Africa Market Update - July 2015

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MARKET UPDATE – AFRICA | July 2015 01. Kenya HAWKISH STANCE AS CENTRAL BANK MAKES MONETARY ADJUSTMENTS 2 | StratLink Africa Ltd. www.stratlinkglobal.com
MARKET UPDATE – AFRICA | July 2015 POLITICAL OUTLOOK Foiled Attack Buoys Political Risk Profile The killing of eleven Al Shabaab militants on June 14th, 2015 following a foiled terror attack in the Mpeketoni area of Lamu County 1 came as a much needed shot in the arm for the country’s political risk profile. In the recent past Kenya has been a soft target for the Somalia based militia with deterioration of security emerging as a sore thumb in the investment climate. Building Confidence in Counterterror Efforts Coming on the back of a change in the top brass of the security apparatus and an apparent change of tact since the April 2015 Garissa University attack (May 2015 Update – Anti-terror Efforts: Change of Tact? [http://www.stratlinkglobal.com/download/ May%202015%20Africa%20Market%20Update.pdf], the foiled attack could serve as a major confidence builder amongst would be investors as the anti-terror efforts are being adopted and implemented. Of greater significance is that the foiled attack came about a day after Kenya Police Service reported receiving intelligence on a planned attack by the militia. It could well be that after repeated false starts on acting on intelligence (including the September 2013 and April 2015 attacks on Westgate Shopping Mall and Garissa University, respectively), the government is finally getting its grip on pre-emptive measures in counter terrorism. Security Receives Key Focus in 2015/16 In the budget for financial year 2015/16, the National Treasury scaled up allocation to security organs by 13.8% to USD 2.3 Billion accounting for 10.2% of the budget, a marginal 70.0 bps lower than 2014/15’s allocation . Increased allocation signifies the measure of efforts being taken to address the perennial Achilles’ heel in the business climate in the next twelve months (July 2015 – June 2016). The state of security will be on the spotlight especially as the country approaches 1 Government of Kenya 2 Kenya National Treasury BUSINESS ENVIRONMENT Energy, Infrastructure and ICT to Maintain Pole Position The government will continue looking to Energy, Infrastructure and Information Communication Technology in boosting the business climate in the next twelve months. Allocation in 2015/16 Budget Allocation by Sectors 2015/16 budget indicates the three will receive the lion’s share of state funds, as the country targets asserting its commercial and industrial hub status in an increasingly competitive region. Project Acceleration and Growth Catalyst The considerable allocation to the three targets accelerating completion of mega infrastructure projects such as the Source: National Treasury, StratLink Africa Standard Gauge Railway as well as leveraging on ICT as a catalyst for economic growth. This, in our view, is also in line with efforts to trim recurrent expenditure from 16.4% of GDP in 2014/15 to 15.5% in 2015/16 3 ; a matter that has been of great concern in resource allocation. Raft of Proposals Could Raise Cost of Doing Business In the 2015/16 budget, the government has proposed a USD 0.03 (Kes 3.0)/litre of Petrol and Diesel hike in view of the Roads Maintenance Levy that could occasion an uptick in the cost of transport and doing business as a whole - transport costs account for 8.7% of the weighting in the Consumer Price Index (CPI) being the third largest component of the CPI after food and household utilities. 3 National Budget 2015/16 the much-awaited visit by United States of America President, Barrack Obama in July 2015. ECONOMIC OUTLOOK Central Bank Hikes Benchmark Rate by 150.0 Bps The Central Bank hiked its benchmark rate by 150.0 bps to 10.0% on June 09th, 2015 as it engaged levers to provide a buffer against elevated monetary risks in the economy. Our June 2015 Africa Market Update [http:// www.stratlinkglobal.com StratLink Africa Ltd.| 3
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Africa Market Update - July 2015

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