the evolving
global macroeconomic conditions which have
seen a general rise in yields in the advanced
Money Supply Fast Rebounding
Beyond the state of the foreign exchange market,
we expect the Central Bank to keep an eye on the
rate of growth of the stock of money in circulation.
The second half of 2018 witnessed accelerated
momentum of growth which is likely to be feeding
into the inflationary pressures the economy is
confronting.
DEBT MARKET UPDATE
NIGERIA
Margin by which the Naira has
depreciated in the twelve months
to January 25th, 2019
0.4%
359.0
360.0
361.0
362.0
363.0
364.0
365.0
366.0
367.0
Sep-18 Oct-18 Nov-18 Dec-18 Jan-19
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
3M 6M 1Y 3Y 5Y 7Y 10Y 15Y
Jan-14-2016 Dec-14-2016
Jun-30-2017 Mar-25-2018
Nov-30-2018
13. 13FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Nigeria Stock Exchange 30 Index and Foreign Investor
Flows (USD)
Interbank Call Rate
Source: Central Bank of Nigeria, StratLink Africa
Source: Debt Management Office, StratLink Africa
Source: Nigeria Stock Exchange, StratLink Africa
The Exchange under Buhari
Under the Buhari administration, the Nigeria Stock
Exchange experienced its best period between
March 2017 and the end of Q1 2018. The 30 Index
soared to a high of 1,970.0, monthly average, in
January 2018 before moderating. This period was
characterized by relatively strong foreign investor
inflows which peaked at net inflows of USD 390.0
million in January 2018.
The global market has evolved and looking ahead,
it will be a significant challenge for the exchange
to replicate the rally witnessed between 2017 and
Q1 2018 within the near term. Of importance,
however, is for the country to undergo a credible
election which lifts investor sentiment at a time
when frontier markets have been adversely
affected by growing uncertainty in the global
economy.
markets as well as the slump in commodity
prices which has made frontier markets such as
Nigeria a risky bet for investors.
Stock of Debt: USD Denominated
Period Amount (USD Mln)
March 31st, 2015 63,506.1
September 30th, 2018 73,213.0
Stock of Debt: Naira Denominated
Period Amount (Naira Mln)
March 31st, 2015 12,062,335.0
September 30th, 2018 22,428,802.0
High Liquidity in the Money Market
Liquidity remains relatively high in the money
market with the interbank rate averaging 11.3%
in January 2019, down from 22.7% in December
2018. This is in line with the resilience exhibited
by the Naira against major currencies which has
created less pressure for the Central Bank to
intervene and support the local unit.
EQUITY MARKET UPDATE
NIGERIA
Margin by which the Nigeria Stock Exchange 30
Index has fallen between May 2015, when Buhari
assumed office, and December 2018
11.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
(400.0)
(300.0)
(200.0)
(100.0)
0.0
100.0
200.0
300.0
400.0
500.0
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
Millions
Net Foreign Investor Flows 30 Index - RHS
14. 14FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Banking 10 Index
Source: Bloomberg, StratLink Africa
Investors Poised to be Cautious in 2019
With the Central Bank having signaled inclination
for a hawkish stance in 2019, we expect that
investors are bound to be guarded about prospects
at the exchange based in the following:
• Monetarytighteningisboundtoadverselyaffect
the economy as a whole since credit conditions
are set to be tighter than they already are.
Banking stocks, in particular, are poised to be
placed under close watch given the headache
of non-performing loans
• The prospect of monetary tightening coming
in quick succession to an electoral cycle could
amplify the drag on the economy which is
triggeredbyunfavorablepoliticalriskperception
by investor
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Millions
Volumes - RHS Banking 10 Index
NIGERIA
16. 16FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
POLITICAL OUTLOOK
GDP: USD 88.0 Bln | Population: 51.0 Mln
KENYA
DusitD2 Attack Reignites Security Concerns
On 15 January 2019, the DusitD2 complex in
Nairobi was attacked by a group of armed people,
later identified as members of the terrorist group
Al-Shabaab,whomanagedtoholdoffarmedforces
for 18 hours and kill 21 people in the process. This
attack comes six years after militants of the same
terrorist organization laid siege to Westgate Mall
for four days, and four years after they attacked
Garissa University killing a combined total of 215
people across the two separate attacks.
Political and Economic Impact
Past experiences with acts of terror have seen
confidence in Kenya’s political and economic
outlooks drop. However, a look at some key
macroeconomic indicators in the immediate
aftermath of the attack at DusitD2 suggests that
the economy responded resiliently. The shilling
actually appreciated by 1.2% between the 2nd
and 29th of January 2019 while the NSE 20 rose by
4.2% over the same timeframe. These trends are
encouraging but only time will tell what the longer
term impacts of the attack might be. Tourism
has been one of the main victims of terrorism in
Kenya with key sources of visitors, such as the UK
and USA, issuing negative travel advisories to its
citizens which have been detrimental to the sector
Source: International Crisis Group
Al-Shabaab and Kenya – Key Events
Day-on-Day % Change Shilling and NSE 20 Index
Source: KNBS, StratLink Africa
What Next?
The positive takeaway from the DusitD2 attack is
that security forces saved many lives by responding
quickly and efficiently, seeming to have learned
from the attack at Westgate mall which was poorly
coordinated and not as effective as it could have
been. The difficulty for the government lies in
what measures to take going forward to prevent
the same thing from reoccurring.
One suggestion has been to arm private security
guards working at public venues but this would
requirebettertrainedpersonnel,likelyraisingcosts
for those hiring them, and could lead to increased
gun crime in long term due to more firearms in
circulation. For a more robust solution, Kenya may
have to reevaluate its role in the African Union
Mission in Somalia (AMISOM) which it joined in
2012 and which Al-Shabaab claims is its reason
for targeting Kenya. The terrorist organization
has been able to leverage political and economic
exclusion of Muslim minorities in East Africa to
recruit new members, an issue the government
would be wise to address. What is clear is that
authorities should avoid a knee-jerk response to
this latest attack and instead focus on the root
causes of terrorism if a long lasting solution is to
be found.
in the past. How this latest attack will impact
tourism remains to be seen and the government’s
response to the issue will play a major part in
determining foreign sentiments with regard to
national security.
-1.00%
-0.75%
-0.50%
-0.25%
0.00%
0.25%
0.50%
0.75%
1.00%
1.25%
1.50%
03-Jan-19
05-Jan-19
07-Jan-19
09-Jan-19
11-Jan-19
13-Jan-19
15-Jan-19
17-Jan-19
19-Jan-19
21-Jan-19
23-Jan-19
25-Jan-19
27-Jan-19
29-Jan-19
KES to USD NSE 20 Index
DusitD2 AƩack
October 2011
Kenya sends troops to Somalia to fight Al-Shabaab
September 2013
Al-Shabaab aƩack Westgate Mall
67 people killed
April 2015
Al-Shabaab aƩack Garissa University
148 people killed
January 2019
Al-Shabaab aƩack DusitD2 complex
21 people killed
17. 17FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
KENYA
Domestic and External Debt
Source: Fitch Solutions, StratLink Africa
Need for Restructuring of Debt Portfolio
The steep growth in the country’s stock of debt has
been a key threat to the health of the economy in
recent years. Total government debt went from
being worth 40.8% of GDP in 2010 to 60.2%¹ of
GDP in 2018. What is important to note is the
composition of the stock of debt.
Domestic debt as a proportion of economic output
has been on the rise however, what should be of
greater concern is the rapid rise in debt collected
outside of the country. The public external debt
stock as a percentage of GDP has caught up to the
equivalent figure for domestic debt, increasing the
country’s vulnerability to shilling depreciation with
regard to foreign currency denominated debt.
Since President Uhuru Kenyatta first came into
power in 2013, government debt has risen
substantially. Interest payments on debt followed
the same trajectory, with the figure for the same
having expanded more than threefold between
when the President first took office in 2013 and
2017 when interest payments of USD 714.5 million
were made. The value of interest payments on
debt as a proportion of total external debt, exports
and national reserves also rose quite drastically
over the same period of time, providing context
for the extent to which interest payments have
gained momentum.
ECONOMIC OUTLOOK
Competition in Telecommunications
Talks regarding a potential merger between
Telkom Kenya and Bharti Airtel have resurfaced
after discussions last year around the same failed
to yield a successful outcome. Safaricom’s share of
mobile subscriptions fell from 69.1% at the end of
2017 to 64.2% in September last year while Airtel’s
slice grew by more than 5% over the same period.
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. Initially, the merger may
seem to not be in Safaricom’s favor however, if it
were to be successful it would do a lot to silence
inquiries regarding the market leader’s dominant
position. Additionally, Safaricom’s most recent
new venture Fuliza, an overdraft facility accessible
via Mpesa, had a very successful start proving that
the giant’s ability to find new revenue sources will
keep it afloat even as competition in the sector
ramps up.
BUSINESS NEWS ENVIRONMENT
Mobile Subscriptions Market Share, Sep 2018
Value of Mobile Transactions, % Share Q3 2018
Source: Communications Authority, StratLink Africa
1
Expected figure calculated by Fitch Solutions
64.2%
22.3%
9.0%
4.3% 0.2%
Safaricom Airtel Telkom Finserve Other
78.2%
21.7%
0.1%0.1%
M-Pesa Equitel Money Other Airtel Money
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018eGovernment domesƟc debt, % of GDP
Public external debt stock, % of GDP
18. 18FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Similarly, interest arrears² have gone up since the
incumbent came into power with the vast majority
of these payments going to private creditors who
generally are more costly. The data reinforces the
Central Bank Governor’s recent call to restructure
the nation’s debt portfolio to substitute expensive
debt with cheaper sources.
Interest Payments
Interest Arrears
Source: Fitch Solutions, StratLink Africa
Source: Fitch Solutions, StratLink Africa
KENYA
Yield Curve Remains Stable
The yield curve remained constant for the most
part in the month to 30 January 2019, with a
slight increase in yields for government securities
on the short term maturity end of the curve.
The Monetary Policy Committee held their last
meeting on 28 January 2019 where they held
the key rate at 9.0%. While inflation rose beyond
5.0% in September 2018 and remained above
that threshold through to the end of the year, it is
expected that inflationary pressure will subside in
the near term due to stable food prices, lowering
oil prices and more affordable energy. This is likely
to keep yields on government T Bills stable in the
near future.
The Treasury’s latest bond offerings, a two year
and a fifteen year, were relatively well received by
investors however, demand for the shorter term
security was significantly higher.
DEBT MARKET UPDATE
Bloomberg BVAL Yields Index
Source: Bloomberg, StratLink Africa
Source: CBK, StratLink Africa
2
Overdue repayments on interest or those that were not paid.
2 and 15 Year Bonds FXD1/2019/2 &
Issued 28 Jan 2019 FXD1/2019/15
Total Amount Offered (KES M) 40,000
Total bids Received at cost (KES M) 101,973
Amount Accepted (KES M) 38,495
Performance Rate 254.9%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2010
2011
2012
2013
2014
2015
2016
2017
Interest payments, USDmn (RHS)
Interest payments, % of total external debt
Interest payments, % of exports
Interest payments, % of reserves
0.0
50.0
100.0
150.0
200.0
2010
2011
2012
2013
2014
2015
2016
2017
Interest arrears to official creditors, USDmn
Interest arrears to private creditors, USDmn
8.4%
8.8%
9.2%
9.6%
10.0%
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
30-Jan-19 31-Dec-18
19. 19FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Positive Start to the Year
The NSE 20 Share Index began 2019 with a dip
before reversing trend, rising by 4.2% between
the first day of trading this year and 29 January
2019. Local investors drove the rise in the index
as they sought to take advantage of lower prices
and increase dividend yields in anticipation of
the release of 2018 results by lenders. Most are
expecting to see improvements relative to 2017
on the back of good financial results from lenders
in the first three quarters of 2018. The positive
start to the year comes despite the DusitD2 terror
attack that occurred mid-January, a testament to
the resilience of Kenya’s stock market.
EQUITY MARKET UPDATE
Nairobi Securities Exchange 20 Share Index
Source: Bloomberg, StratLink Africa
NSE 20 index percentage change
in month to 29 January 2019
NSE 20 index percentage change
in year to 29 January 2019
5.0% -21.4%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2,650.0
2,700.0
2,750.0
2,800.0
2,850.0
2,900.0
2,950.0
3,000.0
03-Dec-18
10-Dec-18
17-Dec-18
24-Dec-18
31-Dec-18
07-Jan-19
14-Jan-19
21-Jan-19
28-Jan-19
Millions
Volume NSE 20
KENYA
21. 21FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GDP: USD 54.8 Bln | Population: 59.0 Mln
Fiscal Pain from Poor Donor Relations
Undertones of authoritarianism, sour relations
with neighbors and development partners,
coupled with calls for electoral law reforms
punctuated Tanzania’s political space in 2018.
Consequently, Tanzania’s fiscal space is feeling
the pinch from the country’s continuous poor
relations with trade and development partners
who are growing suspicious about Tanzania’s
commitment to democracy and its openness to
foreign investment in view of the country’s recent
policy adoptions and pronouncements which have
seen it shunned by funding partners, potentially
putting at risk diplomatic, trade and development
links. Official data indicates that donor budgetary
support amounted to less than 1.0% of Tanzania’s
total development expenditure during the year to
November 2018. Likewise, development partners
have only made available 54.0% of the USD
1.2 billion budgetary support for financial year
2018/19. We do not expect President Magufuli to
change his leadership style in the short term thus,
Tanzania risks forfeiting more concessional loans
in the future.
Growing Unease over Amendments to PPA
Besidesfiscalwoes,Tanzania’spoliticalenvironment
remains pervaded with unease among opposition
parties over the expected consequences of the
amendments to the political parties act (PPA). As
expected and in light of ruling CCM’s dominance,
parliament passed amendments to the PPA that
give sweeping powers to a government-appointed
registrar, a move that opposition legislators reckon
will cement a one-party-rule, despite Tanzania
being a multi-party state. In the meantime, the
opposition has made counter proposals of what
they believe will constitute good governance
and improve democracy. Among the long term
proposals is the revival of the constitutional review
referendum before the 2020 elections. We do not
expect that the recommended changes would
have been effected by then, as government does
not seem keen to re-ignite the debate even as
we reckon the amendments are bound to curb
freedoms in Tanzania and prevent an effective
challenge to President Magufuli’s government.
POLITICAL OUTLOOK
TANZANIA
BUSINESS NEWS ENVIRONMENT
Acacia Gold Production Rises Despite Regulation
Woes
President Magufuli instituted a partial cabinet
reshuffle earlier in the year that also affected the
Ministry of Minerals, a third change in the ministry
since the President took over power in 2015. The
frequent changes to the minerals portfolio have
come against a backdrop of challenges facing
the industry since the government announced
major amendments to the mining laws in 2017 in
which, the government was seeking a larger share
of its mineral resources besides streamlining the
sector. To that effect, the new minister has been
tasked with increasing supervision of the industry
to eliminate alleged underreporting of output by
companies and consequently, boost government
revenues from the sector. Given the government’s
recent policy overhaul of the sector and the
resulting sharp deterioration of relations with
investors, the new minister has a daunting task
ahead of him. Acacia mining company weathered a
tough environment to surpass its gold production
target by 9.9% to 521,980 ounces of gold, but
32.0% below the 2017 production.
Centralized Leadership
The reshuffle yet again highlighted President
Magufuli’s centralized leadership style. However,
we do not expect this reshuffle to lead to drastic
policy changes in the sector given that we expect
the President to retain his influence over decision-
making. Generally, his economic policy has been
characterizedbyprotectionismanderraticchanges
and we expect this trend to be sustained and may
likely continue to undermine the administration’s
investment agenda that is hinged on robust
private-sector-led growth as it will continue to fail
to be matched by effective government policies.
Policy Predictability Good for the Economy
Policy predictability is good for investors, thus,
Tanzania should seek to make the business
environment more predictable for private sector
operations to boost confidence and, hence,
jobs creation, through long-term sustainable
development plans.
1
UNCTAD
22. 22FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Export Receipts Decline as Volume Declines
Tanzania reported a decline in volume and prices
of both traditional and non-traditional exports in
the year ending November, 2018, consequently,
resulting into a 2.3%, year-on-year, deceleration
in the value of exports in the period under review
to USD 8,531.5 million. Non-traditional exports
which, accounted for 38.0% of export of goods and
services, posted the greatest decline of 9.1% to
USD 3,239.0 million, with all of its major categories
recording declines, save for horticultural products.
Earnings from gold, the main commodity in the
non-traditional exports category and representing
about35.0%ofTanzania’sexportearnings,declined
on declining production volume. Nonetheless, we
expect receipts from the commodity to recover
following the improved production volumes from
the country’s largest miner, Acacia mining.
Meanwhile, poor performance from Tanzania’s
traditionalexportcommoditiesontheinternational
market ─ tea, cashew nuts and cloves exports ─ led
to a 1.0% decline in the value of traditional exports
to USD 885.5 million in the period under review.
The decision by government to discontinue the
export of raw cashew nut in favor of domestic
processing, is principally blamed for the decline
in export volume of the country’s most valuable
export crop─ in November last year, cashew nut
exports fetched USD 575.0 million, which was
equivalent to the combined exports earnings
from five commercial crops, namely tobacco, tea,
coffee, cotton and sisal. The decline in tea export
receipts is attributed to the decline in both volume
and price
Widening Current Account Deficit as Import Bill
Rises
Tanzania’s import bill rose by 8.2%, year-on-year,
to USD 10.3 billion in the year ending November
2018, associated with the ongoing infrastructural
development projects across the country.
Consequently, the current account widened to
a deficit of USD 43.4 million in the year ending
November 2018 from a surplus of USD 33.2 million
in the year to November 2017, largely attributed to
a decline in exports, compounded by an increase
in imports, mostly capital goods.
Performance of Traditional Exports (USD/Mln)
Current Account Balance (USD/Mln)
Performance of Select non-Traditional Exports
(USD/Mln)
ECONOMIC OUTLOOK
Source: Bank of Tanzania, StratLink Africa
Source: Bank of Tanzania, StratLink Africa
Source: Bank of Tanzania, StratLink Africa
TANZANIA
0.0 1000.0 2000.0
Gold
Manufactured goods
HorƟcultural
Other exports
2018 2017
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
2017 2018
Cashew Tobacco Coffee CoƩon
Tea Sisal Cloves
-4,000.0
-2,000.0
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
Exports Imports Current
Account
Balance
2017 2018
23. 23FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Yields Remain Unchanged as Liquidity Tightens
The money market started the year on tight
liquidity with the interbank rate rising by 300.0bps
to an average of 3.5% in January 2019. Likewise
inflation, though still subdued, rose by 100.0bps
to 3.3% in December, 2018, probable reason for
tighter liquidity to arrest further inflation uptick.
Nonetheless, yields for short-term government
securities remained unchanged in the period
under review.
Appetite for Short-Term Government Bids
Picking up
The 91 Day, the 182 Day and the 364 Day papers’
yields remained unchanged at 3.0%, 5.3% and
9.3%, respectively, in the period under review. The
91 day paper continues to be shunned by investors
seeking better yields, while the six months and
one year maturity bills continue to remain more
attractive due to higher yields. The 91 Day bid
attracted 1 bid, the 182 Day bid attracted 13
bids while the 364 Day bid attracted 126 bids, in
the period under review. The trends follow the
government’s decision to increase yields for the
six and one-year maturities.
Low Demand Greets 15-Year Bond
Low demand greeted the year’s first 15-year
Treasury bond auction, ending the session
undersubscribed at 54.0% and attracting bids
worth USD 21,236.2 million, contrary to the 15-
year instrument auctioned in January 2018 that
attracted bids three times the amount sought.
The performance in the bond reflects improved
liquidity among key investors in debt securities.
Shilling Maintains Resilience against the
Greenback
The Shilling held firm against the greenback
depreciating by 60.0bps and 300.0bps, month-on-
month and year-on-year, respectively, between
January 2019 and the preceding month. We
expect increased stability in 2019 on the back of
increasing export receipts supported by recovery
in the agriculture sector as well as commodity
prices.
Source: Bank of Tanzania, StratLink Africa
Source: Bank of Tanzania, StratLink Africa
Source: Bloomberg, StratLink Africa
Interbank Rate
T -Bill Yield Trend
Shilling vs USD month-on-month
TANZANIA
DEBT MARKET UPDATE
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Price(Red)
VolumeinTZSMln
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
91 Day 182 Day 364 Day
2,270.0
2,280.0
2,290.0
2,300.0
2,310.0
2,320.0
2,330.0
Dec-18
Dec-18
Jan-19
Jan-19
Jan-19
24. 24FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Marginal gains at the Bourse Supported by
Foreign Investor Activity
The bourse stayed in the red for the better part
of 2018 pulled down by poor performance from
actively trading shares such as, the embattled
Acacia mining share price. However, the bourse
started the year on a positive note picking up
marginal gains in January, 2019. The All Share Index
rose marginally by 90.0bps while the domestic
Tanzania Share Index declined by 210.0bps to
3,615.2 units in the period under review. Foreign
investorsinjected93.2%ofthetotalvalueofshares
bought, while their local counterparts bought only
6.8% of the value of bought shares, in the period
under review. Foreigners also dominated sales
after floating 83.1% of all the total shares sold,
while local investors contributed by selling only
16.9% of the shares.
Sector Indices Remain Bearish
As the All share Index made marginal gains, the
sector indices stayed in the red in the period under
review. The Industrial and Allied Index declined by
2.5% to 5,154.3 units. The Commercial Services
sector Index fell by 0.6% to 2269.3 unit while the
Banking Index fell by 2.4% to 2,153 units, in the
period under review.
Source: Bloomberg, StratLink Africa
All Share Index, year-on-year
EQUITY MARKET UPDATE
Source: Bloomberg, StratLink Africa
Source: Dar es Salaam Stock Exchange, StratLink Africa
Tanzania All Share Index month-on-month
Sector Indices month-on-month
TANZANIA
All Share Index Change,
month-on-month, as at 25th
January, 2019
All Share Index Change, year-
on-year, as at 25th January,
2019
0.9%
-15.1%
1,500.0
1,700.0
1,900.0
2,100.0
2,300.0
2,500.0
2,700.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Price(Red)
VolumeinTZMillions
1,960.0
1,970.0
1,980.0
1,990.0
2,000.0
2,010.0
2,020.0
2,030.0
2,040.0
2,050.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Dec-18
Dec-18
Jan-19
Jan-19
Jan-19
Price(Red)
VolumeinTZMillions
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
Industrial
Index
Commercial
Services Index
Banking Index
Jan-19 Dec-18
26. 26FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Museveni’s Ban on Gambling
President Museveni recently ordered that a ban
on sports betting be implemented, preventing
both the issuing of licenses to newcomers and the
renewal of existing licenses with the reason being
the negative social impact that sports betting has
had on people, especially the youth. Relatively
high youth unemployment in Uganda has led to
many turning to gambling in the hope of earning
money.
Addiction to gambling can lead to very negative
personal and social outcomes so the challenge
at the government level is designing policy that
strikes the right balance between the unwanted
outcomes of the practice and the positive ones,
namely revenue generation through taxation.
Considering that the government has been having
difficulty mobilizing revenues and some of its
latest attempts, such as the social media tax, have
not yielded the sums government anticipated,
a ban on sports betting eliminates a much
needed source of revenue. Sports betting giant
SportPesa in neighboring Kenya became the first
Kenyan company to sponsor a team in the English
Premier League, highlighting the taxable revenue
generating potential of the industry. What is clear
is that uncontrolled sports betting can have grave
social costs but on the other hand, a full ban on
the same may prove costly for a government keen
on boosting revenue collection.
POLITICAL OUTLOOK
GDP: USD 27.7 Bln | Population: 44.3 Mln
UGANDA
Assessing Financial Stability in Uganda
Risks to financial stability in Uganda’s banking
sector reduced in the year to June 2018 across
a range of measures. Credit risk subsided over
the same period, with the Non-Performing Loans
(NPL) ratio falling to 4.4% at end-June 2018 while
year-on-year credit growth recovered to expand at
a strong 11.9%.
Profits in the banking sector were supported by
a sharp fall in NPLs, gains on foreign exchange
operations as banks sought to capitalize on
currency volatility and rising interest rates that
occurred during the first half of 2018.
Overall, Uganda’s banking sector managed to
maintain adequate liquidity buffers, improve
asset quality and diversify income streams leading
to a reduction in insolvency risk. An analysis of
the various factors that determine systemic risk
within the country’s financial sector shows an
improvement in the resilience of banks in the year
to June 2018.
BUSINESS NEWS ENVIRONMENT
Select Financial Soundness Indicators for EA, June
2018
Source: BoU, StratLink Africa
1
Bank of Uganda. Youth: 15-24 years of age
2
Statista
Youth unemployment rate
2016/17¹
Forecasted global gambling
gross yield for 2019²
16.8%
USD 495 billion
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
RegulatoryCapitalto
Risk-WeightedAssets
NPLStoTotalGrossLoans
ReturnonAssets(ROA)
ReturnonEquity(ROE)
Uganda Kenya Tanzania
Rwanda Burundi
27. 27FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Taking Stock of the Government’s National
Development Plans
With Uganda’s second National Development
Plan (NDPII) coming to a close soon, at the end
of FY 2019/2020, a careful analysis of the how
successful the nation’s current medium-term
strategic development and implementation plan
will have to be carried out in order to effectively
design the road-map beyond NDPII.
The current NDP’s predecessor, NDPI covering the
period 2010/11-2014/15, highlighted some key
implementation challenges which unfortunately
seem to have carried forward to NDPII to varying
extents. Slow implementation of core projects
continues to plague the government due to, for
instance, delays in mobilizing project financing
and procurement delays.
Challengesinsecuringlandforpublicinfrastructure
projects coupled with high compensation costs
led to delays in the start of some of the major
development projects under NDPI including the
Entebbe express highway, Bujagali hydroelectric
power station and the oil refinery in Kabaale-
Hoima district.
Financingposedamajorproblemforthesuccessful
execution of NDPI due to slow progress in domestic
revenue mobilization, poor prioritization and
sequencing of projects, and withholding of donor
support due to governance concerns. Tax revenue
as a percentage of GDP stagnated at an average
of 11.1% between 2010/11 and 2012/13, and only
increased to 12.4% in 2013/14. The government
has been running on a budget deficit from 2010 to
date, averaging 3.1% of GDP over the same period.
While revenue collections have been increasing
since 2014, growth in government expenditure
has outpaced growth in revenue since 2016 which
has seriously hampered project progress.
Source: Fitch Solutions, StratLink Africa
Source: Fitch Solutions, StratLink Africa
Budget Balance
Government Expenditure Breakdown
ECONOMIC OUTLOOK
UGANDA
Capital expenditure as a proportion of total
government expenditure has more than doubled
since 2010, to 41.0% in 2018, a reflection of
the government increasingly taking on major
infrastructure projects. With expectations of first
oil production having shifted beyond the previous
target of 2020 due to project delays, government
will have to improve revenue mobilization in order
to achieve goals laid out in the NDPII.
-12.0%
-8.0%
-4.0%
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
28.0%
32.0%
36.0%
40.0%
44.0%
48.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018e
Budget balance, % of GDP
Total revenue, % change y-o-y
Total expenditure, % change y-o-y
3.0
3.5
4.0
4.5
5.0
5.5
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018e
Current expenditure, % of total expenditure
Capital expenditure, % of total expenditure
Total expenditure, USDbn (RHS)
28. 28FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Neighboring NSE looks to Increase Cross-Listings
from EAC Members
The All Share Index opened the year at 1,633.1
before taking a slight dip and then changing
trajectory halfway through January.
Members of the East African Community (EAC)
continue their efforts towards integrating regional
capital markets with the Nairobi Securities
Exchange (NSE) recently asserting its intentions
to target companies in Uganda and Tanzania’s
securities exchanges to cross list even as members
of the regional coalition drive towards the
harmonization of trading rules across the bloc.
This hopes to maintain the momentum that begun
with Rwanda’s Bank of Kigali Group Plc listing onto
the NSE in November 2018.
Yields on Long Term Securities Fall
Yields on government securities with maturities
between one year and ten years fell between
26 December 2018 and 30 January 2019. The
Treasury issued a two year and a fifteen year bond
on 23 January 2019, with both attracting high
demand and performance rates of 364.8% and
205.3%, respectively.
The shilling continued appreciating after the
turn of the year, gaining 0.7% on the greenback
between the first and last day of January 2019. The
local unit closed at 3,675.0 against the dollar on 31
January, the strongest position it has held against
its American counterpart since March 2018.
All Share Index
Sovereign Yield Curve
UGX to USD
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
EQUITY MARKET UPDATEDEBT MARKET UPDATE
UGANDA
All Share index percentage
change in month to 23
January 2019
All Share index
percentage change in
year to 23 January 2019
6.2%
-16.5%
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
30-Jan-19 26-Dec-18
3,640.0
3,650.0
3,660.0
3,670.0
3,680.0
3,690.0
3,700.0
3,710.0
3,720.0
3,730.0
3,740.0
03-Dec-18
10-Dec-18
17-Dec-18
24-Dec-18
31-Dec-18
07-Jan-19
14-Jan-19
21-Jan-19
28-Jan-19
1,550.0
1,600.0
1,650.0
1,700.0
1,750.0
1,800.0
3-Dec-18
10-Dec-18
17-Dec-18
24-Dec-18
31-Dec-18
7-Jan-19
14-Jan-19
21-Jan-19
30. 30FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Terse Relations with Neighbors Bad for Bilateral
Trade
Burundi has requested for the intervention of the
East Africa Community (EAC) in its longstanding
row with neighboring Rwanda. Bilateral relations
between Rwanda and Burundi have remained
under strain since April 2015 when Rwanda
intervened in the ensuing crisis following President
Nkurunziza’s decision to seek for a third term—a
decision that triggered a failed coup attempt to
oust him. The Burundian authorities retaliated by
accusing Rwanda of supporting the planners of the
failed coup, allegations that were corroborated
by a leaked United Nations report, further
deteriorating relations between the two nations.
Burundi has been adamant to seek international
support to resolve the crisis before and the
need to involve the EAC could be attributed to
Burundi’s acknowledgment of the value of the
bloc’s common market treaty for Burundian trade.
Kenya, Tanzania and Uganda combined account
for about 19.0% of Burundi’s imports and Tanzania
provides a key transit route for Burundian trade.
Hence, falling out with EAC would be economically
unfavorable to Burundi especially at a time when
its relations with its former international partners,
including the EU (previously Burundi’s biggest
donor), remain abysmal. Despite the EAC being
supportive of the current regime in Burundi by
recognizing Nkurunziza’s disputed re-election, we
however, expect the EAC to take a more moderate
stance in Burundi’s current bilateral conflict with
Rwanda as it (EAC) looks to foster the bloc’s
integration. Overall, relations with Burundi will
remain acrimonious as long as Burundi continues
to blame Rwanda for the political instability in the
country. We opine the issue will be a constant
source of tension and thus, expect bilateral ties to
remain strained. Nonetheless, we do not expect
bilateral tensions to threaten the EAC’s stability,
save for the potential delay in the complete
integration of the bloc. Likewise, political tensions
between Rwanda and Burundi and broader regions
are endangering the bloc’s trade stability.
POLITICAL OUTLOOK
GDP: USD 9.7 Bln | Population: 12.5 Mln
RWANDA
Investment Surpassed USD 2.0 Billion in 2018
Official data from the Rwanda Development Board
indicates that Rwanda’s total private investment
grew by 19.8%, year-on-year, from USD 1.7 billion
reported in 2017, surpassing the USD 2.0 billion
mark in 2018. 26.0% of the total investment
was directed to export-focused projects─textile
production, steel manufacturing and alcoholic
beverages production─majorly in support of
the government’s vision of developing domestic
industries and the nascent manufacturing sector.
FDI Main Contributor to Investments
Despite registering a decline in year-on-year
terms, foreign direct investment (FDI) inflows
accounted for 47.0% of total investment in 2018,
compared with 62.0% in 2017. Notably, for
the first time, domestic investment more than
doubled and surpassed FDI in 2018, accounting for
49.0% of total investment, compared with 28.0%
recorded in 2017; a reflection of the country’s
commitment to promoting domestic industries
through the Made-in-Rwanda initiative. Likewise,
government has increased efforts in recent years
to ease the regulatory environment and improve
the availability of key business inputs (such as
water and electricity) to support private-sector
projects, resulting into robust growth in domestic
investment. However, we are of the view that,
with significant increases in income levels and
substantial decline in commercial bank lending
rates (averaging 17.0%) to increase accessibility
to commercial borrowing to ordinary citizens,
Rwanda still has significant potential for further
growth in domestic investment.
Consistency in Doing Business Ranking
Rwandahasscoredconsistentlywellininternational
assessments of its business environment and we
expect these favorable trends to be maintained.
We anticipate that investment in Rwanda will
continue to grow, supported by a conducive
business environment, gains in infrastructure
development and government intervention, to
attract private-sector investors.
BUSINESS NEWS ENVIRONMENT
31. 31FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
from an expanding current-account deficit,
although robust foreign direct investment inflows
will counter-balance some of these currency
pressures. The Franc gave in to pressure against
the greenback declining by 1.5% month-on-
month, and 5.5% year-on-year as at 25th January,
2019.
Moderating Exchange Rate as Trade Balance
Improves
Rwanda’s formal trade deficit reduced from USD
677.9 million in the first half of 2017 to USD 664.2
million in the first half of 2018, a 2.1% change.
The improving external position reflects early
benefits of appropriate policies implemented by
government to improve competitiveness, increase
production, diversify exports and contain imports.
Improving global commodity prices also supported
this progress. Consequently, we expect favorable
trade balance position on the back of improved
commodity export receipts and rising transfer
inflows. In the medium term. Improvement in
trade balance will also be underpinned by strong
growth in goods exports supported by expansion
in mining and agricultural output, as well as
stronger global prices for Rwanda’s key export
commodities, including minerals and coffee.
Abated Exchange Rate Pressures
In line with improved trade balance, the pressures
on the Rwandan franc have abated. Downward
pressure on the Franc relative to the greenback
eased throughout 2018, a trend that we expect to
continue in the short to medium terms. However,
in 2019 we expect slightly stronger downward
pressure on the franc (relative to 2018) arising
We however, expect the current-account deficit
as a share of GDP to expand, reflecting effects of
higher global crude oil prices ─ currently trading
at an average price of USD 61.0 per barrel─ on
goods imports and consistently high capital import
requirements for infrastructure development.
ECONOMIC OUTLOOK
RWANDA
Source: National Institute of Statistics of Rwanda, StratLink Africa
Source: Bloomberg, StratLink Africa
Source: Fitch Solutions, StratLink Africa
Trend in Trade Balance in USD/Mln
quarter-on-quarter
Franc vs USD
Current Account Balance
-800.0
-600.0
-400.0
-200.0
0.0
200.0
400.0
600.0
800.0
1,000.0
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
Trade Balance Exports Imports
810.0
820.0
830.0
840.0
850.0
860.0
870.0
880.0
890.0
900.0
910.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
0 2 4 6
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
-1.4
-1.2
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
2015 2016 2017 2018e 2019f
Current Account (USD/Bln)
Growth (RHS)
32. 32FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
RWANDA
Source: National Bank of Rwanda, StratLink Africa
T Bill Yields
Yields Post Mixed Trends
Yields for short term government securities
recorded slight mixed movements between
January 2019 and the preceding month, in an
environment of subdued inflation and tighter
liquidity conditions. Inflation climbed by 100.0bps
to 1.1% in December, 2018. Likewise, the
interbank rate rose by 40.0bps to 5.7%, over the
same period. Meanwhile, the 91 Day and the 364
Day papers’ yields declined marginally by 0.1%
and 0.3%, to 5.8% and 8.7% respectively, while
the 182 Day paper yield rose slightly by 0.1% to
7.8%, in the period under review. The short term
government securities remain the preferred
choice for investors.
Franc Slips against the Greenback
The Franc gave in to pressure against the
greenback declining by 1.5% month-on-month,
and 5.5% year-on-year as at 25th January, 2019.
Nonetheless, we maintain our projection of easing
exchange rate pressure on the local unit relative
to the greenback, as the local unit benefits from
robust inflows and strong export earnings from
agricultural and mineral exports on the back of
moderating inflation.
DEBT MARKET UPDATE
Low activity at the Bourse
The bourse started the year on a low note with
marginal trades in January 2019 on the back of low
liquidity. The All Share Index remained unchanged
at 131.1 units at close of the month. The Rwanda
Capital Markets Authority should seek innovative
ways to attract investors to the bourse to stimulate
trading activity at the exchange.
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
Rwanda All Share Index year-on-year
Rwanda All Share Index month-on-month
All Share Index change
month-on-month, as
at 25th January, 2019
Franc depreciation,
month-on-month, as
at 25th January, 2019
All Share Index change,
year-on-year, as at 25th
January, 2019
Franc depreciation,
year-on-year, as at
25th January, 2019
0.0%
-1.5%
-1.6%
-5.5%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
91 Day 182 Day 364 Day
EQUITY MARKET UPDATE
131.0
131.5
132.0
132.5
133.0
133.5
134.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
131.1
131.1
131.1
131.2
131.2
131.2
131.2
Dec-18
Dec-18
Jan-19
Jan-19
Jan-19
33. 33FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
StratLink in the News
• Our thoughts on how vibrant private equity activity is impacting the performance
of equity markets in East Africa cited by The East African
• Our views on how Kenya’s fiscal position presents a challenge in realizing
macroeconomic stability cited by Business Daily
34. 34FEBRUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
STRATLINK - AFRICA TEAM
Konstantin Makarov - Managing Partner
konstantin.makarov@stratLinkglobal.com
Dina Farfel - Partner
dfarfel@stratLinkglobal.com
Julio De Souza - Director, 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, 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.
