February 2016 Africa Market Update

2SEPTEMBER 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
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Table of Contents
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FEBRUARY 2016 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA
KENYA
TANZANIA
UGANDA
RWANDA
ZAMBIA

3FEBRUARY 2016 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
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Company
Foiled Boko Haram Attack Augurs well for Risk
Outlook
The foiled Boko Haram attack in Bauchi State (January
2016) sends a good gesture on the state of the
country’s intelligence and preparedness to combat
the insurgency that has claimed lives and occasioned
displacement of persons. This comes as a welcome
indicator of the country’s political risk which has been
dented by recurrent attacks in the recent past.
Multi-National Force: Will it deliver?
AkeypointoffocusgoingforwardwillbehowtheMulti-
National Joint Task Force (MNJTF) co-ordinates efforts
to combat the insurgency. The force incorporates an
estimated 8,700 troops from Chad, Nigeria, Niger,
Cameroon and Benin. We expect porous borders,
which provide a channel for smuggling of arms, to
remain a major challenge in arresting the menace. In
2014, the Comptroller of Nigeria Immigration Service
indicated there existed in excess of 1,400 illegal routes
into the country against an approved 84 border control
posts1
. This creates a fragile point in the fight against
Boko Haram.
POLITICAL OUTLOOK
ECONOMIC OUTLOOK
NIGERIA
Central Bank likely to Devalue the Naira as Oil Price
Tumble Worsens
With oil prices deteriorating further (below the USD
30/barrel mark in January 2016) and the country’s
fiscal balance slipping further into the red, we foresee
the Central Bank back-pedalling and devaluing the
Naira between Q1, 2016 and the end of Q2, 2016.
The recent deceleration of growth momentum leaves
the economy hurtling towards near stagnation and
this is likely to necessitate revision of the central
bank’s stance on the currency with a view to boosting
proceeds from exports in 2016. Further, the bank
must be wary of rattling investor confidence as it did
following unorthodox measures of supporting the
Naira in 2015.
Note: In September 2015, JP Morgan delisted Nigeria
from its Local Currency Emerging Markets Bonds Index
in view of foreign exchange restrictions adopted by the
Central Bank.
In November 2015, the Central Bank slashed its
benchmark rate by 200.0 bps to 11.0%, at a time when
inflation had breached the target ceiling of 9.0% by40.0
bps, suggesting the need to stimulate the economy is
being accorded foremost consideration.
Source: Bloomberg, National Bureau of Statistics, StratLink Africa
GDP Growth
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Q1,2013
Q2,2013
Q23,2013
Q4,2013
Q1,2014
Q2,2014
Q3,2014
Q4,2014
Q1,2015
Q2,2015
Q3,2015
Domestic Borrowing and Inflation Expectations Keep
Yields on the Uptrend
Yields reported a slight uptick between December
2015 and January 2016 despite a rise in liquidity. This is
likely to be driven by the surge in domestic borrowing
in December 2015 that grew by 78.0% to USD 2.2
Billion ─ the largest domestic borrowing since March
2015 ahead of the general election.
DEBT MARKET UPDATE
Primary Market Borrowing (USD)
Source: Central Bank of Nigeria, StratLink Africa
-
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Millions
Full report available for purchase via:

Company
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.
POLITICAL OUTLOOK
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.
BUSINESS ENVIRONMENT
KENYA
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.
The yield curve remains inverted despite a discernible
downtrendinthe91Dayand364Daypapers’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.
DEBT MARKET UPDATE

Company
Controversial Labour Laws Threaten Tanzania’s
Business Environment
We downgrade our view of the business climate
informed by unfavourable labour laws that have
elicited concern from investors. The Non-Citizen
(Employment) Regulations 2015 have been the major
bone of contention, as the government seeks to
tighten foreign worker policies, a protectionist move
that threatens Tanzania’s relations with its trading
partners, particularly, in the East Africa Community
(EAC). Tanzania trails peers in key areas such as
adult literacy and this regulation threatens to derail
the economy’s ability to tap into better skill from
neighbouring countries.
Zanzibar Election Re-run Slated for March 2016
Zanzibar is set to carry out a re-run of presidential
elections on March 20th, 2016 after the results of
the first vote were nullified following allegations
of irregularities. The announcement comes amid
calls for boycott of the election by the opposition,
a development that threatens to deepen the
political stand-off while increasing uncertainty on
Tanzania’s near-term political and economic outlook.
Nonetheless, the new administration has managed
to contain unrest in Zanzibar, boding well for investor
perception. The election outcome is still crucial for
determining Tanzania’s outlook given that the island’s
quest for greater autonomy has been a teething issue
for the union.
Independent USA foreign aid agency, Millennium
Challenge Corporation, is reported to have withheld
funding disbursement to Tanzania on account of the
political stalemate and concerns over infringement of
basic human rights in view of the Cyber Crime Law
(2015).
Opposition to Re-Open Referendum Talks
Tanzania’s main opposition party, Chadema, is set
to re-open the referendum debate as it focuses
on constitutional reforms as its main post-election
agenda. The stalemate in Zanzibar is partly attributed
to the stalled constitutional reforms, with fears that
the island may secede if the opposition-favoured
three-tier government proposal is successful.
POLITICAL OUTLOOK
The Economy Accelerates in Q3 2015
Available data indicates Q3 2015 economic growth
(6.3%) stood marginally above the historical Q3
average of 6.2% (2006 – 2015), suggesting strong
resilience by the economy in view of the elevated
political risk at the time. This sets a good foundation
for further acceleration in the first half of 2016
especially with monetary headwinds subsiding and
the new government engaging aggressive fiscal
consolidation efforts. Key engines of growth have
been the construction, mining and transport sectors
and we expect this to be sustained through the first
half of 2016.
ECONOMIC OUTLOOK
There was marginal change in liquidity between
December 2015 and January 2016 and this trend was
reflected in minimal change in yields of short-term
papers between the two months. Yields remain high,
however, in what could be a reflection of investors’
caution over the uptrend in inflation which rose to
6.8% in December 2015, twenty bps higher than the
preceding month.
DEBT MARKET UPDATE
TANZANIA

Company
General Election set for August 2016
The presidential and parliamentary elections have
been slated for August 11th, 2016 in what is widely
expected to be a heated contest between the
incumbent government and the main opposition
party,UnitedPartyforNationalDevelopment(UPND).
In view of the narrow margin by which the ruling party
won the last election (January 2015), 48.3% versus
United Party for National Development’s 46.7%, the
likelihood of coalitions across the political arena is
imminent with the new constitution requiring the
winner to clinch more than 50.0% of votes cast. The
state of the economy prods us into caution over
the near term political risk in view of tensions that
rocked the country in the run-up to the last election.
President Lungu’s directive to the Electricity Supply
Corporation (ZESCO) to lower electricity tariffs on
January 3rd, 2016 has been perceived by many as a
charm offensive ahead of the elections especially at a
time when the economy is grappling with an energy
crisis. Ministry of Energy forecasts suggest the energy
crisis is likely to prevail in the near term.
POLITICAL OUTLOOK
Energy Crisis to Persist as Water Levels Decline in
Major Reservoir
Theenergycrisiscoulddeterioratefollowingthedecline
of water levels at Kariba dam to 12.0% of capacity
as at January 18th, 2016. This comes on the back of
adverse weather conditions that have seen drought hit
parts of the region. Households and investors in the
mining sector are most vulnerable to the deteriorated
conditions given their consumption of the country’s
energy. World Bank estimates that firms in Zambia
suffered losses to the tune of 5.0% of sales in 2013, a
proportion that is likely to have escalated over the last
one year in view of recurrent outage.
ZAMBIA
Kwacha Holds Firm against the Greenback
The Kwacha found a support level in the 11.1 – 11.3
band of exchange to the greenback in January 2016,
propping investor confidence on the near term outlook
of the economy. Factors that have driven this resilience
include tight monetary policy and relative weakening
of the greenback that have reduced the volatility
witnessed in the Kwacha’s exchange.
ECONOMIC OUTLOOK
Source: Bloomberg, StratLink Africa
Kwacha to USD Exchange
5.0
6.0
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
27-Jan-15
27-Mar-15
27-May-15
27-Jul-15
27-Sep-15
27-Nov-15
27-Jan-16
Yields nudged upwards in the short and medium term
end whilst remaining relatively stable in the long-
term. This is a likely indication of high risk perception
by investors in the short and medium term as the
economy takes a beating from depressed commodity
prices and the forthcoming general election. In
the long-term, investor sentiments are likely more
favourable banking on remedial policy measures
to address the economic challenges. Inflation
expectations have equally been significant in leading
investors to demand higher yields in the short and
medium term.
DEBT MARKET UPDATE

Company
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 non-
compliance 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.
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.
POLITICAL OUTLOOK
UGANDA
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
couldseediminishedpressurefordomesticborrowing
that crowds out the private sector.
Source: IMF, StratLink Africa
Fiscal Balance to GDP Ratio
ECONOMIC OUTLOOK
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
2009 2010 2011 2012 2013 2014 2015
e
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.
DEBT MARKET UPDATE

Company
Courting New Allies
President Paul Kagame’s January 2016 visit to the
MiddleEasthasbeenwidelyperceivedasanindication
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 pre-
emptive 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.
POLITICAL OUTLOOK
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.
BUSINESS NEWS ENVIRONMENT
RWANDA
ECONOMIC OUTLOOK
Economy Defies 2015 Headwinds
Theeconomyweatheredtheturbulentmacroeconomic
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.

Company
StratLink in the News
StratLink Africa continues to make commentary on emerging issues in frontier and emerging markets. Below please find
links to the latest pieces.
Please click the buttons to view the full articles
eNCA News ─ Subdued Economic Growth for Ten Key Markets in sub-Saharan Africa: The piece draws extensively from
our January 2016 outlook
London School of Economics Business Review ─ Nigeria Walks a Tight Rope between Inflation and Slowdown: This
article assesses Nigeria’s outlook in 2016.
Venture Burn ─ Three Ways China’s Slowdown Yields Opportunities in Africa : In this piece, Konstantin Makarov delves
deep into opportunities emerging in Africa following China’s slowdown.

Company
STRATLINK AFRICA LTD - WHO WE ARE
StratLink is an Africa focused financial advisory company
with Capital Raising Advisory, Corporate Advisory and
Market Research as our core business lines. We believe in
the growth potential of sub-Saharan African economies and
partner with our clients to execute their vision by providing
quality services and access to capital. We recognize
opportunities in the region and connect the fastest growing
middle market companies with leading global investment
banks, private equity firms and family offices. We value the
importance of making informed decisions and leverage our
regional knowledge to the advantage of our clients.
Sub-Saharan Africa: In-depth macro and microeconomic
research
Within our purview of coverage are nine economies –
Kenya, Tanzania, Uganda, Rwanda, Ethiopia, Nigeria, Ghana,
Angola and Gabon. We undertake incisive research and
analysis of each of the countries’ macro and microeconomic
environment, debt and equity markets. We also conduct
sector specific research and analysis shedding insight on
market landscape, existing gaps and opportunities as well
as potential challenges.
Our guarantee: Competent team, reliable data
Our research is anchored in a competent and versatile
team traversing the fields of economics and finance with
qualifications from globally recognized institutions. The
team is backed by subscription to reliable databases such
as Business Monitor International, Bloomberg, Thomson
One Research, World Economics and The World Today.
As such, our guarantee is reliable and up to date data in
an increasingly dynamic region. Further, we reach out to
relevant bodies in concerned markets including Central
Banks, ministries and state departments.
Authoritative voice on regional economics
StratLink has become an authoritative voice for commentary
and opinion on issues pertaining Sub-Saharan African
economies and investment. Reputable media including
CNBC Africa, Nation Media Group, CCTV and Bloomberg
have reached out to the company for opinion and analysis.
Where we are based
Our head office is in Nairobi, Kenya with satellite offices in
New York, Kampala and Kuala Lumpur.
STRATLINK - AFRICA TEAM
Konstantin Makarov – Managing Partner
konstantin.makarov@StratLinkglobal.com
Dina Farfel – Partner
dfarfel@StratLinkglobal.com
Jackson Mwatha – Associate
jackson.mwatha@StratLinkglobal.com
Samuel Odero - Analyst
samuel.oyier@StratLinkglobal.com
Lewis Muguro - Analyst
lewis.muguro@StratLinkglobal.com
Benson Njeri – Analyst
benson.njeri@StratLinkglobal.com
Eric Magu – Analyst
eric.magu@StratLinkglobal.com
Julians Amboko – Research Analyst
julians.amboko@StratLinkglobal.com
Sophia Sifuma – Research Analyst
sophia.sifuma@StratLinkglobal.com
Peter Mutisya – Director Graphic Design
peter.mutisya@StratLinkglobal.com

Company
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©StratLink Africa Limited 2016

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13August 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
ContactDetails
STRATLINK AFRICA
StratLink - Africa, Limited.
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February 2016 Africa Market Update

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