Africa Market Update - February 2015

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MARKET UPDATE – AFRICA | February 2015 05. Ethiopia 22 | StratLink Africa Ltd. www.stratlinkglobal.com
MARKET UPDATE – AFRICA | February 2015 POLITICAL OUTLOOK Turkey takes a bite at the cherry The visit by a Turkish delegation including the President and business magnates adds a feather onto Ethiopia’s cap as a target trade partner for fast emerging economies. Turkey is among the world’s fastest growing emerging economies having averaged about 6.1% between 2010 and 2013 and ranks as the world’s seventeenth largest economy. From a political stand-point, Ethiopia continues to be viewed as a vital partner in the volatile Horn of Africa with influence in bodies like African Union and IGAD 9 . The move by Turkey, coming just four months before the general election, could also be perceived by investors as a salient vote of confidence in view of pre- and post-election environment consideration. Voter registration ahead of the May 2015 election commenced on January 12th, 2015. Sixty out seventy five registered political parties are expected to contest in the race for federal parliament and/or regional councils. BUSINESS ENVIRONMENT Investment in the manufacturing sector is poised to remain the focus of streamlining the business climate in the coming months. Between January 12th and 17th, 2015, the Ethiopian government engaged its Japanese counterpart in Industrial Development Policy dialogue aimed at improving Ethiopia’s competitiveness. Regionally, Ethiopia enjoys favourable cost of energy and labour costs that are attractive to manufacturers. Focusing on Export Competitiveness The focus, going forward, is likely to be skewed towards boosting exports following the World Bank’s proposal that Ethiopia devalues its currency in 2014. Economic Growth vs Govt Expenditure -0.6 % Birr depreciation month-on-month ECONOMIC OUTLOOK Buoyed Fiscal Position The country starts 2015 with a buoyed fiscal position following the successful issuance of the December 2014 Eurobond that attracted bids worth USD 5.2 billion, reporting 260.0% oversubscription. Strong performance by the bond is crucial to Ethiopia in view of two considerations: Government Driven Market Ethiopia’s economy is largely state driven and a sound fiscal position capable of funding infrastructure and development projects is a vital engine in generating a favourable climate for investors. As such, the government’s buoyed position will be essential in outlining the 2015 expenditure plan and helping to sustain the economic momentum. Source: IMF Data 2014, StratLink Africa Coming at the end of the Growth Transformation Plan (2010 – 2015), the bond’s proceeds will likely be channelled towards ongoing projects such as the Grand Renaissance Dam construction as well as laying the groundwork for the next economic blue-print. Further, Ethiopia’s fiscal deficit fares better than its peer Kenya which issued a similar instrument in 2014. -5.7 % Birr depreciation year-on-year 9 Intergovernmental Authority on Development www.stratlinkglobal.com StratLink Africa Ltd.| 23
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Africa Market Update - February 2015

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