Africa Market Update -December 2014

December.2014 

Market Update - Africa 

This report includes economies of Kenya, 

Tanzania, Uganda, Rwanda, Ethiopia and Gabon

01. Kenya 

2 | StratLink Africa Ltd. 

www.stratlinkglobal.com

MARKET UPDATE – AFRICA | November 2014 

POLITICAL OUTLOOK 

Untamed Insecurity: Kenya’s 

Achilles’ heel 

A spate of attacks seems to be resurfacing, 

dimming the country’s risk outlook. In 

November 2014, the Mandera bus massacre 

(allegedly linked to the Al Shabaab) 

has claimed twenty eight lives while that 

in Kapedo (allegedly linked to inter-ethnic 

strife) left twenty one dead in its wake. 

Growing disenchantment has elicited demonstrations 

indicative of waning public confidence 

in the state’s handling of security. 

The co-existence of external and domestic 

security gaps paints Kenya in a particularly 

vulnerable position that is bound raise investors’ 

concern. Radicalization, especially 

amongst the youth at the Coastal region, 

remains a pressure point for the country’s 

security with state response such as the 

closure of mosques deemed to have been 

used by militia fuelling a perception of targeting 

along religious lines. 

Other response measures such as the operation 

to weed out illegal immigrants and 

the Lamu town 6:30am – 6:30pm curfew 

that lasted until November 23rd, 2014 have 

also been widely perceived as targeting the 

Muslim community. 

ECONOMIC OUTLOOK 

Increased County Allocation: Boon 

or bane? 

The country’s fiscal position will come 

under sharp focus as the central government 

plans to increase county allocation by 

23.2%, year-on-year, in FY2015/16. County 

expenditure has been considerably recurrent 

since inception, diminishing the prospects 

of the devolved structure accelerating 

the bridging of existing deficit in supporting 

infrastructure such as roads, telecommunications 

and electricity. 

High recurrent expenditure is bound to 

remain a key challenge for county governments 

given the fact that majority inherited 

debt from respective local governments. 

This will impact negatively on the investment 

outlook as capital expenditure is 

constrained creating gaps in enabling infrastructure 

for the business environment. 

BUSINESS ENVIRONMENT 

The country’s cost of energy is becoming more investor friendly 

and if sustained, could see a marked increase in investment 

in Kenya due to lowered operational costs. Cost of fuel adjustment 

in electricity bills has declined by 108.1% between 

August and October 2014 to USD 0.04 1 , translating to lower 

energy costs for investors. This is attributable to increased 

generation of cost-effective geothermal power that is being 

added onto the national grid. 

The additional geothermal electricity is in line with the national 

plan to inject an additional 5,000.0 megawatts into the national 

grid by 2016. 

Nairobi County government inherited USD 

177.3 million in debt from the city council. 

County Expenditure Structure 

FY2013/14 

Source: Controller of Budget, StratLink Africa 

The central government has declared intent 

to scale up county allocation to USD 3.1 billion 

following the push for increased allocation. 

This comes even as abysmal budgetary 

absorption on capital spending plagues majority 

of the devolved units. 

1 Energy Regulatory Commission November 2014 

High recurrent 

expenditure is 

bound to remain 

a key challenge 

for county 

governments 

given the fact that 

majority inherited 

debt from 

respective local 

governments. 

www.stratlinkglobal.com 

StratLink Africa Ltd.| 3


Counties such as 

Machakos are 

bound to benefit 

from proximity 

to Nairobi (64 km 

away) which eases 

mobility of labour 

from the country’s 

industrial and 

commercial 

hub. The county 

is also likely to 

benefit, in the 

long-term, from 

its investment in 

infrastructure. 

County Budget Allocation (USD Mln) 

Source: National Treasury, StratLink Africa 

On average, Kenya faces an infrastructure 

funding deficit of USD 2.1 billion per annum 

indicating need for both austerity in 

recurrent expenditure and new funding 

streams 2 . Select counties are, however, setting 

the pace in capital spending and could 

provide lucrative satellite investment hubs 

in the coming years if the trend is sustained. 

The Public Finance and Management Act 

(2012) provides that counties should allocate 

at least 30.0% of annual budgets to 

capital spending. 

Development Expenditure (% of 

Total Expenditure) 

the country’s industrial and commercial 

hub. The county is also likely to benefit, in 

the long-term, from its investment in infrastructure. 

(Kenya Chamber of Commerce and Industry 

identified Machakos as the choice location for 

establishment of a USD 11.1 million tyre recycling 

facility). 

Machakos County Snapshot 

Source: CRA Estimates, StratLink Africa 

Revenue Collection Presents Risk 

We note that the proposed increase in 

county allocation comes on the back of a 

projected 44.2% decline, year-on-year, in 

budget deficit to USD 3.8 billion in 2014/15. 

This is likely to be based on, amongst other 

factors, strong performance by the debut 

Eurobond, out of which USD 1.4 billion is 

expected to fund infrastructure spending. 

Budget Deficit (USD Mln) 

Source: Controller of Budget, StratLink Africa 

Counties such as Machakos are bound to 

benefit from proximity to Nairobi (64km 

away) which eases mobility of labour from 

2 World Bank Country Report 

Source: KNBS, StratLink Africa 

Fiscal risks are, however, likely to emerge 

owing to an adverse economic environment 

in the first half of 2014. Terror risk and delay 

in signing Economic Partnership Agree- 




ments with Europe slowed down business 

activity and could manifest in below target 

revenue mobilization by the government. 

Further, issuance of an infrastructure bond 

four months after the Eurobond issuance 

indicates that government coffers could be 

cash-strapped. 

Kenya Revenue Authority has reported 

that revenue collection for the first half of 

2014/15 fell short of target by USD 189.1 

million representing a 90.2% performance 

rate. This comes against a backdrop of a 

strong 102.9% performance rate in 2013/14. 

Prospect of Counties issuing Asset 

Backed Securities: Promise or Peril? 

The Capital Markets Authority is reported to 

have prepared a draft policy that will guide 

sale of Asset Backed Securities by county 

governments. If it materializes, counties will 

identify suitable projects and package them 

as debt securities in raising capital. 

At the moment, majority of the counties are 

running high recurrent expenditure that is, 

in part, driven by fiscal imprudence. In the 

first quarter of 2013/14, twenty seven counties 

(out of forty seven) spent no money on 

development expenditure with a lot of resources 

channelled towards foreign travel 

and conferences 3 . Such fiscal indiscipline 

could present grave risk for investors if 

counties raise capital through Asset Backed 

Securities since the likelihood of default 

cannot be overlooked. Further, financial improbity 

is still a challenge in the Kenyan environment 

with a recent government audit 

indicating the government has been losing 

up to USD 66.6 million per annum in salaries 

to non-existent workers. 

The tap sale has also served to mop up 

some of the excess liquidity that was rising 

on the back of net government payments 

and maturity of term auction deposits. 

91 Day T-Bill Accepted Bids (USD Mln) 

Source: Central Bank of Kenya, StratLink Africa 

The upswing in the short-term end of the 

curve, however, indicates rising government 

appetite for domestic borrowing. Despite 

government efforts, liquidity remains high 

in the money market with marginal upward 

movement in the interbank rate. 

(From an external debt position, the country 

returned to the international market by reopening 

both the five year and ten year issues 

of the Eurobond with an aim to raise USD 500 

million – USD 700 million) 

Bloomberg BVAL Yields Index 

In the first quarter 

of 2013/14, twenty 

seven counties 

(out of forty seven) 

spent no money 

on development 

expenditure with 

a lot of resources 

channelled 

towards foreign 

travel and 

conferences. 

Such fiscal 

indiscipline could 

present grave 

risk for investors 

if counties raise 

capital through 

Asset Backed 

Securities since 

the likelihood of 

default cannot be 

overlooked. 

DEBT MARKET UPDATE 

The market continues to be characterized 

by marginal movement of the yield curve in 

what fixed income dealers say points at the 

impact of Eurobond proceeds. However, the 

issuance of a Tap Sale to raise USD 221.9 

million in quick succession to the twelve 

year infrastructure bond that raised USD 

166.5 million augments our view that government 

appetite for domestic borrowing is 

likely to be elevated in the coming months. 

Source: Bloomberg, StratLink Africa 

The interbank rate was on the downtrend 

for the better part of the month before starting 

to exhibit an uptick in the latter phase. 

3 Controller of Budget Report January 2014 




We expect the 

Central Bank to 

continue mopping 

up excess liquidity 

from the market 

with a view 

to supporting 

the shilling. It 

will, however, 

be a fragile 

balancing act as 

there is need to 

boost exports’ 

competitiveness 

following 

depressed global 

commodity prices 

in the first half 

of 2014 that 

threatens fiscal 

implications. 

Interbank Rate 


The rate touched a low of 6.3% on November 

14th, 2014 after which it began nudging 

upwards. The market, however, remains 

liquid driven by net government payments. 

Uptake of the 91 Day T-Bill paper has risen 

by 100.0% between October and November 

2014, pointing at an increase in liquidity in 

the market. 

91 Day T-Bill Average Bid-to-cover Ratio 

November 2014 Fifteen Year Reopened 

Bond 

Description 

Amount 

Offered (USD Mln) 166.7 

Received (USD Mln) 132.2 

Performance Rate 79.3% 

Yield 12.4% 


We expect the Central Bank to continue 

mopping up excess liquidity from the market 

with a view to supporting the shilling. It 

will, however, be a fragile balancing act as 

there is need to boost exports’ competitiveness 

following depressed global commodity 

prices in the first half of 2014 that threatens 

fiscal implications. Diaspora remittances 

were marginally depressed in September 

2014, 1.1% lower that August 2014’s 128.8 

million, further inflicting downward pressure 

on the shilling. 

Kenya Shilling vs US Dollar Exchange 


The re-opened fifteen year bond (FXD 

1/2010/15) also registered under-subscription 

in what is likely to have been driven by a 

low coupon rate. At 10.0%, the paper’s coupon 

rate stood 218.0 bps below the fifteen 

year paper issued in February 2014 that registered 

a performance rate of 234.4%. 


The local unit breached the 90.0 psychological 

exchange rate against the greenback 

on November 11th, 2014. The shilling shed 

1.2% and 4.2% month-on-month and yearon-year, 

respectively to close November 

2014 at 90.1 units to the greenback. 




EQUITY MARKET UPDATE 

NSE 20 Share Index Trend 

13.2% surge in the group’s portfolio value 

to USD 355.2 million from March 2014. The 

group’s prospects in entering the foray of 

fast moving consumer goods and energy 

sector are bound to keep investor expectations 

high. 

Banks also incited investor activity with 

Kenya Commercial Bank’s (KCB) net profit 

growing by 19.8% to USD 126.1 million as at 

September 2014. Strong growth in foreign 

exchange income trading has emerged as 

the key driver of the bank’s performance, 

year-on-year to September 2014, and will 

be a critical engine going forward as banks 

focus less on interest income. 

+1.1 % 

NSE 20 Share Index 

year-on-year change 

-3.2 % 

NSE 20 Share Index 

month-on-month 

change 


NSE 20 Share Index Month-on-Month 


The market is beginning to nudge upwards 

after a bear run in October and the first half 

of November 2014. The uptick has been 

occasioned by favourable Q32014 results 

posted by listed companies. The uptick is, 

however, unlikely to be prolonged owing to 

the fact that investors keen on cashing profit 

made in 2014 are likely to sell before Capital 

Gains Tax takes effect in January 2015. 

Strong Results Boost Market 

Performance 

Centum Group posted 37.9% growth in net 

profit in the period to September 2014 to 

USD 13.7 million. This comes on the back of 

KCB Select Income Streams Growth 

Year-on-Year to September 2014 

Source: Company Financials 2014, StratLink Africa 

Telephony operator, Safaricom, resumed a 

rally at the exchange following its Q32014 

results that saw its total revenue increase 

by 14.6% to USD 881.1 million. We note that 

mobile money revenue continues to be one 

of the company’s two main revenue lines, 

growing by 24.7% to USD 173.2 million. 

Growth in mobile money subscribers also 

outstrips that of the customer base at 9.9% 

and 4.9%, respectively. 

In this regard, it will be interesting to see the 

company’s performance once Equity Bank’s 

mobile virtual network operator enters the 

market. 

The market is 

beginning to 

nudge upwards 

after a bear run 

in October and 

the first half of 

November 2014. 

The uptick has 

been occasioned 

by favourable 

Q32014 results 

posted by listed 

companies. 




Despite registering 

a 4.5% increase 

in revenue, yearon-year 

to USD 

620.5 million, 

high costs and an 

impairment loss of 

USD 59.8 million 

on depreciation of 

aircraft depressed 

aggregate 

performance. 

Suspension of 

flights to the Ebola 

hit nations of 

Liberia and Sierra 

Leone occasioned 

a 20.0% decline 

in passenger 

capacity. 

Safaricom Share Performance 


Ebola Sinks Hole in Kenya Airways 

Numbers 

National carrier, Kenya Airways, subdued 

the market after reporting USD 116.1 million 

in net loss for the period to September 

2014. Despite registering a 4.5% increase 

in revenue, year-on-year to USD 620.5 million, 

high costs and an impairment loss of 

USD 59.8 million on depreciation of aircraft 

depressed aggregate performance. Suspension 

of flights to the Ebola hit nations of Liberia 

and Sierra Leone occasioned a 20.0% 

decline in passenger capacity. 

Low arrival numbers driven by terror related 

risk in the first half of 2014 has also 

been cited as a driver of the abysmal performance. 

Kenya Airways 

Uchumi: Rights Issue Vital for Future 

Growth 

Uchumi is hard pressed to have investors 

soak up all rights in the November 2014 

cash call as it confronts ferocious competition 

in the retail market. However, a declining 

share price has stoked apathy from 

most investors and the company could confront 

under-subscription. The retail chain is 

offering 99,534,980 new shares targeted at 

raising USD 9.9 million geared towards regional 

expansion. 

Kenya’s Big Four Retail Players 

(Market Share by Revenue) 

Source: Africa Investment Bank 2014, StratLink Africa 

With global and retail giants such as Shoprite 

and Walmart eyeing the East African 

market, Uchumi faces an uphill task in leveraging 

on competitive edge. This is further 

aggravated by strained financial performance 

in the recent past. 

Uchumi Revenue and Gross Profit 

Growth Year-on-Year 


Source: Company Financials, StratLink Africa 



02. Tanzania 






Navigating Blurred Lines on Press 

Freedom 

Press freedom is likely to emerge as a pressure 

point on the country’s political risk outlook 

in the near future. The drafting of a bill 

which, if passed, criminalizes publication 

of statistics without the National Statistical 

Agency’s approval navigates the blurred 

lines of press freedom. If enacted, the provision 

will heighten the country’s vulnerability 

to state control of information and curtailment 

of freedom of speech. Coming ahead 

of the 2015 election, the move is likely to be 

perceived as a wider scheme by the government 

to control flow of information. This 

could occasion rising temperatures going 

forward especially as forces opposed to the 

ruling Chama Cha Mapinduzi (CCM) use it as 

a platform to galvanize public support. 

Political temperatures are rising as the 

country approaches the 2015 election and 

opposition forces strategize on a possible 

coalition. Whereas there is need for responsible 

journalism, the bill proposed by CCM 

could leave the government tinkering on 

the verge of undermining press freedom. 


Deferred Budget Support Exerts 

Pressure on Shilling 

The shilling breached 1,710.0 to the US dollar 

mark, in what we assess as the impact of 

deferred aid by development partners. The 

deferment of up to USD 500.0 million by 

Investors could begin benefiting from reduced energy costs if 

the planned disbursement of USD 1.0 billion, towards enhancing 

connectivity to the national grid, by World Bank and Africa 

Development Bank proceeds as scheduled. Cost-effective 

energy is increasingly becoming a highly competitive platform 

in the region as economies look to bolster manufacturing. 

Further to this investment, the Tanzanian government plans to 

construct a 400 kV (USD 228.0 million) transmission line connecting 

it to Kenya. Kenya has recently experienced a decline 

in electricity tariffs driven by reduced fuel adjustment costs as 

the government explores cheaper sources of energy. 

partners, including Germany, United Kingdom 

and Denmark, is manifesting itself in a 

shortage of the greenback in the domestic 

market thereby depreciating the local unit. 

We are unlikely to see the shilling retrace 

the resilience exhibited through October 

2014, attributable to factors perceived to 

be high risk by investors – forthcoming election 

and delayed passing of the new constitution. 

Tanzania Shilling vs USD Exchange 


Development partners have deferred the 

above mentioned budget support in view of 

alleged embezzlement of up to USD 122.0 

million by government officials through dubious 

government contracts. The office of 

the Controller and Auditor General is now 

expected to table a report before the Parliament 

following an audit exercise of the alleged 

scam. 

Structural challenges to keep 

shilling weak 

Over and above pressure from deferred 

budget, the shilling will remain weak owing 

to structural factors. Despite a marginal 

year-on-year decline in importation of capital 

goods, intermediate and consumption 

goods continue to register an increase. This 

growing appetite is bound to further depress 

the local unit. As such, exporters are 

bound to witness a rise in competitiveness 

of products, while importers grapple with 

mitigating the rising cost occasioned by a 

weakening shilling. 




Structure of Imports 

Source: Bank of Tanzania, StratLink Africa 

The country’s deteriorating current account 

also indicates that further to the balance 

of payments, inflow of foreign currency, 

through such avenues as net income from 

abroad, has also impacted the shilling. 

Current Account Trend (USD Mln) 

T-Bill Yields Trends 


The 91 Day paper saw its yield rise by forty 

bps, month-on-month, to 11.7% in November 

2014. On the same trajectory, the 182 

Day and 364 Day bills’ yields rose by thirty 

and forty bps to close the month at 13.7% 

and 14.4%, respectively. With-held budget 

support has also resulted in tightening liquidity 

in the money market. 

Interbank Rate vs Volume 

The country’s 

deteriorating 

current account 

also indicates 

that further to 

the balance 

of payments, 

inflow of foreign 

currency, through 

such avenues as 

net income from 

abroad, has also 

impacted the 

shilling. 

Date 

Current Account Balance 

31-Aug-12 -3,659.5 

31-Aug-13 -4,451.7 

31-Aug-14 -4,791.8 



In line with our forecast in October 2014, 

yields have continued to rise in the debt 

market. This comes as development partners 

with-hold budgetary support (amounting 

to about 17.7% of the country’s official 

development assistance and 4.2% of 

FY14/15 budget). Thus, the government 

will be compelled to tap into the domestic 

market to meet the deficit created. Until 

the question of graft allegations is resolved 

and with-held funding disbursed, yields are 

likely to remain on an uptrend pegged on 

the government’s appetite for domestic 

borrowing. 

Source: National Bureau of Statistics, StratLink Africa 

Tightening liquidity has constrained investor 

uptake of debt instruments with the 91 

Day T-Bill bid-to-cover ratio averaging 0.3 in 

November. 




Despite the 

slowdown, we 

expect the market 

to remain bullish 

driven by recent 

reforms to boost 

foreign investor 

participation. 

91 Day T-Bill Bid-to-cover Ratio Trend 

of Swala Oil and Gas. The share’s rally, peaking 

at USD 0.9 (thirteen fold its listing price) 

on November 10th, 2014, kept the market 

on bullish trajectory in October 2014. 

Investors have been in a rush to invest in 

Swala owing to the country’s new found 

natural resources, widely expected to be a 

growth engine for the economy. 

Swala Oil and Gas Share Performance 


- 4.1 % 

All Share Index 


change 


Dar es Salaam Exchange All Share Index 


+39.5 % 




All Share Index Month-on-month Trend 

Despite the slowdown, we expect the 

market to remain bullish driven by recent 

reforms to boost foreign investor participation. 

Further, the listing of Mkombozi 

Commercial Bank comes against the backdrop 

of improved performance by banking 

counters and is likely to attract high interest 

pushing the market’s performance up in the 

next month. 

Indices Comparison 


It has been a month of less than impressive 

performance at the exchange with the 

All Share Index taking a general downtrend. 

We attribute this performance to the waning 

of investor excitement around the listing 

Source: Dar es Salaam Exchange, StratLink Africa 




03. Uganda 






New Anti-gay Law: Angling for 2016 

Consideration of a new anti-gay law, following 

nullification of the February 2014 law 

by the Constitutional Court, is the latest indicator 

that Yoweri Museveni is eyeing the 

presidency in 2016. In the new draft, the ruling 

National Resistance Movement (NRM) is 

toying with semantics outlawing “unnatural 

sexual acts” as opposed to the explicit mention 

of “homosexuality”. The move is widely 

perceived as an attempt by NRM to entice 

the conservative voting block ahead of the 

elections. Opposition forces are reported to 

be setting up a coalition with a view to challenging 

the incumbent, Yoweri Museveni, in 

2016. The international community’s reaction 

to the preceding law (February 2014) 

was less stern than expected and NRM is 

likely to peg its expectations on the precedent. 

NRM targets having the new law passed before 

the end of 2014. In September 2014, 

President Museveni sacked Amama Mbabazi 

from the position of Prime Minister in a 

move that was widely viewed as cautionary 

to would be dissidents within the NRM. 


2014 Census Findings Key for 

Investors 

As the country awaits findings of the August 

2014 census, focus is likely to shift to the 

country’s demographics and its implications 

on the investment climate. Our estimates 

Disbursement of USD 10.9 million in compensation towards 

persons displaced due to construction of Kabaale Oil Refinery 

augurs well for investors. This marks a step forward in paving 

way for investors targeting and those already in the country’s 

oil sector. Resettlement and compensation is emerging as a 

thorny issue in economies such as Kenya, Uganda and Tanzania 

with disruption of exploration activities as an imminent 

risk. In 2013, British company, Tullow Oil, suspended exploration 

efforts in Kenya for a week as locals decried discrimination 

in employment and tender allocation. The step taken by 

Uganda’s government in compensating displaced persons will 

help mitigate such risks. 

indicate Uganda’s population is likely to 

stand at about 37.5 million given an average 

population growth rate of 3.4% between 

2000 and 2012 and a population of 25.9 

million reported in the last census. Trends 

in income distribution augur well for the 

investment climate with the middle 60.0% 

population’s ratio of total income having 

been on an uptick in the recent past. 

Middle 60.0% of Population’s 

Income as % of Total Income 

Source: BMI 2014, StratLink Africa 

This translates to less income inequality between 

the top 20.0% income earners and 

the middle 60.0% creating a sound platform 

for sustainable economic growth in Uganda 

in the long-term. Historically, income inequality 

has been played a part in bringing 

about for fragile growth since it necessitates 

redistribution measures that tend to undermine 

growth high taxes sustained in the 

long-term curtail investment and consumption 

while high subsidies dis-incentivise 

work and enterprise. 4 

Further, inequality renders economies susceptible 

to shocks through social upheaval. 

4 IMF Staff Discussion Note Redistribution, Inequality and 

Growth February 2014 




Top 20.0% of Population’s Income as 

% of Total Income 


Looking at the Gini Coefficient 5 , Kenya posts 

wider income inequality than Uganda. Four 

economies in the region have also posted 

an inverse relationship between income 

inequality and economic growth. This indicates 

that, amongst other factors comparatively, 

higher income inequality undermines 

an economy’s growth potential. 

Income Gini Coefficient vs GDP 

Growth Rate 

from the dependent age brackets (0-15 

years and over 65) in the coming years. 

Dependency Indicators 

Risks to Outlook 


With agriculture accounting for 85.0% of the 

country’s employment, its performance in 

the coming years will be a key determinant 

in inequality trends. The imposition of tax on 

agricultural inputs could, in the long-term, 

decelerate the sector’s growth momentum, 

which has been trending below average in 

the last three years. 

Agriculture Sector Growth 

Looking at the 

Gini Coefficient, 

Kenya posts 

wider income 

inequality than 

Uganda. Four 

economies in the 

region have also 

posted an inverse 

relationship 

between income 

inequality and 

economic growth. 

Source: UNDP 2014, StratLink Africa 

Source: Uganda Bureau of Statistics, StratLink Africa 

The country is also bound to benefit from 

a declining dependency burden given the 

young population that will transition into 

the labour force. As such, the Ugandan 

economy is bound to experience less strain 

5 The coefficient is used to measure inequality with 0 

representing perfect equality in a society while 100 represents 

perfect inequality 




-2.2 % 

Uganda shilling 

depreciation 


-8.5 % 

Uganda shilling 

depreciation 

year-on-year 


After six months of a steady downtrend in 

inflation, there has been a thirty bps surge, 

month-on-month, to 2.1% in November 

2014. This conforms to our forecast in October 

2014 of imminent uptick driven by 

trends in the food and energy indices that 

have been inching upwards. We expect inflation 

to remain on an up-trend in the near 

future given a likely lag impact of four consecutive 

months of a rise in the food and 

energy indices. 

Inflation Trend 

Appetite for domestic borrowing is likely 

to diminish in the near future as revenue 

mobilization registers high performance. 

Measures such as introduction of duty on 

agricultural imports in the FY14/15 budget 

are bound to see the government realize its 

revenue target, scaling down need for domestic 

borrowing. 

Uganda Revenue Authority has reported a 

99.8% performance rate in revenue mobilization 

in the first quarter of 2014/15 having 

collected USD 1.0 billion. Domestic taxes, 

for the period, registered 100.0% performance 

rate raking in USD 549.8 million. 

Shilling Propped by Liquidity Mop Up 

Bank of Uganda issued a USD 103.5 million 

repo enabling the sliding shilling to exhibit 

a new found resilience at the tail end of 

November 2014. We expect the shilling to 

maintain resilience given the traditional inflow 

of payment for coffee exports in the 

fourth quarter of the year. 

Uganda Shilling vs USD Exchange 

Source: Bank of Uganda, StratLink Africa 

Despite the fact that inflation stands at a 

marked 330.0 bps below the October 2013 – 

October 2014 average of 5.4%, anticipation 

that this could be the beginning of a steady 

rise is likely to leave investors pricing in expectations 

in fixed income investments. 

Yield Curve Trend 


In line with the mop up, the interbank rate 

has risen in November 2014 indicative of 

tightening liquidity in the money market. 

The interbank rate has risen by 70.0 bps 

month-on-month and 60.0 bps year-to-date 

closing November 2014 at 9.4%. 





Average Overnight Interbank Rate 

The market is exhibiting a rebound after depressed 

performance in October 2014. We 

note that the National Social Security Fund 

(NSSF) has extended a life-line to embattled 

Uganda Clays Ltd by offering to increase its 

stake in the company from 32.5% to 66.0%. 

The move is likely to have buoyed waning investor 

confidence in the company following 

its USD 1.2 million loss in 2013. In October 

2014, market performance was depressed 

by the company’s results. Market data reveals 

a significant drop in the trade of Uganda 

Clays Ltd shares in what is likely to be 

slowdown in sell-off by jittered investors. 


Uganda Clays Ltd Shares Traded 


Uganda Stock Exchange All Share Index 

+2.9 % 



change 


Source: Uganda Securities Exchange, StratLink Africa 

NSSF will now convert its USD 6.1 million 

loan extended to Uganda Clays Ltd to shares 

thereby increasing its stake in the company. 

Being the most heavily traded counter in 

the market, the announcement of an interim 

dividend by Umeme Ltd is likely to occasion 

a marginal uptrend in the exchange’s 

performance in the near future. 

+19.4 % 



UGSE All Share Month-on-month 

Umeme Share Performance 





04. Rwanda 





Repressed Civil Liberties: Long-Term 

Fault Line 

Rwanda continues to be on the radar for repression 

of civil liberties as the High Court 

sentenced eight to jail terms for ‘incitement’. 

Reports indicate that the eight criticized 

President Paul Kagame, terming him 

as authoritarian. This reaction to critique 

indicates that the administration is failing 

as far as broadening democratic space is 

concerned. 

In 2011, the sentencing to jail of former 

Kagame allies, Faustin Nyamwasa, Theogene 

Rudasingwa and Patrick Karageya, for 

‘disturbing public order and threatening 

state security’ elicited grave concern over 

repression of rights in Rwanda. Whereas 

Kagame’s leadership is widely credited with 

the economic emergence of Rwanda, repression 

of rights and freedoms is bound to 

create fault lines that will present long-term 

fragilities. 

The Rwandese economy has had a robust 

decade (2003 – 2013) with stellar economic 

growth and improved business climate. Repressed 

liberties and pent up grievances 

are, however, likely to present a challenge 

as the nation begins contemplating a post- 

Kagame phase. 


The Recovery Path: Fragile but resilient 

Despite having a tough year characterized 

by fragile recovery in 2014, the economy 

should remain resilient through the tail end. 

Growth momentum decelerated in Q22014 

(6.1%) but stood 180.0 bps above 2013’s aggregate 

growth pointing at sustained, albeit 

subdued, recovery. Two factors are likely to 

give impetus to the recovery process in the 

coming months: One, favourable weather 

is boosting supplies from the agriculture 

sector thereby anchoring inflation at single 

digits which is expected to rev up domestic 

consumption. Two, growth in the agriculture 

sector has been stable at 5.0% in the first 

two quarters of 2014 indicating defiance to 

depressed commodity prices. Coffee, one 

of the country’s key exports has suffered a 

downtrend in prices in the recent past. 


The energy sector is expected to generate opportunities as 

the government targets public-private partnerships in view 

of growing demand. Electricity demand is projected to reach 

563.0 megawatts by 2017 against the present installed capacity 

of 155.0 megawatts. As economies such as Kenya engage 

on energy cost reduction measures, we expect Rwanda, driven 

by need to maintain pole position in ease of doing business, 

to adopt measures aimed at lowering the cost of energy. The 

government estimates capital requirement of about USD 3.0 

billion between 2014 and 2018 in meeting the envisioned 

energy generation target. 43.0% of this investment is expected 

to be drawn from private investors. 

Quarter-on-quarter GDP vs 

Agriculture Sector Growth 


Agriculture accounts for 70.0% of Rwanda’s 

export revenue; 36.0% of GDP and employs 

about 90.0% of the population both directly 

and indirectly 6 . The sector’s performance 

will be an indispensable lever in determining 

the country’s performance as it pursues 

economic recovery following the 2012/13 

foreign aid shock. The economy’s growth 

path has been mimicking that of agriculture, 

indicating that the new found momentum in 

the sector’s growth bodes well for the near 

term outlook if sustained. 

6 Institute of Policy Analysis and Research Rwanda 

The Rwandese 

economy has had 

a robust decade 

(2003 – 2013) with 

stellar economic 

growth and 

improved business 

climate. Repressed 

liberties and pent 

up grievances 

are, however, 

likely to present 

a challenge as 

the nation begins 

contemplating 

a post-Kagame 

phase. 




-1.1 % 

Rwanda franc 


depreciation 

+4.3 % 

Rwanda franc yearon-year 

depreciation 

Government Expenditure 

Reports indicate that the government is 

intent upon scaling up expenditure with a 

view to accelerating the economy’s recovery. 

Government Expenditure vs GDP 

Growth 


Yields in the T-Bill market have resumed a 

downtrend in November 2014. We view this, 

primarily, as a consequence of a favourable 

outlook on inflation trends by investors. 

Inflation has been on a steady downtrend 

for six months standing at 2.2% in October 

2014. Investors are likely expecting the 

trend to persist driven by declining global oil 

prices that will ease the burden of imported 

inflation. 

Inflation 


This is bound to be a crucial catalyst for 

economic growth given Rwanda’s reliance 

on government expenditure as an engine 

of growth. Between 2003 and 2013, government 

expenditure grew by an average 

11.2% while GDP growth averaged 7.3% 7 . 


Bank of Rwanda targets keeping inflation 

below 5.0% 8 , but does not specify bands 

within which it is expected to trend. Despite 

a favourable outlook, we are wary of this 

pace of disinflation, which if sustained could 

expose the economy to the risk of deflation. 

T-Bill Yields’ Trend 

Source: Bank of Rwanda, StratLink Africa 

7 Business Monitor International 2014 8 Bank of Rwanda Monetary Policy Outlook Q42014 




The 91 Day paper registered a marginal ten 

bps decline in yield, month-on-month, closing 

November 2014 at 4.4%. The 182 Day 

and 364 Day papers saw their yields decline 

by thirty and ten bps closing the month at 

4.9% and 6.2%, respectively. Declining yields 

together with increased uptake of treasury 

bills points at rising liquidity in the market. 


Rwanda Stock Exchange All Share Index 

91 Day T-Bill Bid-to-Cover Ratio 

Average 


RSE All Share Index Month-on-Month 

-4.1 % 



change 


Our view on rising liquidity is corroborated 

by the depreciation of the Rwanda Franc 

against the greenback in November 2014. 

The local unit has come under pressure 

after correcting in mid-November 2014 in 

view of strong appreciation in the first week 

of the month. The appreciation is likely to 

have come as a result of a spike in the value 

of coffee exported surging by 31.7% between 

August and September 2014 to USD 

11.6 million. 

Rwanda Franc vs USD Exchange 


The bear run is showing signs of abating after 

persisting for two months. We note that 

this has been in line with trends in Bralirwa’s 

share price, which seems to be finding support 

at the USD 0.5 mark. The share price is 

likely to be normalizing after the May 2014 

bonus issue (1:1) occasioned surplus. The 

market is likely to register an uptick in the 

coming month owing to shifts in investors’ 

outlook on Bralirwa. 

-0.8 % 



Source: National Bank of Rwanda, StratLink Africa 




Volumes traded 

point to the 

likelihood of 

investor actions 

shifting from 

selling off to 

holding Bralirwa 

shares. 

Bralirwa Price and Volume 


Volumes traded point to the likelihood of 

investor actions shifting from selling off to 

holding Bralirwa shares. This shift is likely to 

be based on bullish prospects of the company’s 

product innovation including the latest 

launch of the Turbo King 50 on November 

15th, 2014. 

Average Bralirwa Shares Traded per day 

Source: Rwanda Stock Exchange, StratLink Africa 



05. Ethiopia 





Improving Ethiopia-Egypt Relations 

In line with our July 2014 forecast, relations 

between Ethiopia and Egypt have improved 

following the ascendance of Abdel Fattah el 

Sisi to power in June 2014. The November 

2014 Ethio-Egypt Joint Ministerial Commission 

meeting is reported to have concluded 

with the signing of a slew of Memoranda of 

Understanding. The two are now expected 

to strengthen bilateral and trade ties, especially 

in view of mounting terror threat 

in the region stemming from Somalia and 

an unstable South Sudan. Improved relations 

between the two states places Ethiopia 

at a favourable position in implementing 

the construction of the Grand Renaissance 

Dam, expected to be pivotal in shaping investors’ 

long-term outlook. 

In the earlier phase of 2014, Ethiopia and 

Egypt suffered acrimonious relations as the 

construction of the dam was widely perceived 

as offensive to the latter owing to 

River Nile being one of its key national resources. 


Agency Banking Heralds New Dawn 

The planned roll out of agency banking 

marks a significant stride in deepening 

financial inclusion. The immediate economic 

dividend of agency banking will be 

enhanced access of formal banking to consumers 

while eliminating brick and mortar 

cost for banks. This will accelerate mobility 

of money within the economy, facilitating 

the transfer of resources from points of excess 

to points of need. With its private sector 

credit to GDP ratio at 14.0%, Ethiopia underperforms 

Sub-Saharan Africa’s average 

of 23.0% 10 . Constrained access to credit and 

formal financial services has undermined 

Ethiopia’s economic growth pulse and can 

be rectified going forward. 

Commercial Bank Penetration 


Investors could benefit from the second phase of the Growth 

and Transformation Plan (2015 – 2020) as the government 

prioritizes cost-effective energy generation. The plan to invest 

USD 20.0 billion through the five year period in establishing up 

to twelve new generating plants could see the country augment 

its position as the hub of cost-effective energy in the region. 

Ethiopia’s average energy tariff is USD 0.06 and USD 0.08 

per kilowatt hour for residential and commercial, respectively. 

This compares favourably against Kenya’s USD 0.23 and USD 

0.16 9 for residential and commercial, respectively. 

Economies in the region are investing considerably in the 

energy sector with a view to scaling down the cost of business 

operation. 

Source: IMF Data 2014, StratLink Africa 

The country’s pioneer agency banking is 

slated to be rolled out before end of December 

2014 by Dashen Bank S.C. United 

Bank S.C. has also announced plans to have 

in place the same platform before the start 

of 2015. Dashen Bank anticipates the cost of 

service delivery through agency banking to 

be 50.0% cheaper than through established 

branches. The potential cost reduction and 

ease of market expansion is expected to 

lure other banks to take up agency banking 

in the coming years. 

9 International Renewable Energy Agency 2013 10 World Bank Second Economic Update 2013 




Automated Teller Machine 

Penetration 

Source: IMF 2014 Data, StratLink Africa 

Coming a year after the roll out of mobile 

money services, adoption of agency banking 

will further accelerate financial inclusion 

in the economy. Agency outlets will play a 

critical role in complementing the low penetration 

of ATM machines. 

The country appears to be laying foundation 

for an environment that will incentivise 

private investment as an engine of future 

growth. Addressing constraints such as a 

comparatively underdeveloped finance sector 

might, in the long-term, help reverse the 

trend of declining private investment that 

has been witnessed in the recent past. 

Investment to GDP 

Since inception, agency banking has registered 

commendable growth in the Kenyan 

market driven by the existing gaps in financial 

inclusion. Ethiopia can equally harness 

this development with a view to injecting 

new vigour into the country’s financial sector. 

Agency Banking in Kenya Trends 


Given Ethiopia’s large population (about 94 

million people), cost effective channels such 

as agency banking will be the most viable in 

accelerating penetration of financial services 

across the country. 

The country 

appears to be 

laying foundation 

for an environment 

that will incentivise 

private investment 

as an engine of 

future growth. 

Addressing 

constraints such 

as a comparatively 

underdeveloped 

finance sector 

might, in the 

long-term, help 

reverse the trend 

of declining private 

investment that 

has been witnessed 

in the recent past. 

Source: World Bank, StratLink Africa 




06. Gabon 





Rising Temperatures Heighten Risk 

We downgrade political risk outlook pegged 

on both domestic and external factors. Domestically, 

the opposition is whipping up 

temperatures ahead of the 2016 election 

anchored on calls for constitutional amendment 

mooting for presidential term limits. 

The opposition is well positioned to galvanize 

public support owing to the forty seven 

year reign (forty nine by 2016) of the Bongo 

dynasty. Externally, the October 2014 political 

upheaval in Burkina Faso that toppled 

Blaise Compaore’s government, after an attempt 

at prolonging his twenty seven year 

reign, could ignite similar action in Gabon. 

The wave of mass protests that have toppled 

regimes in North Africa and now Burkina 

Faso has increased vulnerability of countries 

with prolonged reigns to the contagion. 

Despite winning all elections since independence, 

the Gabonese Democratic Party has 

suffered decreasing margins of victory in 

the presidential vote with the least being 

41.7% in 2009, pointing to fading popularity. 

Opposition parties are now coalescing under 

the Union of Forces for Alternance to 

push for a two-term limit in the Presidency. 

Presidency for life became the norm in Gabon 

following the 2003 amendment that did 

away with the two seven years term limit. 


Reaping the Dividends of 

Diversification 

Gabon is poised to post resilient economic 

growth in 2014 despite depressed global 

oil prices. This will be driven by aggressive 

economic diversification and robust non-oil 

sector growth that will provide the much 

needed buffer against the declining oil 

prices that are expected to subdue growth 

in economies such as Angola. Whereas IMF 

has downgraded Angola’s 2014 GDP growth 

forecast by 140.0 bps to 3.9%, it has revised 

Gabon’s by a leaner 60.0 bps to 5.1% pointing 

at a countervailing force to the strain on 

oil revenues. 


Investors are likely to maintain great interest in Gabon following 

its emergence as the most conducive business climate in 

the Customs and Economic Union of Central Africa. In the Doing 

Business Report 2015, the country emerged 144th placing 

it ahead of Cameroon (150), Equatorial Guinea (165) and Chad 

(185). Between 2003 and 2013, foreign direct investment 

into Gabon accelerated by 46.2% (CAGR) to USD 856.0 million 

placing it ahead of Equatorial Guinea’s 30.8% to USD 1.9 billion 

and Cameroon’s 18.9% to USD 572.0 million. This shows 

Gabon as a preferred destination by investors in the Central 

African region. 

Non-Oil GDP Growth 

Source: IMF 2014, StratLink Africa 

Gabon has been diversifying its economy 

away from oil given the threat presented 

by aging reserves that have seen a downtrend 

in oil production 11 . I n this regard, the 

oil sector’s contribution to GDP has declined 

from 58.2% in 2008 to 53.0% in 2013 12 . 

11 Oil production has declined from 370,000 barrels per day in 

1997 to 237,000 in 2013 

12 Africa Development Bank, OECD, UNDP 2014 




Growth must be 

fast and robust 

enough to ensure 

the country is 

not caught in 

macroeconomic 

vulnerabilities 

such as 

accumulation of 

debt as it seeks to 

meet expenditure 

amidst dwindling 

oil revenue. 

Gabon’s New Engines of Growth (% 

of GDP) 

FISCAL BALANCE 

OUTLOOK 

The economy is headed for deficit in its 

2014 fiscal balance driven by the trend in oil 

prices. With the country’s fiscal break-even 

point estimated at USD 100.0 per barrel 13 , 

prospects of a deteriorating fiscal position 

are heightening with the OPEC Basket price 

slipping further below the USD 100.0 psychological 

mark. In this scheme of events, 

either of two possibilities is bound to ensue 

in the near term: One, the government 

could increase its appetite for domestic borrowing 

to meet funding gaps, thereby pushing 

interest rates upwards. Two, we could 

witness a slowdown in public sector investment 

as focus is channelled towards priority 

spending. 

Source: AfDB, OECD, UNDP, StratLink Africa 

The emergence of new pockets of growth in 

the last five years helps Gabon mitigate fiscal 

vulnerabilities associated with declining 

oil production and volatile global prices. 

OPEC Basket vs Fiscal Break-even 

Price 

Gabon Oil Production (‘000 Barrels/Day) 



We foresee the first option being the more 

likely outcome since the second would have 

the net effect of slowing the economy’s 

growth momentum further. The government 

intends to borrow between USD 189.5 

million and USD 208.5 million from the domestic 

market by the end of Q42014 in what 

could be a clear indication of efforts to meet 

emerging funding gaps. 

Growth must be fast and robust enough to 

ensure the country is not caught in macroeconomic 

vulnerabilities such as accumulation 

of debt as it seeks to meet expenditure 

13 Fitch Credit Rating June 2014 




amidst dwindling oil revenue. Growth must 

be fast and robust enough to ensure the 

country is not caught in macroeconomic 

vulnerabilities such as accumulation of 

debt as it seeks to meet expenditure amidst 

dwindling oil revenue. 

Debt and Fiscal Balance (% of GDP) 

Source: IMF 2014, StratLink Analysis 




StratLink-Africa Team 

Konstantin Makarov – Managing Director 

konstantin.makarov@StratLinkglobal.com 

Dina Farfel – Partner 

dfarfel@StratLinkglobal.com 

Poonam Vora - Associate 

poonam.vora@StratLinkglobal.com 

Henry Chege – Senior Analyst 

henry.chege@StratLinkglobal.com 

Samuel Odero - Analyst 

samuel.oyier@StratLinkglobal.com 

Lewis Muguro - Analyst 

lewis.muguro@StratLinkglobal.com 

Julians Amboko – Analyst 

julians.amboko@StratLinkglobal.com 

Valary Amunga – Intern Analyst 

valary.amunga@StratLinkglobal.com 




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©StratLink Africa Limited 2014

Africa Market Update -December 2014

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