Africa Market Update - April 2016

APRIL 2016 MARKET UPDATE – AFRICA (Abridged)KENYA | NIGERIA | TANZANIA | ANGOLA | UGANDA | RWANDA

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2SEPTEMBER 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com


Table of Contents


APRIL 2016 | MARKET UPDATE – AFRICA

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KENYA 6

NIGERIA 7

TANZANIA 8

UGANDA 10

RWANDA 11

ANGOLA 9

3APRIL 2016 | MARKET UPDATE – AFRICA www.stratlinkglobal.com


386,790,000.0

339,090,000.0

42,000,000.0 25,300,000.0

5,000,000.0320,000.0

Capital Invested by Country (USD)

AFRICA DEALS LANDSCAPE JANUARY 2016 - MARCH 2016

Capital Invested by Industry

20,460,000.0

9,130,000.0

4,590,000.0

42.7%Growth/Expansion .... Merger/Acquisi�on .........................

10.5%Buyout/LBO ............... Private Investment in Public Equity ...

3.9%Share purchase ............ Corporate Dives�ture ........................

2.7% 2.7%Asset Dives�ture .......... Asset Acquisi�on ................................

6.5%Others ..........................

42.7%

23.1%

10.5%

4.2%

3.9%

3.7%

2.7%

2.7%

6.5%

Capital Invested by Deal Type

Deals Snapshot• Africa Internet Group (Nigeria) raised USD 333.0 Million of development capital from MTN, Rocket Internet, AXA Group and

Goldman Sachs on March 3rd, 2016• Rebosis Property Fund (South Africa) had 9.76% of its stake, worth USD 34.6 Million, acquired by Arrowhead Proper�es through a

private placement on March 8th, 2016• The Youga Gold Mine (Burkina Faso) was acquired by MNG Gold for USD 25.3 Million on March 8th, 2016

Source: PitchBook, StratLink Africa

23.1%

4.2%

3.7%

38.6%

14.4%

4.9%

2.9%

2.4%

15.0%

6.1%

4.5%

2.8%

8.4%

Retail Metals, Minerals & Mining

Commercial Services Financal Services

Pharmaceu�cals & Biotechnology

So�ware

Consumer Non-durables

Commercial Products

Commercial Banks Others

South Africa

Ethiopia

Egypt

Rwanda

Burkina Faso

Kenya

Madagascar

Morocco

Liberia

Nigeria

29,740,000.0



South Sudan at a Glance

29.4%

29.1%

20.5%

10.3%

5.3%4.0% 1.4%

South Sudan in the East African Economy(Percentage of Region’s GDP)

Kenya Ethiopia Tanzania

Uganda South Sudan Rwanda

Burundi

South Sudan Gross Domestic Product(USD Bln)

USD 918.7

11.9 Million

USD 1,045.8

13.1 Million

South Sudan Population and GDP per Capita

Population

GDP per Capita

: Source: Business Monitor International, World Bank, Stratlink Africa

USD 1,847.6

10.5 Million

2011 2014 2017(F)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2011 2012 2013 2014 2015 2016 (f) 2017(f)

Impact of prolonged civil strife between the government of President Salva Kiir Mayardit and opposition forces allied to Dr Riek Machar. In August 2015, the two signed a peace accord

During the Seventeenth Ordinary Summit for the East African Community (EAC) Heads of State, member states agreed to admit South Sudan following a report by the council on the negotiations for the admission. The country is now expected to be placed under observation before full admission to the bloc, a period reported to take about three years.

19.4

22.1

26.5

29.8

11.3

11.3

13.7



Opportunity Risk

6.0%8.0%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Assets Profit Share

Kenya South Sudan Tanzania

Uganda Rwanda Burundi

Kenya South Sudan Tanzania

Rwanda Uganda DRC

4.4%

1.6%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Assets Profit Share

Growing Investor Interest in South Sudan

Kenya Commercial Bank 2015 Equity Bank 2015

: Source: Equity Bank, Kenya Commercial Bank, Stratlink Africa Analysis

South Sudan has been a market of growing interest for East African investors, notably those in banking and financial

stability and a stable macroeconomic environment. South Sudan is a key driver of profitability amongst subsidiaries for

economy, there are a lot of unexplored sectors such as manufacturing and financial services.

Prior to the outbreak of civil strife in 2013/14, the country’s GDP per Capita stood at USD 2,500.0 (higher than Kenya’s at

Macroeconomic convergence amongst the economies remains a major hurdle to circumvent. In the last one year, shocks from the external environment, notably in the monetary sphere, have affected the region’s economies in an asymmetric manner. In December 2015, South Sudan

challenges in Burundi and the ongoing civil strife.

the economy.

in South Sudan owing to shared interests. This could be a major shot in the arm towards greater stability in the region.



Commission Misses Voter Registration Target

The Independent Electoral and Boundaries Commission (IEBC) wound up the first phase of voter registration ahead of the next election (2017), failing to realize its target of 4,000,000 new voters. Whereas this has been widely perceived as a pointer to voter apathy, we believe the second phase of registration is bound to elicit a lot more interest given its proximity to the 2017 poll. Despite a general rise in rhetoric in the recent past, the political climate remains stable and favourable.

POLITICAL OUTLOOK

Non-alcoholic Beverage Segment to Maintain Attractiveness through 2020

We maintain focus on the vibrant retail sector and look at consumption of non-alcoholic beverages. Between 2013 and 2015, growth in sale of non-alcoholic beverages stood at 10.1% (CAGR) to USD 401.2 Million. On the ground, this can be traced in, amongst other drivers, the rapid expansion of coffee houses in key urban centres such as Nairobi and Mombasa.

BUSINESS ENVIRONMENT

Non-alcoholic Drinks Sales (USD)

Source: Business Monitor International, StratLink Africa

300.0

400.0

500.0

600.0

700.0

800.0

2013

2014

2015

2016

2017

(f)

2018

(f)

2019

(f)

2020

(f)

Mill

ions

ECONOMIC OUTLOOK

Stability in the Monetary Environment

The monetary environment is stabilizing ─ inflation is on the downtrend and the shilling has held resiliently within the 101.0 – 102.0 band (in line with our forecast in January 2016) through Q1, 2016. The recent episode of a tight monetary environment (that clamped on growth in money supply) and depressed oil prices have been instrumental in arresting pressures witnessed in the latter half of 2015. The country has also secured a stand-by loan from the International Monetary Fund totaling USD 1.5 Billion that should help mitigate the impact of shocks between 2016 and 2018.

Inflation and Money Supply Evolution

Source: National Bureau of Statistics, Bloomberg, StratLink Africa

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

22.0%

24.0%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

Feb-

14

May

-14

Aug-

14

Nov

-14

Feb-

15

May

-15

Aug-

15

Nov

-15

Feb-

16

Infla�on Money Supply Growth (RHS)

KENYA

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Economic Slowdown Shifts Risk Focus

We remain cautiously optimistic over the political risk outlook for Nigeria. Whereas threats from the Boko Haram insurgency continue to lurk in the horizon, the economic slowdown shifts focus to the potential social strain bound to be created by a rise in unemployment and disenfranchisement by the public. The unemployment rate stands at 9.9%, from a low of 6.4% in December 2014; an indication that the adverse economic environment is taking its toll on job creating engines. This should be of particular interest given the challenges Nigeria is facing with the Boko Haram insurgency and radicalization of persons, largely reported to be youth.

POLITICAL OUTLOOK

Growth Engines Grapple with the Stagnation Trap

Investor appetite for the Nigerian market is likely to be depressed in the coming quarters as key sectors of the economy grapple with stagnation. Construction has hovered around the 0.0%, year-on-year, growth mark for two quarters now whilst manufacturing is showing signs of shrugging off contraction suffered in the better part of 2015. The construction sector is likely to have been derailed by austere fiscal measures whereas the manufacturing has been undermined by high input costs (in view of the weakening Naira) and challenges in electricity supply.

BUSINESS NEWS ENVIRONMENT

Year-on-Year Growth

Source: National Bureau of Statistics, StratLink Africa

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Q1,

201

3

Q2,

201

3

Q3,

201

3

Q4,

201

3

Q1,

201

4

Q2,

201

4

Q3,

201

4

Q4,

201

4

Q1,

201

5

Q2,

201

5

Q3,

201

5

Q4,

201

5

Manufacturing Construc�on

NIGERIA

Growth Momentum Sags to Low Single Digits

The economy grew by an average 2.8% in 2015 across all quarters (against StratLink Africa’s projected 3.0%) from 6.2% in 2014, an indicator that the tumble in oil prices is taking its toll on growth engines. Going forward, we remain bearish about Nigeria’s prospects in 2016 with investor perception likely to be deteriorated further by two factors as explained here-below.

ECONOMIC OUTLOOK

Source: Bloomberg, National Bureau of Statistics, StratLink Africa

Economic Growth

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

Q1,

201

3

Q2,

201

3

Q3,

201

3

Q4,

201

3

Q1,

201

4

Q2,

201

4

Q3,

201

4

Q4,

201

4

Q1,

201

5

Q2,

201

5

Q3,

201

5

Q4,

201

5

Rise in Short-term Yields Signals Concern over Inflation

In March 2016, short-term yields rose above the levels registered in the preceding month; medium term posted a decline whilst there was a marginal downward movement on the long-term end of the curve. The short-term end of the curve points at a likelihood of inflation-wary sentiments by investors. The steady rise in inflation has been a cause for concern for investors, especially having soared to 11.4% in February 2016 – breaching the double digit boundary.

DEBT MARKET UPDATE






Poor Logistics Infrastructure inhibits Local Competitiveness

Receipt of a USD 1.1 Billion loan from the African Development Bank (AfDB) is expected to help the country improve logistics. Poor infrastructure has hampered the business environment owing to hiccups in logistics that disadvantage investors. Reports suggest that the cost of shipping to Tanzania is on average 25.0% higher than that to competitor ports such as, Kenya, Ghana and South Africa.

100=Lowest Risk, 0=Highest Risk

Opposition Boycotts Zanzibar’s Presidential Poll Re-run

Zanzibar, which has been in a political and constitutional crisis since the annulment of the October 25th 2015 election, held the presidential election re-run on March 20th, 2016. The election, which was boycotted by the main opposition party, CUF and nine other smaller parties, was won by the incumbent president of Chama Cha Mapinduzi (CCM) party, clinching 91.4% of the vote. The impasse had threatened to send the country back to the inter-party animosity that preceded the 2010 formation of the outgoing Government of National Unity (GNU), besides complicating the already tense relations with mainland Tanzania.

POLITICAL OUTLOOK


Source: BMI, StratLink Africa

Logistics Risk Index

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Sout

h Af

rica

Mau

ri�us

Gha

na

Keny

a

Nig

eria

Tanz

ania

SSA

Aver

age

TANZANIA

Growth on the Right Track

The near-term macroeconomic outlook is likely to benefit from a post-election rebound in investment owing to the new administration’s perceived goodwill in fighting corruption and improvement in fiscal consolidation. Since winning the October 25th, 2015 election, the new administration has been aggressive in addressing government waste, a move that is reigniting positive investor sentiment on the economy. The new administration’s perceived goodwill, if sustained, bodes well for the country’s relationship with donors and investors over medium to long term, particularly, given strained relations with a section of development partners between 2014 and 2015.

ECONOMIC OUTLOOK

T-Bill Yield Trend

Source: Bank of Tanzania, StratLink Africa

DEBT MARKET UPDATE

Short-term yields registered a general decline in March 2016, on the back of rising liquidity and declining inflationary pressure ─ inflation declined from 6.5% in February 2016 to 5.6% in March 2016.

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

Apr-

14

Jun-

14

Aug-

14

Oct

-14

Dec-

14

Feb-

15

Apr-

15

Jun-

15

Aug-

15

Oct

-15

Dec-

15

Feb-

16

91 Day 182 Day 364 Day






Rebels’ Push for Cabinda Autonomy Dims Outlook ahead of 2017 Poll

We adopt a cautious position on the country’s risk outlook following renewed push for greater autonomy by the rebel movement, Front for the Liberation of the Enclave of Cabinda (FLEC)

which threatens to deteriorate the environment if mismanaged. This is likely to weigh into investors’ consideration ahead of the 2017 general election. This could well add to the oil related challenges the country is facing given that Cabinda accounts for an estimated 60.0% ─ 70.0% of Angola’s output. In the recent past, FLEC has played a key role in shaping Angola’s pre-election climate as it did in 2012 when it pushed for talks with the government.

POLITICAL OUTLOOK

Investors Pin Confidence on New Central Bank Boss

Investors will be looking to the new Central Bank Governor (appointed on March 05th, 2016) to reverse the tide of waning confidence in the economy. The new governor takes charge amidst an environment fraught will monetary pressures that have seen the Kwanza nose dive in the last one year on the back of tanking oil prices. The following are some areas we believe will define policy priorities going forward:

• Arresting Inflation: Inflation has been on an unabated uptick, causing uncertainty amongst investors on the erosion of the real value of the local currency. We expect the monetary stance to be maintained relatively tight through December 2016 in a bid to reverse this trend


ANGOLA

Kwanza Shows Volatility as Risk Perception Dims

In January 2016, we expressed concern over steady decline in Angola’s foreign exchange reserves and suggested there would be declining capacity to support the Kwanza in the months ahead. The Kwanza has since lost resilience against the greenback and characterized by volatility between February 2016 and March 2016.

Angola Kwanza to USD

Source: Bloomberg, StratLink Africa

ECONOMIC OUTLOOK

105.0

115.0

125.0

135.0

145.0

155.0

165.0

01-J

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5

01-J

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5

01-A

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5

01-S

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5

01-O

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5

01-N

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5

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6

01-F

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6

01-M

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6

The Kwanza has been rocked by vola�lity over the last two months

The volatility can be ascribed to a number of factors:

• In November 2015, official estimates indicated the fiscal break-even oil price stood at USD 90/barrel. With global prices trending at about 28.0% of the target price (USD 90.0/barrel), investors are likely to be pricing in elevated fiscal and monetary risks bound to characterize the remaining quarters of 2016. Oil accounts for 95.0% of the country’s export revenue, and depressed prices threaten macroeconomic stability in the months ahead






Hike in Levy Threatens High Growth Sector

The proposed raise of excise duty levied on cement could derail the construction sector, one of Uganda’s main engines of economic growth. Excise duty charged on a 50.0 kilogram bag of cement is set to be increased from USD 0.15 to USD 0.29, as the government looks to plug holes in revenue mobilization in the financial year underway.

Note: The chart above includes the Democratic Republic of Congo

Source: Bank of Uganda, StratLink Africa

Cement Consumption (Mt)

Supreme Court Dismisses Presidential Petition

The Supreme Court dismissed the Presidential petition filed by former National Resistance Movement Premier and 2016 presidential hopeful, Amama Mbabazi, on March 31st, 2016 citing insufficiency of evidence to warrant nullification of the outcome. This marks the third presidential election petition that has been dismissed by the Supreme Court; a similar conclusion was arrived at in light of the 2006 and 2011 petitions. It elicits concern over the independence of the country’s judicature, diminishing public confidence in the credibility of judicial processes. In addition, opposition luminary, Kizza Besigye, has been under house arrest for a month deepening concerns over democratic space in the country. The Supreme Court case was widely perceived as a litmus test for the judiciary similar to the one faced in Kenya in the aftermath of the contested 2013 presidential poll outcome.

POLITICAL OUTLOOK


0.0

5.0

10.0

15.0

20.0

2009 2010 2011 2012 2016 (f)

Uganda Kenya East Africa

UGANDA

Budget Cut as Domestic Revenue Dwindles

The country seems headed for contractionary fiscal policy with the government indicating plans to reduce its budget for the 2017 financial year by 13.0% from USD 7.1 Billion in 2016 fiscal year, of which 75.0 % is set to be funded through increased tax collection. We view this as a measure to tighten the belt in the face of depressed commodity prices which have left a number of economies in Sub-Saharan Africa fiscally vulnerable.

Domestic Taxes Plunge in Q1, 2016Total revenue in Q1, 2016 declined by 13.3% to USD 746.2Million, partly attributable to a decline in domestic taxes which fell by 36.0% to USD 202.8 Million. This is a likely pointer at the generally adverse macroeconomic environment that consumers and firms confronted in the wake of deterioration by the country’s monetary environment and the build up to the February 2016 general election. This is likely to reverse in subsequent quarters given a favourable political environment.

ECONOMIC OUTLOOK

Yields in the short term market registered mixed results on the back of tightening liquidity in the money market. The interbank rate rose by 240.0 bps to 14.0% between January and February, 2016, an indication that the central bank could be tightening conditions to support the shilling. The government could also be facing rising pressure to borrow from the domestic market as it faces challenges in revenue mobilization.

DEBT MARKET UPDATE






Deteriorating Relations between Uneasy Neighbors

Rwanda and Burundi seem headed for severed relations as the two countries suffer mistrust emanating from recriminations of sheltering insurgents and spies. Relations have hit a new low after Burundi accused Rwanda of sending spies to its borders and backing rebels to oust President Pierre Nkurunziza, an accusation allegedly supported by a report by the United Nations Security Council report and which Rwanda has denied. There are concerns that growing tensions between the two neighboring countries could derail the peace and stability of the East Africa Community, of which both nations are members. Whereas the two countries are key trade partners within the East African Community, Burundi is bound to suffer more than Rwanda the latter accounted for an average 40.0% of its exports to EAC between 2006 and 2014.

POLITICAL OUTLOOK

Boosting Electricity Distribution

The government has a signed a USD 18. 4 million financing agreement with the government of Japan in a bid to boost electricity distribution networks, and reduce the cost of production for the private sector. This comes as a timely development in view of Rwanda’s drop in ranking in the Ease of Doing Business 2016 to 66 from 55 (out of 189 countries), owing, in part to poor ranking in business’ access to electricity.


Source: World Bank, StratLink Africa

2016 2015 Change Metric Rank Rank in Rank

Getting electricity 118 115 -3Starting a business 111 117 6

Getting credit 2 4 2

RWANDA

Source: National Institute of Statistics of Rwanda, StratLink Africa

ECONOMIC OUTLOOK

Economy Grows by 6.9% in 2015

Rwanda’s 6.9% GDP growth in 2015, compared to 7.0% in 2014, suggests the economy’s recovery is on course, defying headwinds from the external environment. In 2015, subdued commodity prices elicited widespread concern that the economy’s recovery from the 2013 donor aid shock risked being disrupted with growth underperforming investor expectations.

Real GDP Growth

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2010

2011

2012

2013

2014

2015

DEBT MARKET UPDATE

General Rise in Yields as Liquidity Rises

Yields in the T-Bill market reported mixed performance in March 2016 even as government borrowing plunged by 23.8% to USD 48.3 Million, month-on-month. Similarly, the money market witnessed a relative rise in liquidity over the same period with the interbank rate declining marginally by ten bps to 4.8% in February 2016.






StratLink in the News

StratLink Africa continues to make commentary on thematic issues in frontier and emerging markets. Below please find links to the latest pieces.

Please click the buttons to view the full articles

Entrepreneur - What entrepreneurs must know before entering new markets: In this piece, Konstantin Makarov discusses key factors to be considered before investors enter a new market.

Ventureburn - Finding Promise and consistency in turbulent times: In this piece, Konstantin Makarov looks into the opportunities emerging in the European Union.

CCTV Africa - Commodity prices and the future of economic policy in Africa: In this interview, Julians Amboko analyses the impact of the commodities price rout on Africa’s economic policy.

http://ventureburn.com/2016/03/finding-promise-and-consistency-in-turbulent-times-lessons-from-the-eu/

http://www.stratlinkglobal.com/blog/commodities-and-the-future-of-africas-economic-policy/

http://www.entrepreneur.com/article/271120?utm_content=buffer8da4e&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer



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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 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.

STRATLINK - AFRICA TEAM

Konstantin Makarov – Managing [email protected]

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