Africa Market Update - April 2018

2APRIL 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A Financial Advisory
Company
APRIL 2018 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA
ZAMBIA 6
11
16
25
RWANDA 29
KENYA
UGANDA
TANZANIA 20
Table of Contents
ZAMBIA
• Growing fiscal space poised to relieve monetary policy in driving growth
• Electoral management comes under scrutiny as committee proposes prolonged
petition review period
NIGERIA
• Litmus test on separation of powers as Electoral Law Amendment Bill (2018)
wedges rifts
• February 2018 inflation dip raises hopes of unwinding hawkish monetary policy
in 2018
KENYA
• Policy needs to address sharp inequality
• Small banks feel the brunt of the interest rate cap
At a Glance
TANZANIA
• Tanzania moves to reduce moral hazard in the banking sector
• Tanzania turns to tax incentives to attract new investments
• Will the push for amendment of electoral laws re-ignite the constitutional
referendum debate?
UGANDA
• Museveni appoints new persons to top security positions
• Government looks to expand oil palm production
• Benefits of regional integration to be seen in long run
RWANDA
• Infrastructural upgrade can boost Rwanda’s chances of tapping into the Africa
Free Trade Treaty
• Persistently low inflation as the 2017 economic growth surpasses projections
http://mutuamatheka.co.ke/wp-content/uploads/2012/04/001_NAIROBI_WEBREADY_MUTUA-MATHEKA-10.jpg
Nairobi, Kenya
© Mutua Matheka
Cover image:

Capital Invested by Country (USD)
AFRICA DEALS LANDSCAPE
January - March 2018
Source: PitchBook, StratLink Africa
Deal Ac�vity by Industry (Propor�ons) Deal Ac�vity by Types (Propor�ons)
Snapshot of Deals
• SAHAM Finances (Morocco): Reached a defini�ve agreement to be acquired by Santam for USD 1.1 billion on March 8th, 2018
• Eni Zohr Acreage (Egypt): Reached a defini�ve agreement to sell a 10.0% stake in Zohr Acreage to Mubadala Petroleum for USD 934.0 million on
March 12th, 2018
• Marathon Oil Libya (Libya): The company was acquired by Total for USD 450.0 million on March 1st, 2018
1.4 Billion
1.2 Billion
940.0 Million
782.0 Million
386.0 Million
132.0 Million
75.0 Million
70.0 Million
55.0 Million
45.0 Million
35.0 Million
10.0 Million
10.0 Million
8.0 Million
1.0 Million
20,000.0
South Africa
Morocco
Egypt
Nigeria
Senegal
Ghana
Madagascar
Kenya
Tanzania
Mauri�us
Namibia
Ivory Coast
Congo
Lesotho
Uganda
Niger
17.7%
17.7%
17.5%
17.5%
8.9%
8.9%
8.6%
8.6%
8.2%
8.2%
7.7%
7.7%
7.2%
7.2%
6.6%
6.6%
6.4%
6.4%
4.0%
4.0%
7.2%
7.2%
Insurance Other Business Products & Services
Explora�on, Produc�on & Refining Other Financial Services
Communica�ons & Networking Energy Services
Apparel & Accessories Commercial Services
Commercial Products Commercial Banks
Others
32.5%
23.2%
21.5%
6.2%
5.5%
3.6%
7.6%
Merger/Acquisi�on
Secondary Transac�on - Private
Corporate Dives�ture
IPO
Acquisi�on Financing
PIPE
Others

• Whereas beef commands the lion’s share of meat sales in the country, there is evidence of growing consumption of
alternatives with poultry having gained considerable traction over the last fifteen years
• Two factors underlie the emerging uptake of poultry meat:
1. The key demand side driver is rising income which has enabled households to afford more white meat. Between
2010 and 2016, there was relatively high growth in the number of households within the Kes 30,000 – Kes 99,999
income band
2. The key supply side driver of this trend has been the fact that historically, Kenya has had low supply of poultry meat
and there have been growing efforts to scale-up production. The recent past has witnessed increased investment
such as Kenchic’s USD 14.8 million (Kes 1.5 billion) investment in equipment aimed at increasing capacity for
breeding and hatchery between 2010 and 2013
Market Overview
Meat Sales
Proportion of Formal Employed Persons by Monthly Gross Income (Kes)
: CONSUMPTION OF MEAT
IN KENYA
SECTOR LE
0.9% 1.7% 7.3% 16.4% 19.9% 28.2% 22.7% 2.9%2016
< 9,999
10,000
- 14,999
15,000
- 19,999
20,000
- 24,999
25,000
- 29,999
30,000
- 49,999
50,000
- 99,999 > 100,000
0.9% 6.9% 15.8% 15.5% 17.1% 23.4% 17.7% 2.7%2010
Source: Kenya National Bureau of Statistics, StratLink Africa
55.2%
46.8%
46.7%
49.8%
19.2%
18.7%
18.7%
16.7%
9.7%
18.6%
18.8%
18.8%
0.3%
0.5%
0.5%
0.4%
8.0%
2.6%
2.4%
2.1%
2000
2005
2010
2015
Beef Fish & ﬁsh products Poultry Pork Other meat
7.6%
12.8%
12.9%
12.2%
Lamb

Outlook
• Across the world, chicken is reported to have one of the lowest feed conversion ratios (the amount of animal feed
needed to produce a kilogram of meat) and this makes it popular especially for countries looking to address food
insecurity. As such, there is a likelihood that Kenya could experience increased uptake of poultry farming
Note: In March 2018, the county government of Kisumu received USD 987,743 (Kes 100.0 million) from the Kenya
Industrial Estates to catalyze poultry farming
• Industry players indicate that there is growing pressure for adoption of modern farming practices (use of modern
equipment and commercially viable scale of production) amongst small and medium-scale farmers. With large-scale
producers enjoying feed conversion ratios with the band of 1.7 – 1.8 whilst small and medium-scale farmers are in
the 2.0 – 2.5 band, the latter are missing out on efficient production
• Growing health consciousness and the general rise in incomes are also poised to drive uptake of white meat going
forward
: CONSUMPTION OF MEAT
IN KENYA (CONT’D)
SECTOR LE
Poultry Meat Supply (Kcal per Capita per Day)
Source: Food and Agriculture Organization, StratLink Africa
2.0
3.0
4.2
5.5
6.2
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Kenya Rwanda EA Average Uganda Tanzania

GROWING FISCAL SPACE TO RELIEVE MONETARY POLICY IN DRIVING GROWTH
ZAMBIA MARKET UPDATE

Proposal to Extend Presidential Election Petition
Hearing Period
The constitution could be revised to have the
period provided for hearing a petition on the
outcome of a Presidential election extended from
fourteen to thirty days if proposals tabled by the
Constitution Technical Committee are adopted.
This proposal comes against the backdrop of
the ruling by the Constitutional Court to uphold
the 2016 election of President Edgar Lungu, a
decision which was widely perceived to have been
impacted by time constraints.
Effort to Strengthen Electoral System Further
Whereas there exists no ideal threshold for the
period within which Presidential election petitions
should be heard (the spectrum varies from Kenya’s
fourteen days to Zimbabwe’s six months), we
believe that debate over the suitable duration
is in itself a step forward in strengthening the
management and credibility of electoral processes
in the country. The country adopted a 50.0% plus
one threshold for victory in a Presidential election
ahead of the 2016 poll. The shift to the absolute
majority system is vital in ensuring the President
enjoys a robust popular mandate beyond the polls.
POLITICAL OUTLOOK
Proportion of Votes Secured by Victor of Presidential
Poll
Source: Zambia Electoral Commission, StratLink Africa
GDP: USD 21.5 Bln | Population: 16.7 Mln
ZAMBIA
Why Manufacturing is Set for Slowdown
Despite bullish expectation on the manufacturing
sector from the government, we are cautiously
optimistic. Two indicators prod us into this stance
include a slowdown in the uptake of credit and
decline in electricity consumed by the sector. We
believe this is a reflection of the vast number of
small and medium manufacturers whose credit
profile was largely affected by the 2015/16 adverse
economic environment.
BUSINESS ENVIRONMENT
Credit to the Manufacturing Sector (USD)
Electricity Use (MwH)
Source: Ministry of Finance, StratLink Africa
Source: Business Monitor International, StratLink Africa
150.0
200.0
250.0
300.0
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Millions
24,000
29,000
34,000
39,000
44,000
49,000
54,000
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
35.0%
37.0%
39.0%
41.0%
43.0%
45.0%
47.0%
49.0%
51.0%
53.0%
2008 2011 2015 2016
USD 209.1
Outstanding credit to the manufacturing sector
as at January 2018

Growth in Fiscal Space to Relieve Bank of Zambia
Wrapping up Q1 2018, we remain bullish on
the economy’s outlook for 2018 with emerging
indicatorssuggestingthatthecountrycouldwellbe
positioned to transition from fiscal consolidation
to growing fiscal space that will allow boosting
growth through government spending. January
2018 data shows that both on tax (USD 375.3
million mobilized) and non-tax revenue (USD
74.1 million mobilized), the government realised
targets. Coming at a time when concerns over
the trend of headline inflation are likely to keep
Bank of Zambia on a cautious stance in the coming
months, growing fiscal space bodes well for the
economy as it provides an additional lever through
which growth can be stimulated.
Inthesameperiod,actualexpenditure,atUSD611.8
million, stood 9.1% below the projected amount
and could be an indication that the government
is still holding onto its fiscal consolidation agenda
even as revenue exceeds projections. Of note,
expenses on personal emoluments stood 19.0%
below planned expenditure signaling efforts to
trim the public sector wage bill.
Source: Ministry of Finance Zambia, StratLink Africa
Revenue Performance Rate Jan 2018
ECONOMIC OUTLOOK
Risks to Outlook
Our view on the outlook of the economy is
vulnerable to the following risks:
• Commercial bank lending rates remain high
despite a steady decline from 28.9% in
February 2017 to 24.5% in January 2018. With
a growing likelihood that Bank of Zambia could
be cautious on its expansionary stance, this is
poised to present a challenge to the private
sector
• A rise in the price of copper in the global market
has been a key factor supporting Zambia’s
rebound. Should this trend change, we will
be compelled to revise our position on the
economy
Disaggregated Tax Revenue Jan 2018
Copper Production and Price
Source: Ministry of Finance Zambia, StratLink Africa
Source: Bloomberg, StratLink Africa
ZAMBIA
94.0%
96.0%
98.0%
100.0%
102.0%
104.0%
106.0%
108.0%
110.0%
112.0%
Tax Revenue Non-tax Revenue
Income Tax Value Added Tax
Customs & Excise Duty Insurance Premium Levy
40,000.0
45,000.0
50,000.0
55,000.0
60,000.0
65,000.0
70,000.0
75,000.0
80,000.0
5,500.0
5,700.0
5,900.0
6,100.0
6,300.0
6,500.0
6,700.0
6,900.0
7,100.0
7,300.0
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
ProducƟon (MT) - RHS USD per MT

Source: Bank of Zambia, StratLink Africa
As expected, yields began nudging upwards in
Q1 2018 on the back a flattening out of headline
inflation within the 6.2%- 6.0% band. Having fallen
below the nine months’ average that was reported
before the surge in October 2015, it is likely that
investors are already pricing in a reversal of the
steady decline posted between September 2016
and February 2018. Additionally, the sustained
expansionary stance adopted by Bank of Zambia
from February 2017 is also bound to have fed into
fears of a looming reversal in headline inflation.
Yields Decline
USD to Kwacha
Interbank Rate
Sovereign Yield Curve
Headline Inflation
ZAMBIA
DEBT MARKET UPDATE
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
91
day
182
day
364
day
2
year
3
year
5
year
7
year
10
year
15
year
Sep-17 Mar-18
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
Resilient Kwacha
The Kwacha started 2018 on a resilient note,
clawing back ground lost in the second half of
2017. One of the key drivers of this trends have
been the weakening of the greenback. Liquidity
remains high in the money market with the
interbank rate averaging 10.2% in the first months
of 2018.
8.5
8.7
8.9
9.1
9.3
9.5
9.7
9.9
10.1
10.3
10.5
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Kwacha’s appreciation year-
to-date as at
March 19th, 2018
5.0%
9.0%
14.0%
19.0%
24.0%
29.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18

Market Remains Buoyant
The market remained bullish through Q1 2018
with the earnings season being characterized by
relatively good results. Real Estate Investments Plc
saw its net profit rise to USD 2.6 million for the
year ended December 31st, 2017 compared to a
loss of USD 2.1 million in the same period in 2016.
Zambia National Commercial Bank Plc also posted
a USD 11.9 million compared to a loss of USD 6.5
million in 2016.
All Share Index 2018
All Share Index
ZAMBIA
EQUITY MARKET UPDATE
We note, however, that the All Share flattened out
for the better part of Q1 2018 and is a likely signal
that the rally experienced from early 2017 is likely
at its crest. It is possible that with monetary and
fiscal conditions having been on the mend for the
better part of 2017, investors are likely to have
already priced in a rebound of the economy from
the adverse episode experienced in 2016.
LSE All Share Index change
year-on-year as at March
20th, 2018
LSE All Share Index change
year-to-date as at March
20th, 2018
28.6%
4.9%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
4,000.0
4,200.0
4,400.0
4,600.0
4,800.0
5,000.0
5,200.0
5,400.0
5,600.0
5,800.0
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Millions
Volume - RHS All Share Index
0.0
1.0
2.0
3.0
4.0
5.0
6.0
5,200.0
5,250.0
5,300.0
5,350.0
5,400.0
5,450.0
5,500.0
5,550.0
5,600.0
5,650.0
Jan-18
Jan-18
Jan-18
Feb-18
Feb-18
Mar-18
Millions
Volume - RHS All Share Index

NIGERIA MARKET UPDATE
STRIFE OVER ELECTORAL AMENDMENT ACT (2018) CASTS SHADOW OVER
POLITICAL RISK PROFILE

Electoral Amendment Bill Stokes Concern
Our March 2018 issue anticipated a build-up of
mild pressure following legislative approval of the
amendment that sort to re-order the sequence of
the 2019 general election with the key concern
being implied interference with the independence
of the National Electoral Commission. In light of
this, two developments have been significant over
the last one month:
• President Buhari has rejected the bill citing,
among other considerations, inconsistency
with the 1999 Constitution on the role of the
National Electoral Commission
• The Federal High Court passed judgement
barring the National Assembly from any further
amendment and action to the bill
We believe these developments will be significant
in shaping the political landscape ahead of the
election for the following reasons:
• Withthejudiciarybarringthe NationalAssembly
from further action on the bill, there is emerging
concern over separation of powers among the
arms of the government and what this portends
for the country
• This development sets the stage for a potential
show of might between the legislature and the
presidency in view of the fact that, by law, the
National Assembly is empowered to overrule
the president’s veto on any bill through recalling
the bill and passing it afresh
POLITICAL OUTLOOK
NIGERIA
Unemployment Rate
Constitution of the National Assembly
Source: Nigeria Bureau of Statistics, StratLink Africa
Inflation Dip Buoys Confidence in Recovery
The February 2018 decline in headline inflation has
propped confidence in the business environment
further. Coming against the backdrop of
constrained space for monetary policy adjustment
(due to the prevailing exchange rate regime and
tight credit conditions), this signal of improvement
buoys confidence in the overall macroeconomic
trajectory coming on the back of a 0.8% growth
in the economy in 2017. One major source of
confidence is that by historical standards, the
economy accelerated by a relatively robust space
considering subdued oil prices.
Note: 1992 and 1996 were rebound, from
recession, years in which the economy expanded
by 0.4% and 5.0% respectively. The robust rebound
in 1996 can be ascribed to the strong growth in the
price of oil (21.5% year-on-year).
Looking forward, growing uncertainty around the
2019 general election is likely to stand out as the
key risk factor being considered by investors. This
is especially so in light of growing strife between
the three arms of government with regard to the
Electoral Amendment Bill (2018).
BUSINESS NEWS ENVIRONMENT
Source: Central Bank of Nigeria, StratLink Africa
Real GDP Growth
0.0
100.0
200.0
300.0
Senate House of
RepresentaƟves
All Progressives Congress
People's DemocraƟc Party
Others
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017

Monetary Policy Rate
Year-on-Year Growth in Money in Circulation
Inflation
NIGERIA
February 2018 Inflation Offers Breather
February 2018 inflation numbers offer a sigh of
relief. After a year of lethargic disinflation, the drop
in headline inflation to 14.3% in February 2018
ignites hope that inflation is still on a steady course
towards the target 9.0% ceiling and that conditions
could continue improving to favour unwinding
the present hawkish monetary stance. A strong
decline in the food index, 130.0 bps compared to
January 2018, is particularly reassuring given the
rigidity witnessed in 2017.
BenchmarkRateStillontheRadarforAdjustment
Our January 2018 issue anticipated the Central
Bank would begin unwinding its hawkish policy
stance within the first half of 2018. This view was
premisedonthecontractionofcredittotheprivate
sector and a sustained decline in headline inflation
in 2017. A slowdown in the pace of disinflation in
Q1 2018, however, renders a rate slash within Q2
2018 less likely as the Central Bank looks to nudge
inflation further down towards its target band of
6.0%- 9.0%.
This notwithstanding, we still expect the
benchmark rate to close 2018 within the 13.0%-
13.5% band and/or have the Cash Reserve Ratio
slashed back to the 21.0%- 20.0% band. Growth in
the stock of money in circulation has corrected to
the historical horizon after a surge in 2016 whilst
growth in credit to the private sector is trending
below its five years average thus creating room
for the central bank to engage a dovish gear in
the months ahead. As shown in the graph below,
Nigeria is experiencing a period of relatively
protracted contraction in money supply, a fact that
could prod the Central Bank into an expansionary
stance.
ECONOMIC OUTLOOK
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-14
Jun-14
Nov-14
Apr-15
Sep-15
Feb-16
Jul-16
Dec-16
May-17
Oct-17
Headline InﬂaƟon Non-food Index
Food Index
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
Jun-07
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Jan-13
Jun-13
Nov-13
Apr-14
Sep-14
Feb-15
Jul-15
Dec-15
May-16
Oct-16
Mar-17
Aug-17

30 Index March 2017 - March 2018
Market Moderates after February Slide
The market stabilized after the February 2018 slide
which saw the 30 Index fall below the 2,000 point.
Available data shows that foreign investor inflows
fell to USD 255.0 million in January 2018, 9.7%
lower than the average monthly inflow reported
in Q4 2017, as outflows rose to USD 207.4 million,
85.2% higher than the average posted in Q4 2018.
This suggests that investors are cashing in gains
realized during the 2017 rally.
Yield Curve Bespeaks Cautious Optimism
The yield curve still suggests that despite a general
improvement in the overall macroeconomy,
investors remain cautious over the short-term.
The short-term end of the curve continues to
attract significantly higher yields than the long-
term, a fact that could be occasioned by either of
the following factors:
• Perceived delay by the central bank in adopting
an expansionary stance which would help stir
growth in the non-oil economy. The non-oil
economy has experienced a weak rebound and
stoked fears of fragile recovery which remains
susceptible to external shocks
• Slowdisinflationhasledtocautiousexpectations
amongst investors, notably with regard to the
near term. The trend of the food index has
for the past one year been a major source of
concern especially because it depicted a ten
months lag between commencement of its
decline and the time the headline and non-food
indices began declining
Having tapped into the international market raising
USD 2.5 billion, there is bound to be little demand
side pressure for domestic debt on the yields in
the months ahead.
EQUITY MARKET UPDATEDEBT MARKET UPDATE
NIGERIA
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
3M 6M 1Y 3Y 5Y 7Y 10Y 15Y 20Y
Mar-15-2018 Feb-19-2018
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
2,200.0
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
Millions
Volume - RHS 30 Index
Year-on-year gain of the 30
Index as at March 16th, 2018
71.2%

Foreign Investor ActivityStock Exchange 30 Index
Source: Nigeria Stock Exchange, StratLink Africa
With short-term yields on the downtrend, albeit
gradually, we are likely to see sustained investor
interest in the stock exchange as investor look to
tap into the buoyant market. Domestic activity
continues to be institutional investor dominated
with the latter accounting for 53.0% of activity in
January 2018.
Year-to-date gain of the 30
Index as at March 16th, 2018
10.8%
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1,700.0
1,750.0
1,800.0
1,850.0
1,900.0
1,950.0
2,000.0
2,050.0
2,100.0
02-Jan-18
16-Jan-18
30-Jan-18
13-Feb-18
27-Feb-18
13-Mar-18
Billions
Volume - RHS 30 Index
-
100.00
200.00
300.00
400.00
500.00
600.00
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Jan-18
Millions Inﬂow Ouƞlow

SMALL BANKS SQUEEZED BY INTEREST RATE CAP
KENYA MARKET UPDATE

POLITICAL OUTLOOK
KENYA
Policy Needs to Address Sharp Inequality
A recent survey carried out by the Kenya
National Bureau of Statistics (KNBS) shows that
inequality in Kenya is sharp. At a national level,
the wealthiest 20% of individuals account for 59%
of total expenditure in Kenya, while the poorest
20% account for 4% of the same. The inequality
between the rich and poor is even more drastic
in peri-urban areas while in rural settings the
disparity is less marked than what is seen at
national levels.
The most recently available data indicates that
Kenya has performed poorly relative to African
peers with regard to inequality. Lower inequality
generally correlates with improved economic
outcomes and societal welfare. The policy
implications are that the government needs to do
more to address the high levels of inequality in the
country .
Note: The higher the GINI Index, the higher the inequality
Quintile Distribution of National Consumption
Expenditure, 2015/16
GINI index (World Bank estimate)
Source: KNBS, StratLink Africa
Source: World Bank, StratLink Africa
Truce between 2017 Election Protagonists
Q1 2018 ends on a relatively high note for
the country’s political risk profile following
developments that point to reconciliation
efforts between the two protagonists in the
2017 electoral cycle. Coming on the back of a
polarized electoral environment in 2017 whose
hangover was amplified by the mock swearing in
of opposition luminary, Raila Odinga, the truce
has served to significantly defuse uneasy calm in
the political landscape. Our outlook in view of this
development is founded on two issues:
• On one hand, this presents a major boost for
the country whose prospects as an investment
destinationhavelatelybeenderailedbycautious
optimism following a protracted and deeply
polarized political environment. It creates a
favorable environment within which focus
on policy can be nurtured over the next four
years especially in light of the adopted Big Four
agenda which lays emphasis on Manufacturing,
Housing, Healthcare and Food Security. On
the whole, we view this as yet another major
milestone in Kenya’s journey towards shaking
off the adverse risk political perception which
characterizes electoral cycles. Resolution of the
Presidential election disputes at the Supreme
Court in 2013 and 2017 have been preceding
key milestones which have stress tested and
edified the political risk profile of the country
• On the other hand, this development raises
questions over the future of the opposition
and its role in checking the government of the
day. A lot remains unknown with regard to the
formations that will shape the opposition going
forward and the degree to which they will
further the hawk-eyed observation with which
the state has been monitored in the past
4% 7%
11%
20%
59%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
BoƩom
20%
Q2 Q3 Q4 Top
20%
0 50
South Africa (2006)
Rwanda (2005)
Kenya (2005)
South Sudan (2009)
Zimbabwe (2011)
Uganda (2005)
Ghana (2005)
Tanzania (2007)
Egypt (2004)
Ethiopia (2004)

KENYA
Banking Sector Return on Assets (ROA)
Source: CBK, StratLink Africa
affected the profitability of commercial banks
with interest income taking a hit. Larger banks
were better able to drive non-interest income and
substitute away from lending to smaller, higher-
risk clients and instead provide larger loans to
bigger clients. Smaller banks on the other hand,
whose share of loans taken up by MSMEs is larger
than that of bigger banks, saw their profitability
suffer. Below, it is evident that Return on Assets
(ROA) declined marginally for the entire banking
sector between September 2016 and June 2017
however, Tier 3 and Tier 1 banks saw the steepest
declines.
The findings in the paper released by the CBK
make an argument for the scrapping of the interest
rate cap in order to protect small banks. Banking
sector capital among Tier 3 banks was eroded
quite drastically in the three quarters following
the introduction of the rate cap, while that of Tier
1 and 2 banks remained relatively constant. The
depletion of reserves among Tier 3 banks due to
restricted profits has made them vulnerable to
shocks, raising systemic risk in the financial system.
What is likely to happen among the smaller banks
is increased mergers and acquisitions in order to
improve their viability and take on the business
models of larger banks. However, this risks
reducing an important source of credit for MSMEs.
With the weight of evidence pushing for a repeal
of the rate cap, the government will have to act
with haste.
ECONOMIC OUTLOOK
Uncertainty Around the MPC’s Rate Cut
In its latest meeting, held on 19 March 2018, the
Monetary Policy Committee (MPC) cut the Central
Bank Rate (CBR) by 50 basis points to 9.5%. This
marks the first change to the CBR since August
2016 when the rate was lowered by half a percent
to 10.0%. It is not coincidental that the Central
Bank of Kenya (CBK) has held off from making
any changes to the key rate since August 2016.
With the introduction of the interest rate cap in
the month that followed, the mechanism through
which monetary policy guides economic activity
was affected thus creating uncertainty around
possible perverse outcomes that might result from
alterations to the CBR, as discussed in previous
issues of the Market Update. That said, it remains
to be seen whether the MPC’s latest move will
have the desired effect of stimulating economic
activity.
The Interest Rate Cap’s Effect on Small Banks
This comes at a time when discussions about
repealing the interest rate cap are taking center
stage as pressure from commercial banks and the
likes of the IMF and the World Bank continue to
grow. The CBK also just released its draft paper on
the impact of the interest rate cap on the Kenyan
economy, presenting a range of evidence on the
effects that the legislation has had on the country.
The paper found that interest rate cap negatively
Source: BMI, StratLink Africa
Headline Inflation and CBR
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
Headline InﬂaƟon CBR
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Tier 1 Tier 2 Tier 3 All Banks
Interest Rate Cap

Impact of the Rate Cut on Investor Expectations
not yet clear
Rates on the yield curve fell marginally on bonds
with maturities between seven and fifteen years
while the rest of the yield curve remained largely
constant. Investors will have to take a wait-and-
see approach when trying to gauge where future
inflation will be because the recent rate cut by the
MPC may not have the desired effect considering
the limitations imposed by the interest rate
cap. This makes it difficult to form inflationary
expectations thus affecting how investors price
government papers.
The government’s latest bond auction, issuing a
five year and a twenty year bond, was sought after
by investors and oversubscribed, performing at
128.5%. The proportion of bids accepted however,
at 61%, is indicative of the government’s continued
efforts to keep borrowing costs down.
5 Year and 20 Year Bond issue
FXD1/2018/5 & FXD1/2018/20
Amount offered (USD Mn) 396.0
Bids received (USD Mn) 508.8
Amount Accepted (USD Mn) 312.4
Performance Rate 128.5%
Accepted Amount / Bids received 61.4%
Bloomberg BVAL Yields Index
DEBT MARKET UPDATE
KENYA
Banking Stocks on the Rise
The NSE 20 Share price Index has been bullish,
recording gains of 3.4% and 23.7% in the month
and year to 26 March, 2018, respectively.
Banking stocks have been appreciating on the
back of positive financial results by some of the
listed commercial banks. Between 2 February
and 27 March, 2018 the Banking Stocks Index¹
appreciated by 14.3% versus 1.7% for the NSE 20.
Nairobi Securities Exchange 20 Share Index
NSE 20 and Banking Stock Index
Source: Bloomberg, StratLink
10.5%
10.9%
11.3%
11.7%
12.1%
12.5%
12.9%
13.3%
13.7%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
26-Mar-18 27-Feb-18
0.0
20.0
40.0
60.0
80.0
100.0
3,500.0
3,600.0
3,700.0
3,800.0
3,900.0
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Millions
Volume NSE 20 Index (LHS)
610
630
650
670
690
710
730
750
770
3700
3720
3740
3760
3780
3800
3820
3840
3860
3880
02-Feb-18
09-Feb-18
16-Feb-18
23-Feb-18
02-Mar-18
09-Mar-18
16-Mar-18
23-Mar-18
NSE 20 Index Banking Stocks Index (RHS)
1
Custom Index including all listed banks in Kenya

TANZANIA MARKET UPDATE
TANZANIA MOVES TO REDUCE MORAL HAZARD IN THE BANKING SECTOR

Tanzania Pushing for Amendment of Electoral
Laws
Tanzania is seeking amendments to its electoral
laws months after the country was named as the
best democracy in East Africa. This follows the
move by the civil society organizations, lawyers
and opposition politicians seeking to challenge the
country’s electoral laws. Ending the role of district
executive directors (DEDs), who are presidential
appointees, as returning officers during elections
and who are deemed to favor the appointing
authority, is one of the contentious issues that
the groups are seeking to be addressed. The
opposition has strongly blamed their loss in all
the past five elections post-multiparty on these
directors, begging for meaningful electoral and
general constitutional reforms to level the playing
field.
Eroded Democracies from Election Scepticism
Tanzania’s contemporaries in East Africa are
grappling with similar issues of constitutionalism
and review of electoral laws. The Kenyan
parliament hastily passed a bill to amend electoral
laws in November 2017 after the nullification of
the August 8th election, on the account that the
former laws influenced the ruling which, favored
the opposition. Likewise, neighboring Uganda,
amended its electoral laws, the Presidential
Elections (Amendment) Bill, 2015 and the
Parliamentary Elections (Amendment) Bill, 2015,
just before the February 2016 elections. High
scepticism around elections has led to eroded
democracies in the region, particularly, due to
a difficult balancing act between reforms and
appeasing voters leading to constitutions and
reforms of convenience. The stalled constitutional
referendum in Tanzania has seen lobby groups
from Zanzibar go to court seeking to cessed from
mainland Tanzania. Therefore, we opine that
Tanzania, can promote national cohesion if it can
institute meaningful reforms which, will only be
achieved through proper constitutional review.
However, this may not be achieved before the next
election in 2020 as government does not seem
keen to re-ignite the referendum debate.
POLITICAL OUTLOOK
TANZANIA
Tanzania turns to Tax Incentives to Attract
Investors
A report released by the African Venture Capital
Association indicates that Tanzania is still lagging
behind peers in attracting private equity deals,
attracting just about 17.0% of the approximately
USD 2.4 Billion in venture capital while accounting
for just 10.0% of the total deals. It is perhaps
against this background that the country is looking
to introduce special tax incentives for investors
looking to set up new industries in Tanzania.
Paying taxes in Tanzania and Comparator
Economies 0: Low 189: High
In 2013, the government set a goal to reduce tax
incentives offered to businesses to just about
1.0% of national GDP, from about 4.3% of GDP
in 2012. In 2015, Tanzania had to amend the VAT
Act as its wish to close corporate tax loopholes
and plug yawning fiscal gaps through reduction
of tax incentives became untenable. This resulted
in a near year -long USD 600.0 million tussle
between government and Dangote Cement over
investment incentives related to a new cement
plant after the company claimed the government
was reneging on promises made by the previous
administration to provide tax incentives in order
to invest in Tanzania. The issue brought to fore
the dilemma faced by the country looking to, on
one hand, encourage investment by companies
which, have traditionally been courted with the
offer of tax incentives and on the other hand,
increase revenue mobilization. We opine that the
solution lies in increasing transparency on the
administration of the tax incentives and Tanzania
should also invest in other areas affecting the
business environment, such as infrastructure,
besides giving incentives.
Country Ranking (Out of 189)
Tanzania 154
Malawi 134
Mozambique 117
Kenya 92
Botswana 47
Source: World Bank, StratLink Africa

an overall negative impact on the economy as an
upsurge in non-performing loans over the past two
years has been blamed for declining profitability
by local banks and obstructed new lending to the
private sector. The sector reported an NPL ratio
of 11.7% as of December 2017 more than twice
the maximum target of 5.0% up from 10.6% in
June 2017 and 6.4% in December 2015, leading to
stagnation in the growth of private sector credit.
To avoid creation of a problem of moral hazard
and wrong incentive, Tanzania should consider
drafting a clear pathway of procedures to be
undertaken during a crisis, given that lack of
a clear law implies that there is an implicit
understanding that government will bail out
struggling financial institutions.
Loan and Asset Growth Offer Tailwinds to Credit
Growth
The lackluster performance of the sector
notwithstanding, more accommodative monetary
policy in Tanzania throughout 2017 is projected to
address previous tighter liquidity conditions in the
commercial banking system, offering tailwinds to
loan growth.
Tanzania Moves to Reduce Moral Hazard in the
Banking Sector
Tanzania’s willingness to let banks fail implies that
smaller, under-performing banks may have to close
shop or be bought out by larger ones reducing
overcrowding in the sector with over forty licensed
commercial banks but, dominated by a few large
lenders. We also expect to see increased financial
prudence in the sector in the long run. On January
4th, the Central bank revoked business licenses
and took possession of five banks for being
under-capitalized in a bid to protect financial
stability in the country, while in May 2017, the
Central bank revoked the business license of
Mbinga Community Bank PLC, due to insufficient
capital. The Bank went ahead to introduce stricter
rules for capital buffers in June 2017 in a bid to
streamline the sector. These ongoing efforts to
improve banking sector supervision are likely to
ensure that banks’ average capital ratios remain
strong in the coming years. The sector remains
well-capitalized, however: As of December 2017,
the ratio of core capital to total risk weighted and
assets stood at 18.9%, well above the minimum
legal requirement of 10.0%. Similarly, the ratio of
liquid assets to demand liabilities stood at 40.3%,
considerably higher than the minimum limit of
The President’s order comes as the sector
grapples with rising bad debts occasioned by long
drawn tight liquidity conditions which, have had
The Central Bank’s decisions have already begun
to feed through as seen in the significant decline
in the interbank rate in recent months (Overnight
interest rate decreased to an average of 1.9% in
January 2018 from highs of 13.5% as of December
2016). Likewise, we expect a rise in asset quality
and loan growth buoyed by the accommodative
monetary policy stance as well as increased
prudent lending practices by sector operators.
Credit to Private Sector by Banks
Key Banking Indicators
ECONOMIC OUTLOOK
Source: Bank of Tanzania, StratLink Africa
TANZANIA
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
19.0%
19.5%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
CoreCapital/TRWA
NPLs/GrossLoans(Red)

Yields and Interbank Rates Inch further down
Increasing liquidity in the money market and
decreased appetite to borrow by the Central
bank continues to support a downward spiral in
short term money market instruments. Inflation
increased slightly from 4.0% in January to 4.1% in
February, 2018. Despite the low yields, Tanzania is
still experiencing a higher appetite for government
securities, with the Treasury bills auctions
recording consistent over-subscription. Of note
though is the fact that banks still dominate the
auctions accounting for about 93.0% of the total
bids while retailers account for a paltry 1.5%. The
newly listed seven-year bond also received about
twice the subscription, despite the lower coupon,
comparatively. Consequently, the 91 Day, the 182
Day and the 364 Day papers’ yields declined by
60.0 bps, 20.0bps and 40.0bps to 2.8%, 3.5% and
5.8%, respectively, in the period under review.
Maintaining trend, the overnight interest rate
decreased by 40.0 bps, month-on-month, to an
average of 1.5% in March 2018.
Tanzania Finally Issued a Credit Rating
Tanzania’s debut international credit rating
received a cold reception in the country. Tanzania
protested the premature and negative B1 rating
given by Moody’s over concerns by the latter of
unpredictablepolicymakingbygovernmentwhich,
leads to increased uncertainty in the business
environment. The rating, though unfavorable, is
better than its neighbor Kenya who successfully
issued a highly over-subscribed second USD 2.0
Billion Eurobond last month. Likewise, Rwanda
received first time issuer ratings of B2 with a
stable outlook by Moody’s in 2016 and became
the first East Africa Community (EAC) nation to
raise money through a Eurobond, when it raised
USD 400.0 Million in 2016. In February, Moody’s
downgraded Kenya’s rating from B1 to B2 on
account of a weakening fiscal outlook. Given the
deteriorating debt profiles across the continent,
Tanzania is well positioned to issue a Eurobond.
False Start for Debut Eurobond
Tanzania has made several attempts to issue a
debut USD 700.0 Million Eurobond since 2008
and we opine that with a credit rating, this should
come to fruition. The bond is important for the
government more so at this time, when it is in
the process of constructing the Standard Gauge
Railway (SGR) as well as general infrastructure
expansion.
T-Bill Yield Trend
Interbank Rate, month-on-month
TANZANIA
DEBT MARKET UPDATE
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
91 Day 182 Day 364 Day
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.1
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
InterbankRate(Red)
VolumeinTZMillions

The All Share Index Gains
The All Share Index (DSEI) closed the month in the
green after gaining 2.1% month-on-month and
6.9% year-on-year, to 2,414.7 points buoyed by
gainsofsharepricesamongcrosslistedcompanies,
save for Acacia mining which, is reeling from the
drawn out negative effects of uncertainty in the
operating environment as it grapples with a ban on
concentrates introduced in March 2017. The share
maintained the downward trend, falling by 8.7%,
month-on-month, in the period under review.
Sector Indices Post Mixed Performance
Sector indices, on the other hand recorded mixed
performance. The Industrial and Allied index rose
by 1.7% to 5,455.3 units while the Banking index
fell by 2.5% to 2,543.9 units. The Commercial
Services index, on the other hand, remained
unchanged at 2,463.9 units, in the period under
review.
Dar es Salaam Stock Exchange All Share Index
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2,280.0
2,300.0
2,320.0
2,340.0
2,360.0
2,380.0
2,400.0
2,420.0
Feb-18
Feb-18
Mar-18
Mar-18
Mar-18
Volume(Million)
Price(Green)
Source: Dar es Salaam Stock Exchange, StratLink Africa
Sector Indices, month-on-month
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
Industrial
Index
Commercial
Services Index
Banking Index
Feb-18 Mar-18

WEIGHING THE COSTS AND BENEFITS OF REGIONAL INTEGRATION
UGANDA MARKET UPDATE

Change of Top Security Personnel
In a significant shakeup of those in charge
of maintaining law and order in the country,
President Yoweri Museveni appointed General
Elly Tumwiine as Minister for Security and Okoth
Ochola as Inspector General of Police (IGP),
replacing General Henry Tumukunde and General
Kale Kayihura, respectively.
This comes at a time when the country has
been grappling with a prolonged wave of crime
including murders and kidnappings. While the
most recent data shows that the annual crime
rate had not increased towards 2015, serious
crimes investigated increased more than four-fold
between 2012 and 2015.
Given that in the new Security Minister the
President has selected a familiar face who was
part of the Liberation struggle with him, it remains
to be seen whether Gen. Tumwiine will manage to
set politics aside better than his predecessor and
effectively restore security.
POLITICAL OUTLOOK
UGANDA
Source: Uganda Bureau of Statistics, StratLink Africa
Source: Uganda Bureau of Statistics, StratLink Africa
Annual Crime Rate (incidence per 100,000 people)
Serious Crimes Investigated
Viability of Oil Palm Production
The government and the International Fund for
Agricultural Development (IFAD) are looking to
expandaprojectproducingoilpalmfromitscurrent
location in the Kalangala district. The project
named “Agricultural Development: Vegetable Oil
Development Project” and led by IFAD aims to
develop national vegetable oil production. This
is a good example of a successful Public-Private
Partnership (PPP) where, in the first phase of the
project, IFAD provided project financing, Oil Palm
Uganda Limited (OPUL) purchased crops from
smallholder farmers and the government provided
land, financing and developed infrastructure.
One of the main motivations behind the project
is to boost local production of vegetable oil and
curtail reliance on imports. While domestic
consumption of edible oils and animal fat in 2016
remained above levels seen in 2010 and 2011,
there has been a recent decline in consumption
with households spending an average of USD 20.0
on the goods in 2016 versus USD 24.9 in 2014.
Ensuring that there is sustained domestic demand
for the products will be key to guaranteeing the
commercial viability of the project, otherwise
measures to access export markets will need to be
considered.
Domestic Edible Oils and Animal Fat Consumption
Source: BMI, StratLink Africa
640
660
680
700
720
740
760
780
2012 2013 2014 2015
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2012 2013 2014 2015
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
125.0
135.0
145.0
155.0
165.0
175.0
185.0
195.0
2010
2011
2012
2013
2014e
2015e
2016e
Edible oils and animal fats, sales, USDmn
Growth, % y-o-y (RHS)

Regional Trade Discussions at the Fore
RegionalintegrationamongAfricanstateshasbeen
at the forefront of dialogue over the past month
with the African Economic Research Consortium
(AERC) holding a policy seminar in Uganda over
the same. This was followed by the signing of
the African Continental Free Trade Area Treaty
(AfCFTA) by 44 heads of state including Uganda’s.
There are significant benefits to be gained from
the successful implementation of the agreement,
with intra-African trade expected to increase by
52.0% by 2022 relative to 2010¹ under the AfCFTA.
The removal of trade and non-trade barriers on
the continent will positively impact a number of
critical macroeconomic indicators across various
geographies however, there are concerns around
the threat this will pose to economies with sectors
and industries that are still in their infancy due
to increased competition. UNCTAD estimates
that in a scenario where there is a full Free Trade
Agreement (Full FTA), the AfCFTA would lead to a
welfare gains USD 16.1 billion, accelerated GDP
growth of 0.97% and a total employment increase
of 1.2%². Under the Special Product Categorization
scenario, where some sensitive products are
exempt from liberalization, benefits are lower.
Source: UNCTAD Source: World Bank, Uganda Bureau of Statistics, StratLink Africa
Change in Welfare and GDP Growth Scenarios under
AfCFTA
Sectoral Employment and Contribution to GDP (2016)
ECONOMIC OUTLOOK
UGANDA
Short-Term Costs
The aforementioned benefits are expected to
occur in the long-run however, there are likely to
be costs in the short run as structural adjustments
to liberalized trade take place within economies.
For instance, under the Full FTA scenario described
above, an estimated USD 4.1 billion in tariff
revenue loss would have to be endured prior to
reaping the benefits of the AfCFTA.
Furthermore, transitioning to liberal trade policy
is likely to see other adjustment costs including
temporarily rising unemployment and decreasing
economic activities in some sub-sectors as
resources are reallocated to their most productive
uses. Uganda, being a less developed country,
is likely to suffer from a lack of labor mobility
between sectors especially among low- and un-
skilled laborers. Agriculture, which employs a
disproportionatelyhighnumberofpeoplerelatively
to the sector’s contribution to GDP, accounts for
a significant chunk of lesser skilled labor. Under
AfCFTA, the government would be wise to ensure
measures are put in place to safeguard against
these negative short-term effects in order to gain
the significant long-term upside.
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
8.0
10.0
12.0
14.0
16.0
18.0
Full FTA Specialized Product
CategorizaƟon
Welfare USD Bn (LHS) GDP Growth Rate %
1
UN Economic Commission for Africa (UNECA)
2
“AfCFTA: Challenges and Opportunities of Tariff Reductions” UNCTAD/SER.
RP/2017/15
Employment (% of
total employment)
ContribuƟon to GDP, %
0% 20% 40% 60% 80%
Industry
Services
Agriculture

March Sees Gains in Equity Prices
The All Share index appreciated significantly
to close more that 5.0% up in the month to 26
March, 2018. StratLink retains its positive outlook
regarding future market performance as improving
economic activity is expected to sustain equity
prices. The Uganda Securities Exchange (USE), in
partnership with Capital Markets Authority (CMA),
last month joined 64 other stock exchanges in
undertaking a bell ringing ceremony in order to
increase awareness around how the private sector
can make critical contributions toward advancing
gender equality to achieve the United Nation’s
Sustainable Development Goal 5.
Yields Signal Wait-and-See Stance
Rates across different maturity bills and bonds
remained largely unchanged between 27 February
and 26 March, 2018. The lack of movement in
yields over the past month may be an indication
of investors adopting a wait and see attitude.
With the Bank of Uganda (BoU) having cut rates
in February in response to weak price pressure,
investorswillbeanticipatinganup-tickineconomic
activity but it may be unclear as to when the BoU’s
expansionary monetary policy will gain traction.
StratLink maintains that yields are likely to rise in
the medium term as inflation adjusts upwards.
The shilling has continued to depreciate against
the greenback, by 0.8% in the month to 27 March
2018, raising concerns that it may surpass the UGX
3,700 mark.
All Share Index
UGX to USD
EQUITY MARKET UPDATEDEBT MARKET UPDATE
UGANDA
All Share Index month –
on – month change as at
26 March 2018
All share index year –
on – year change as at
26 March 2018
5.7%
46.5%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
3M 6M 1Y 2Y 3Y 5Y 10Y
26-Mar-18 27-Feb-18
3,610.0
3,620.0
3,630.0
3,640.0
3,650.0
3,660.0
3,670.0
3,680.0
01-Dec-17
15-Dec-17
29-Dec-17
12-Jan-18
26-Jan-18
09-Feb-18
23-Feb-18
09-Mar-18
23-Mar-18
1,600.0
1,700.0
1,800.0
1,900.0
2,000.0
2,100.0
2,200.0
2,300.0
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18

PERSISTENT LOW INFLATION AS ECONOMY SURPASSES GROWTH PROJECTIONS IN 2017
RWANDA MARKET UPDATE

Stable Outlook as Rwanda and Uganda take
Decisive Steps to Resolve Impasse
We expect Rwanda’s political environment to
remain stable, underscored by President Kagame’s
firm command over the country’s political
landscape, despite timid wary over the continued
influx of refugees from neighboring Burundi
where a political crisis has endured since 2015.
In our March Update, we highlighted Rwanda’s
increasingly sour relations with its neighbors
DR Congo and Uganda. Keeping our pulse on
Uganda-Rwanda relations, Rwanda insists that It
will not retaliate what it considers harassment of
its citizens by Ugandan government as President
Kagame traveled to Uganda in a bid to mitigate
escalation of tension while looking to maintain the
deep historical and trade ties between the two
nations. Uganda is the second origin of imports for
Rwanda.
Risk of Stalled Development
The frosty relations may have long term impact
not only on bilateral relations of the two countries
but also, on regional trade partnerships. Lack of
political will between partners has been attributed
to the stalled projects along the Northern
Corridor which, links Kenya’s port of Mombasa
to the region’s landlocked countries. The frosty
relations may also derail the implementation
of the African free trade area pact given that
effective implementation is hinged on members
opening up their borders to one another to allow
free movement of goods and persons.
POLITICAL OUTLOOK
RWANDA
How Rwanda can Realize the Full Benefits of the
African Free Trade Treaty
Rwanda is among the 44 African countries that
signed the African Continental Free Trade Area
Treaty (AFCFTA); a move that will not only benefit
Africa but Rwanda as the continent pushes for
integration and reforms. Nonetheless, in as much
as Rwanda continues to cement its position as one
of the most attractive investment destinations in
the region, logistics, particularly infrastructure,
remain its area of weakness and a potential key
trade barrier which, could be a hindrance to the
country realizing the full benefits of the treaty.
Rwanda is however, putting in place measures
to improve its infrastructure landscape, with
the 2017/18 budget proposals laying emphasis
on infrastructure development including the
construction of Bugesera International airport
which is envisioned to boost intra-Africa trade.
Likewise, the ongoing collaboration with Tanzania
in the construction of the Standard Gauge Railway
as part of the efforts of connecting Rwanda to Dar
es Salaam port; and reducing the cost of doing
business, should boost Rwanda’s chances of
benefiting from the trade pact.
TMEA deal to Boost Cross-Border Trade
The AFCFTA also means that Rwanda will have to
first open up its border to allow small-scale traders
to carry out their trade formally. In this regard,
government and TradeMark East Africa (TMEA)
have renewed partnership aimed at accelerating
cross- border trade by signing a financing
agreement worth USD 53.0 Million grant to help
support interventions that will result into increase
cross border trade. Further than the signing of the
agreement, Rwanda also needs to address other
trade concerns such as burdensome regulations,
access to finance by the private sector and
simplification of customs processes to significantly
increase and benefit from the intra-Africa trade.
Source: National Institute of Statistics of Rwanda, StratLink Africa
Rwanda Trade with Uganda vs EAC
0.0
50.0
100.0
150.0
200.0
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
EAC Uganda

National Bank of Rwanda have served to continue
supporting the financing of the economy by the
banking sector, consequently, increasing the flow
of money in the economy. This should support
inflation up-tick in the medium-term. Likewise,
the Central bank expects the annual inflation to
average around the Bank’s medium target of 5.0%
in 2018 on the back of increasing liquidity. The
Bank reduced its policy rate (KRR) by 750.0bps
cumulatively, to 5.5%, between December 2016
andDecember2017.Asaresult,outstandingcredit
to the private sector increased by 13.9%, year-on-
year, to December 2017 against 9.1% recorded
in the corresponding period of 2016, with the
agriculture sector witnessing the most decline in
non-performing loans (NPLs) from 22.7% in 2016
to 10.0% in 2017. Likewise, broad money supply
posted a 12.3% rise, up from 7.6% recorded during
the same period in 2016. However, growth in new
authorized loans decelerated to 4.6% in 2017 from
6.3% in 2016.
Persistent Low Inflation as Economy Surpasses
Projections in 2017
Rwanda’s inflation has been trending stubbornly
low in recent months defying conventional
expectation that prices react strongly to demand,
thus, the rising levels of broad money supply and
stabilising local unit should drive up aggregate
demand and hence, prices. The inflation for
February 2018 was recorded at 0.7% from a
high of 8.1% over the same period a year ago.
Worryingly though, is the fact that core inflation
which, is linked to economic output was recorded
at 1.5% in the period under review, raising fears
of possible deflation. Likewise, annual headline
inflation also declined to 4.9% in 2017 from 5.7%
in 2016. The slow-down in inflation has been
largely on the account of improved agricultural
performance mainly linked to good weather
conditions, especially during the second half of
2017 which, saw food inflation drop to 9.8% in
2017 from 10.7% in 2016, as vegetables inflation
declined to 9.5% from 20.1% during the same
period resulting in low food prices given that food
makes up the bulk of the CPI basket.
Decline in Money Supply and Slow Credit Uptake
Serving as Enablers
Other downward pressures on inflation came from
the continued decline in money supply as well
as slow credit uptake between 2015 and 2017.
However, the recent dovish policy decisions by the
We project further rise in private sector credit,
as the market responds to the Central Bank’s
dovish policy signals to recover from the weak
demand for credit witnessed in the first half of
2017. The economy surpassed projections to
grow by 6.1% in 2017 against a projection of 5.2%,
majorly supported by the fourth quarter growth
which expanded by 10.5% recovering from poor
performance in the first and second quarters. The
improving economy is also expected to support
recovery in the private sector credit within the
year.
ECONOMIC OUTLOOK
RWANDA
Source: Business Monitor International, StratLink Africa
Source: National Bank of Rwanda, StratLink Africa
Evolution of Inflation vs Average Franc
Growth in Money Supply vs Private Sector Credit
650.0
700.0
750.0
800.0
850.0
900.0
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
AverageFranc
InﬂaƟonrate(Red)
0.0%
10.0%
20.0%
30.0%
40.0%
2014 2015 2016 2017
Money Supply Private Sector Credit

RWANDA
Interbank Rate
T Bill Yields
Yields Decline on Increasing Liquidity
The money market has witnessed increased
liquidity supported by declining interbank rates.
Inflation too has tinkered on near historic lows,
trending at 0.7% in February 2018 from 1.3% in
the previous month and supporting low yields in
the market.
Consequently, the 91 Day, the 182 Day and the
364 Day papers’ yields fell by 33.0bps, 46.0bps and
42.0bps to 5.8%, 7.0% and 7.9%, respectively, in
the period under review.
DEBT MARKET UPDATE
Franc Holds Steady against the Greenback
The local unit held steady against the greenback
supported by subdued inflation and improving
macro environment. The local unit depreciated
marginally by 50.0bps in March, 2018 compared
to a 140.0 bps depreciation recorded last month.
Source: NISR, StratLink Africa
Franc vs USD, month-on-month
Franc depreciation,
month-on-month
Franc depreciation,
year-on-year
-0.2%
-3.6%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
91 Day 182 Day 364 Day
845.0
847.0
849.0
851.0
853.0
855.0
857.0
859.0
861.0
863.0
865.0
Feb-18
Feb-18
Mar-18
Mar-18
Mar-18

Rwanda All Share Index, month-on-month
Rwanda All Share Index, year-on-year
Rwanda Stock Exchange Remains Docile
There was little activity at the bourse in March
2018 with the Index appreciating by a paltry 0.1%
with very slight movement in equity trading; only
three counters posted movements in volumes
out of the eight listed counters. The bourse set
off the year to a slow start and activity is yet to
pick up. The Exchange has since partnered with
Rwanda’s Private Sector Federation to increase
investor awareness as well as attract more Small
and Medium Enterprises, through sensitization on
capital markets value-addition, to list at the bourse
in a bid to reinvigorate the lackluster Exchange.
132.8
132.9
133.0
133.1
133.2
133.3
133.4
Feb-18
Feb-18
Mar-18
Mar-18
Mar-18
120.0
122.0
124.0
126.0
128.0
130.0
132.0
134.0
136.0
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
News of Zimbabwe local investors looking to
invest at the Rwanda Stock Exchange sits well with
investors who are hoping that this will inject some
liquidity into the Rwandan bourse.

StratLink in the News: A look into Kenya’s Post-Election Environment
Shoprite’s entry shows Kenya is still a sweet spot for retail investment in Africa
– In this article, StratLink looks into the entry of Shoprite into Kenya’s retail sector
against the backdrop of woes that have plagued large home grown players.
Zimbabwe in 2018: steering a difficult path to recovery
– The take-over of power from Robert Mugabe has been a matter of great interest
to investors. In this article, StratLink considers some of the key issues likely to shape
the new government’s reform agenda.
In the period under review, StratLink provided commentary on the transition underway in Zimbabwe and the state
of the retail segment of Kenya’s economy.

STRATLINK - AFRICA TEAM
Konstantin Makarov – Managing Partner
konstantin.makarov@stratLinkglobal.com
Dina Farfel – Partner
dfarfel@stratLinkglobal.com
Julio De Souza - Director of SME and Impact Finance
julio.desouza@stratLinkglobal.com
Kyle Drexler – Associate
kyle.drexler@stratLinkglobal.com
Benson Njeri – Analyst
benson.njeri@stratLinkglobal.com
Julians Amboko – Senior Research Analyst
julians.amboko@stratLinkglobal.com
Gianluca Storchi – Senior Research Analyst
gianluca.storchi@stratLinkglobal.com
Sophia Sifuma – Research Analyst
sophia.sifuma@stratLinkglobal.com
Peter Mutisya – Director Graphic Design
peter.mutisya@stratLinkglobal.com
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 to 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.

ContactDetails
STRATLINK AFRICA
StratLink - Africa, Limited.
Delta Riverside, Block 4,
4th Floor, Riverside Drive,
Nairobi, Kenya
nairobi@stratlinkglobal.com
www.stratlinkglobal.com
+254202572792

Africa Market Update - April 2018

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