MARKET UPDATE – AFRICA

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A financial Advisory Company UGANDA POLITICAL OUTLOOK Key Stress Factors ahead of February 2016 Election We are cautiously sanguine over the country’s political risk outlook ahead of the February 18th, 2016 general election premised on a number of potential stress considerations: • There have been incidents suggestive of intimidation of the opposition by the state that could escalate tensions in the remaining weeks. In July 2015, opposition luminaries Kizza Besigye and Amama Mbabazi were arrested for organizing meetings without police permission • Growing disenfranchisement over the Public Order Management Act (2013) which has negated the freedom of association across the country • Concern over the integrity and fairness of the election has been a major issue shaping public dialogue and many will be keen to observe how this evolves Be that as it may, we are confident that the precedent set by Nigeria and Tanzania of largely peaceful electoral processes will be replicated in Uganda. BUSINESS ENVIRONMENT Hiccup on Logistics as World Bank Suspends Funding The quest for enhanced connectivity through roads infrastructure has hit a snag following World Bank’s suspension of funding for the Transport Sector Development Project following concern over noncompliance by the National Roads Authority (UNRA). Available data indicates that at USD 190.0 Million, World Bank had committed to fund 95.6% of the undertaking and its withdrawal dims prospects. This is likely to evoke uncertainty amongst investors who have been banking on the roads infrastructure upgrade program to boost business. ECONOMIC OUTLOOK Fiscal Position to Deteriorate Uganda’s fiscal deficit is likely to deteriorate further away from the regional target ratio of 3.0% of GDP on the back of rising expenditure in view of ambitious infrastructure projects. Stellar performance in domestic revenue mobilization, however, sets a good precedent for the year underway and if sustained could see diminished pressure for domestic borrowing that crowds out the private sector. Fiscal Balance to GDP Ratio 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% 2009 2010 2011 2012 2013 2014 2015 e Source: IMF, StratLink Africa DEBT MARKET UPDATE 2016 (f) Yields exhibited marginal downtrend between December 2015 and January 2016 driven by a mild rise in liquidity. This trend could reverse in the next two months in view of emerging weakness of the shilling that may necessitate tightening by Bank of Uganda. With inflation approaching the 10.0% mark, we expect yields to remain elevated through Q1 2016. Full report available for purchase via: FEBRUARY 2016 | MARKET UPDATE – AFRICA 8 www.stratlinkglobal.com
A financial Advisory Company RWANDA POLITICAL OUTLOOK Courting New Allies President Paul Kagame’s January 2016 visit to the Middle East has been widely perceived as an indication that the government could be courting new allies in view of expression of dissatisafaction by a section of Western allies over the revision of term limits. In October 2015, Rwanda’s Foreign Minister held a meeting with his Russian counterpart with a view to enhancing bilateral relations. The United States and the European Union have termed the revision of term limits as undermining democracy and this could see relations with Rwanda deteriorate. In addition, Rwanda recently formed the Rwanda- Turkey Business Council, that is expected to enhance trade and economic ties between the two countries. As previously reported, foreign development assistance makes up 35.6% of budgetary funding, and the government of Rwanda is likely taking preemptive measures in view of a possible backlash from its western allies. The situation is reminiscent of the events around the 2012/13 donor aid shock where Rwanda turned to China to counter the effects of the donor aid cut. On the whole, we view the emerging ties as vital for Rwanda’s broadening of potential markets and heding against possible shocks in the near term. BUSINESS NEWS ENVIRONMENT Government Steps in to Streamline Ailing Textiles Industry Rwanda’s textile industry faced a tumultuous year witnessing continuous decline in growth owing to increased second hand imports into the market. Consequently, government plans to impose 100.0% duty on imported clothing by July 2016, in order to protect the domestic industry. In the same breath, Rwanda is mulling over a joint venture with Chinese investors to establish a garment factory in Kigali as it looks to develop its own textile industry and cut down importation of garments. Available statistics show that in 2015, Rwanda spent USD 100.0 Million, approximately 5.4% of Rwanda’s import bill, on imported wear products, out of which 80.0% were textile imports. ECONOMIC OUTLOOK Economy Defies 2015 Headwinds The economy weathered the turbulent macroeconomic environment in 2015 to register robust acceleration growing by 6.1% in Q3, 2015. Whereas this fell below the 8.0% registered in the same period in 2014, we note that 2014’s growth is likely to have been partly driven by the economy’s emergence from the previous year’s slump. Additionally, 2014 had, generally, better commodity prices that supported the economy’s growth. Rwanda’s resilience is partly driven by increased credit to the private sector which served to stimulate the economy. This has been enabled by the accommodative monetary policy stance which has been retained at 6.5% since June 2014. DEBT MARKET UPDATE Yields Rise on Relative Liquidity Tightening Yields in the T-Bill market maintained an uptrend in the period under review despite subdued appetite for domestic debt by the government which saw government borrowing decrease by 520.0bps to USD 60.6 Million, month-on-month. Inflation also declined to 4.5% in December, 2015 from 4.8% reported in the preceding month. The rise could have been driven by two factors. One, available data indicates that the interbank rate stands at 3.7% from 3.5% in November 2015, suggesting relative tightening of liquidity. Two, investors could be pricing in political risk expectations in view of noise around the revision of term limits and a possible backlash from Western allies. Full report available for purchase via: FEBRUARY 2016 | MARKET UPDATE – AFRICA 9 www.stratlinkglobal.com
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