MARKET UPDATE – AFRICA

A financial Advisory
Company
KENYA
POLITICAL OUTLOOK
Political Temperatures Rise ahead of 2017 Election
The political scene is heating up ahead of the 2017
general election as factions allied to the government
and the opposition barnstorm the country in
grassroots mobilization. This notwithstanding, we
retain a favourable assessment of the near term risk
outlook (the next six months) whilst adopting a more
cautious position on the long-term view given the
recurrent cases of inter-ethnic border clashes such as
that in the Nandi-Kisumu border. Recurrence of such
incidences threatens to undermine political stability
ahead of the polls and will be a key pointer to look
out for in the next one year. The National Electoral
and Boundaries Commission is set to embark on
voter registration ahead of the polls, an exercise we
are confident will be accompanied by requisite civic
education in a bid to mitigate lurking risks that have
threatened stability in past election cycles.
BUSINESS ENVIRONMENT
Energy and Roads Infrastructure to Dominate
Development Agenda
We expect Kenya to continue cementing its position
as the regional commercial and industrial hub given
investment plans that target largely the energy and
transport sectors. This will be critically important
for the country as neighbouring economies such
as Ethiopia and Tanzania work towards improving
competitiveness. A spot-check on the major projects
pipeline for the next five years reveals that up to 48.6%
of funding will be designated to energy and roads ─
potentially presenting a major boost in view of the
deficit (transport infrastructure and energy) that derail
the economy’s investor attractiveness.
Note: Some of the projects are the 300.0 Megawatts
Lake Turkana wind power projects, the Lamu Port
South Sudan Ethiopia Transport Corridor and the 120.0
Megawatts Kipeto Power Project.
ECONOMIC OUTLOOK
Inflation likely to Rise through Q1 2016
In line with our forecast, the Central Bank left
monetary policy instruments (the benchmark rate
and the Kenya Banks’ Reference Rate) unchanged in
its first meeting of 2016. Despite inflation standing
above the target ceiling by 50.0 bps (at 8.0%), the
Central Bank is likely to have taken cognizance of the
new Excise Duty Act that took effect in December
2015 as a key driver of the ceiling breach. We expect
inflation to continue inching north, closer to the 9.0%
- 10.0% band, through Q1 2016 on the back of rising
food prices attributed to the El Nino rains experienced
in Q4 2015 and early January 2016.
DEBT MARKET UPDATE
The yield curve remains inverted despite a discernible
downtrend in the 91 Day and 364 Day papers’ between
December 2015 and January 2016. We note that
liquidity has been comparatively high in the market
supported by government payments, redemption of
government securities and Open Market Operation
Maturities. In the week to January 22nd, 2016,
the Central Bank is reported to have injected USD
94.8 Million in liquidity into the market, keeping
the interbank rate in single digits. The yield curve
also suggests there is likely to be rising appetite for
medium to long-term debt for the remaining quarters
of financial year 2015/16.
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FEBRUARY 2016 | MARKET UPDATE – AFRICA
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