Africa Market Update -December 2014

MARKET UPDATE – AFRICA | November 2014
POLITICAL OUTLOOK
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.
ECONOMIC OUTLOOK
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
BUSINESS ENVIRONMENT
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
24 | StratLink Africa Ltd.
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