MARKET UPDATE – AFRICA

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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.
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FEBRUARY 2016 | MARKET UPDATE – AFRICA
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