Africa Market Update - July 2015

MARKET UPDATE – AFRICA | July 2015
Whereas the
scale of victory
would be widely
expected to bode
well for EPRDF, it
is bound to evoke
grave concerns
from investors
on the state of
the country’s
democracy.
POLITICAL OUTLOOK
Sweeping Victory for EPRDF in May
2015 Poll
In line with StratLink Africa’s pre-election
issue (May 2015 Market Update – Is the
Die Cast? [http://www.stratlinkglobal.com/
download/May%202015%20Africa%20Market%20Update.pdf]
the ruling party, Ethiopia
People’s Revolutionary Democratic Front
(EPRDF), clinched landslide victory in the
May poll. EPRDF and allied parties won all
547.0 seats in the parliamentary election
consolidating its foothold on the political
landscape. As the party’s maiden election
post-Meles Zenawi, EPRDF is well placed to
assert its position in the wake of mounting
clamour for broader democratic space and
tolerance of dissent.
What is the State of Ethiopia’s
Democracy?
Whereas the scale of victory would be widely
expected to bode well for EPRDF, it is bound
to evoke grave concerns from investors on
the state of the country’s democracy. Of
note is that in the May 2015 poll, external
observers such as the Carter Center and the
European Union were not invited (unlike in
the 2010 election). Factions of the opposition
have decried that the May 2015 election
failed to provide a level playing field for
a free and fair exercise. As such, the official
election outcome could serve as a catalyst
for growing anti-government sentiment.
Civil Liberties Baggage from the Preelection
Period
Our pre-election issue indicated that aspects
such as voter turnout would be critical
in determining the state of the electorate in
the country. As such, we await the official
publication of the same to pass holistic assessment
of the recent polls. We observe,
however, that EPRDF faces a considerable
task in addressing growing grievance by
sections of the population over constrained
liberties especially through the anti-terrorism
legislation.
ECONOMIC OUTLOOK
Rising Inflationary Pressures
Since April 2015, StratLink Africa has been
cautious about inflation in Ethiopia tabling
a case for likely hawkish monetary policy in
the period to Q3, 2015. Available data indicates
inflation nudged to a high of 9.4% as at
May 2015 driven principally by food prices.
Despite robust economic growth in the last
decade, the country remains susceptible to
climatic shocks with agriculture accounting
for 46.4% of the Gross Domestic Product.
BUSINESS ENVIRONMENT
Ethiopia-Djibouti Rail Progress Augurs Well for Logistics
Ethiopia Railways Corporation has reported the Sebeta-
Mieso-Djibouti Railway project is 73.0% complete 25 . We
expect this project to play a major role in easing transportation
of cargo from the Port of Djibouti which is reported
to account for over 90.0% of the country’s import-export
trade 26 . Official estimates indicate that traders spend up
to 16.0% of the country’s value of foreign trade on transit
cost per day 27 .
Coming on the Back of Bold Undertakings
We note that fast-tracking of the Ethiopia – Djibouti
Railway project comes on the back of a raft of initiatives
by the government geared towards improving logistics.
In January 2015, Ethiopia announced it would begin using
the Port of Sudan for imports (hitherto the port had been
used exclusively for exports) in view of growing demand
by the economy. In April 2015, the country further unveiled
the National Logistics Strategy to be implemented
between 2015 and 2020 28 .
Upgrade and Expansion of Infrastructure
Not only is Ethiopia upgrading its existing links to the Port
of Djibouti but more importantly broadening alternatives.
This is crucial in mitigating risks that could stem, for instance,
from deterioration of inter-state relations between
Ethiopia and Djibouti. This also comes in handy within the
context of a competitive region with Kenya and Tanzania
upgrading the ports of Mombasa and Dar es Salaam,
respectively, in a bid to attract investors.
25 Business Monitor International May 2015
26 The Reporter, January 2015
27 Ministry of State for Finance and Economic Development
28 United Nations Development Program, Government of Ethiopia
18 | StratLink Africa Ltd.
www.stratlinkglobal.com