20161101 november market update abridged

2SEPTEMBER 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
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Table of Contents
A ﬁnancial Advisory
Company
NOVEMBER 2016 | MARKET UPDATE – AFRICA
Cover image: http://blog.kudoybook.com/wp-content/uploads/images/Johannesburg_10646.jpg
www.stratlinkglobal.com
NIGERIA 5
KENYA 6
TANZANIA 7
UGANDA 9
RWANDA 10
ZAMBIA 8

3NOVEMBER 2016 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Company
Capital Invested by Country (USD)
AFRICA DEALS LANDSCAPE
JANUARY 2016 - OCTOBER 2016
17. Rwanda
18. Namibia
19. Zimbabwe
20. Cameroon
21. Uganda
22. Madagascar
23. Tunisia
24. Swaziland
25. Botswana
26. Niger
27. Mozambique
28. Liberia
29. Mali
30. Central African Republic
31. Ivory Coast
32. Malawi
1. South Africa
2. Nigeria
3. Egypt
4. Ethiopia
5. Morocco
6. Zambia
7. Congo
8. Tanzania
9. Guinea
10. Kenya
11. Sudan
12. Eritrea
13. Mauritius
14. Ghana
15. Sierra Leone
16. Burkina Faso
4 Billion
931 Million
665.2 Million
550.8 Million
413.6 Million
291.7 Million
265 Million
204 Million
154 Million
131 Million
95.2 Million
65 Million
33.1 Million
27.6 Million
27.5 Million
25.4 Million
20.4 Million
20 Million
12.1 Million
11.2 Million
8.5 Million
5 Million
1.9 Million
1.5 Million
1.2 Million
1.2 Million
460,000
320,000
140,000
130,000
50,000
40,000
1
2
4
9
10
12
16
20
21
25
26
24
23
14
19
22
30
15
6
7
17
18
8
27
28
29
5
3
Source: PitchBook, StratLink Africa
11
13
32
31

Company
Capital Invested by Sectors Capital Invested by Deal Type
Snapshot of Deals
• On October 24th, 2016, Innovative Microﬁnance (Ghana) raised an undisclosed amount of venture funding from Goodwell
Investment
• Casa Mining (Mauritius) sold a 4.5% stake to Premier African Minerals for USD 300,000 on October 18th, 2016
• The Student Hub (South Africa) raised USD 305,280 of angel funding from Maude Gliwa, Bill Paladino and Jacques Ludik on
October 20th, 2016
Source: PitchBook, StratLink Africa
20.3%
20.3%
15.8%
15.8%
12.0%
12.0%
11.7%
11.7%
11.7%
11.7%
6.3%
6.3%
3.9%
3.9%
3.9%
3.9%
14.4%
14.4%
Merger & Acquisition.............................. Secondary Transaction - Private...
Corporate Divestiture............................. PIPE................................................
Secondary Transaction - Open Market... Growth/Expansion...........................
Asset Acquisition........................................ Add on.............................................
Others.......................................................
13.9%
12.7%
12.6%
7.5%
7.4%
7.2%
6.7%
6.0%
5.3%
2.6%
18.1%
Consumer
Non-Durables
Capital Markets
Metals, Minerals
& Mining
Healthcare Devices
& Supplies
Commercial Services
Commercial Products
Retail
Communications
& Networking
Insurance
Commercial
Banks
Others

Company
Commercial Bank Lending Rates Reverse
Downtrend
Investors will be keen to observe the trend of
commercialbanklendingratesafterthedowntrend
between September 2015 and May 2016 reversed
in Q2 2016. High lending rates in an environment
of the economic recession will exacerbate the
situation and the focus is now on the Central Bank
to see how it adjusts monetary policy to provide
a cushion. Rising lending rates could also be a
signal of commercial banks downgrading their risk
perception of the general business environment
anticipating further deepening of the downturn.
Note: Please see the Economic Outlook for an
in-depth assessment of the monetary policy
landscape.
Release of Kidnapped Girls Bodes Well for
Government Efforts
The October 2016 release of twenty one, of over
two hundred, Chibok Girls kidnapped by the Boko
Haram militia in April 2015 following negotiations
with the government comes as a major boost for
the Buhari administration. The release is significant
for a number of reasons:
• One of the major platforms on which All
Progressives Congress won the election in 2015
was its promise to address challenges posed by
Boko Haram and restore normalcy to the political
risk environment
• The militia has been reported to be increasing
use of child suicide bombers in recent attacks
with the United Nations Children’s Agency
reporting that the number of children used in
attacks grew to forty four in 2015 from four in
2014. As such, girls held hostage remain at risk of
being deployed by the militia in executing attacks
and deteriorating the security risk environment.
Expediting the release of children still held by
the militia will be of paramount importance in
the months ahead
POLITICAL OUTLOOK
GDP: USD 545.7 Bln | Population: 177.5 Mln
BUSINESS NEWS ENVIRONMENT
NIGERIA
Full report available for purchase via:
Economy Likely to Contract in the Full Year 2016
We view the risk of the economy suffering
contraction in the full year 2016 as having become
more imminent over the last three months and
anticipate contract of between 1.5% and 2.0%.
This is informed by the following considerations:
• The plan to tap into international capital markets
to meet revenue shortfalls will be instrumental
but behind the curve of the economic downturn.
As such, the economy is plagued by minimal
capacity for fiscal stimulus in the immediate
future
• The last two monetary policy decisions suggest
the Central Bank is caught in a monetary policy
adjustment tight rope as it seeks to fight both
high inflation and the recession.
ECONOMIC OUTLOOK
Investors Jittered over State of Economy
The yield for Nigeria’s ten year Eurobond has
risen between September and October 2016,
sending an indicator of growing jitters by foreign
investors over the state of the economy. The yield
stood at 7.0% on October 25th, 2016, nearly at
par with that of Kenya’s ten year Eurobond, a
scenario which has been witnessed, in the recent
past, against the backdrop of the Doha Talks 2016
during which OPEC members failed to commit to
freeze oil output, undermining hopes of Nigeria
benefiting from propped oil prices. Two factors are
likely to be informing this approach by investors to
the Nigerian market:
• Policy response has been widely deemed to be
belated in addressing the economic downturn
and this has played a major role in undermining
investor confidence in the market. Concurrence
of high inflation and recession presents a
monetary policy dilemma which investors feel
could further complicate policy adjustment
DEBT MARKET UPDATE

Company
Search for African Union Commission Top Job
Kenya’s Foreign Affairs Cabinet Secretary’s bid
for the position of African Union Commission
Chairperson has attracted support from the
Common Market for Eastern and Southern
Africa (COMESA) marking a critical endorsement
for Kenya’s position in taking a leading role in
mobilizing African countries’ common position on
issues of regional and global interest. With about
nineteen member states, the bloc constitutes a
vital voice ahead of the January 2017 election.
The following issues are bound to being among
the top priority in charting the continent’s course
going forward:
• In the immediate future, we view the evolution
of the continent’s stand on membership to the
International Criminal Court (ICC) as a matter
that is bound to elicit enormous interest
both domestically and externally. It should be
rememberedthatinFebruary2016,Kenyaplayed
a central role in the African Union’s adoption of
a proposal for member states’ mass withdrawal
from the ICC citing disregard of sovereignty and
building up on this momentum is likely to be one
of the country’s key agenda items
POLITICAL OUTLOOK
KENYA
Rising Consumption Attracts Investors
The Kenyan market continues to attract foreign
investors targeting fast growing consumption with
the latest being USA burger chain, Hardee’s, plan
to open ten additional restaurants within Nairobi.
Over the last five years, the Kenyan market has
attracted a number of multinationals in the fast-
food segment This backs StratLink’s long held view
that accelerating consumption is bound to be one
of Kenya’s key growth engines of the next five
years.
Government Eyes International Market
The government has made public plans to tap
into the international markets, through a second
Eurobond, to meet growing revenue demands.
The timing lends credence to the argument
tabled in the October 2016 Africa Market
Update (Nigeria) in which we stated that, based
on Ghana’s September 2016 over-subscription,
governments in sub-Saharan Africa are likely to
capitalize on both yield hungry investors and a
general downtrend in frontier market yields over
the last ten months. The timing also comes against
the backdrop of S&P’s revision of the country’s
sovereign credit risk rating from negative to stable,
sending a favourable indicator to investors.
ECONOMIC OUTLOOK
Yields Decline across all Tenors
Yields maintained a general decline between
September 2016 and October 2016 as liquidity
remained high with the interbank rate averaging
5.1% in Q3 2016 compared to 17.1% in the same
period in 2015.
DEBT MARKET UPDATE
Market Posts Mild Rally
The exchange posted a mild rally between
September 2016 and the first half of October
2016 in an indication of recovery from investors’
reaction to the setting of a cap on commercial
bank lending rates and a floor on deposit rates
which sent the sector’s stocks on a tailspin. The
market remains uncertain as to the medium to
long-term effect of the new law on commercial
banks and investors are bound to maintain a
cautious position over stocks in the banking and
finance segment of the market. In the latter half
of the month, the market was also supported by a
rally by the national carrier’s, Kenya Airways, share
price following the cancellation of a planned strike
by pilots which threatened to paralyze operations.
EQUITY MARKET UPDATE

Company
Opposition’s Boycott of Electoral Processes
Presents New Challenge
The Mayoral elections of October 2016 have
brought to the fore challenges that continue to
undermine the political environment one year
after the October 2015 general election. The
following were notable developments over the
last one month:
• Opposition factions, Chadema and Civic United
Front, boycotted the mayoral polls for Kiondoni
Municipality with the ruling Chama Cha
Mapinduzi (CCM) proceeding with the voting
exercise
• Mayoral polls for Ubungo Municipality were
suspended indefinitely with the opposition
alleging irregularities by the ruling party
Tanzania Continues Solidifying Regional Clout
Tanzania’s onslaught on Kenya’s regional
dominance position continues with the latest
development being the decision by Rwanda and
Burundi to cease importing fuel through Kenya
and opting for Tanzania instead. This comes on the
back of Tanzania’s victory over Kenya in securing
Uganda’s oil pipeline deal earlier in 2016 which is
expected to have the country’s (Uganda’s) exports
routed through the port of Tanga. Over the last ten
years, Kenya’s dominance as a source of imports
for the smaller economies (Rwanda and Burundi)
has declined as economies such as Uganda and
Tanzania improve their industrial capacity and
logistics environment.
POLITICAL OUTLOOK
TANZANIA
Upturn in Mining Earnings Drives Q2 2016
Growth
The economy accelerated by 7.9% in Q2 2016
comparedtoagrowthof5.8%overthesameperiod
in 2015, driven, principally, by growth in transport
as well as, mining and quarrying industries
which grew by 30.6% and 20.5%, respectively.
The acceleration in the mining and quarrying
sectors can be attributed to the increased mineral
production coupled with the upturn in gold
prices ─ gold accounts for an estimated 21.0% of
Tanzania’s export earnings, making it the single
largest source of export revenue.
ECONOMIC OUTLOOK
Yields Flat-Line on Broadly Stable Environment
There was marginal movement in the markets
with T-Bill yields and the interbank rate remaining
on a general flat terrain between September and
October 2016. In the coming months, investors will
be keen to observe whether the emerging plateau
is an indication of yields having finally normalized
after the surge in 2015 triggered by instability
in the monetary environment. With the shilling
holding firm against the greenback and inflation
on the decline, investor confidence over near-term
prospects is likely to be propped. Inflation stood at
4.5% in September 2016 compared to 6.1% in the
same period in 2015.
DEBT MARKET UPDATE
Bourse Subdued over Economic Climate
The bourse has been on a general downtrend
with brokers citing investors’, particularly, foreign
investors cashing in gains as a key driver of the
trend. Nonetheless, the exchange is performing
better compared to peers in East Africa. Activity in
the market could be buoyed by the fact that listed
entities have been spared the proposed taxation
on shares following resistance from both stock
brokers and regulators.

Company
Policy Imperatives for the Government
We are optimistic over the country’s political risk
outlook in the medium term anchored on largely
peaceful general election in August 2016 despite
episodes of poll related violence in the run-up to
the exercise. With the constitution review process
and the general election behind, the government
now has ample room to focus on addressing
emerging economic challenges. Victory in the
election, which was widely viewed as a referendum
on Patriotic Front’s response to the economic
downturn, provides a firm political base needed
by the government to undertake policy reforms. In
StratLink’s view, priority issues for the government
include:
• Stabilizingtheeconomyinviewofanincreasingly
volatile external environment. This will be largely
informed by accelerating efforts to diversify the
economy
• Tackling the energy crisis which has derailed the
business environment over the last one year
POLITICAL OUTLOOK
ZAMBIA
Revitalizing the Investment Climate
The new government faces the daunting challenge
of restoring Zambia’s position within the Southern
African map as a key investment destination.
Between 2012 and 2015, the country’s proportion
of the region’s Foreign Direct Investment (FDI)
declined from 30.0% to 9.2%¹, being one of the
lowest levels in ten years. Two issues are worthy
of consideration in this regard:
• A major challenge for the economy has been
the fact that mining contributes about 76.0% of
FDI inflows² and the slump in commodity prices
(notably copper in this case) has had a negative
impact on investor appetite.
• The energy crisis has been a major drawback
for Zambia with industry, in particular, taking a
beating. In June 2016, the state energy company,
ZESCO, announced reduction of load shedding
hours from eight to six affording the business
community a sigh of relief
New Administration Faces Adverse Monetary
Environment
We view stabilization of the monetary
environment as the key macroeconomic agenda
the new administration faces. Inflation has been
on a sustained downtrend for the better part of
2016 with a 400.0 bps decline between February
and September to 18.9%, paving way for a gradual
shift from a general tight monetary environment.
The central bank is likely to hold the policy rate
firm at 15.5% in the coming months with a bias for
moderate expansion within Q1 2017 to facilitate
recovery from a general economic slowdown.
Aggregate economic growth for 2016 is likely to
hover between 4.0% and 4.5%, against an average
of 5.2% over the last fourteen years, suggesting
the economy is punching below its weight and in
need of a break from the tightening cycle.
ECONOMIC OUTLOOK
Short-Term Yields Trend Upwards
The yield curve for the short-term end of the
market corrected between August and September
2016 with the 364 Day paper witnessing a surge
of 500.0 bps between August 18th, 2016 and
September 29th, 2016 to 25.0%. In view of
declining inflation and relatively high liquidity in
the market, this is a likely reflection of revised risk
pricing by investors in light of the August 11th,
2016 general election which was later contested
at the courts eliciting jitters over the country’s
short-term horizon.
DEBT MARKET UPDATE

Company
Pre-election Baggage Undermines Risk
Environment
Inability to reach consensus over key issues has
stalled the proposed dialogue (spearheaded by
the Inter Religious Council of Uganda and the
Elders Forum) between President Museveni and
opposition leader Kizza Besigye which aimed at
helping defuse simmering tension following the
February 2016 elections. As such, we continue
to place the country’s political risk climate under
close watch and remain cautiously optimistic
that the largely unsettled post-election political
environment could improve going forward.
The political risk environment has been further
undermined by the placement of Kizza Besigye
under house arrest once again after his return
from a month-long tour in Europe and America.
Cost of Energy to Reduce Further
In 2016, the government has been aggressive in
improving the business climate notably through
reduction in the cost of energy. Of particular
interest will be to see how the manufacturing
sector performs in 2016, full year, given the raft
of measures adopted to scale down the cost
of energy given that industrial users consume
the bulk of electricity supplied in the economy.
Electricity contributes more than 15.0% of the cost
of manufactured goods in Uganda and has made
the country uncompetitive in industry, compared
to peers like Kenya and, in particular, Ethiopia.
Note: Electricity tariffs are set to come down
further following the decision by the Regulatory
Authority to slash tariffs for both large industrial
and domestic users by 0.7% and 0.4% to USD 0.1
cents/kWh and USD 0.18 cents/kWh, respectively,
marking the fourth consecutive quarterly
reduction in power tariffs.
POLITICAL OUTLOOK
UGANDA
Central Bank Moves to Avert Threat to Banking
Sector
East Africa’s banking sector has been brought
under the spotlight yet again following placement
of Crane Bank under statutory management in
light of undercapitalization ─ as of June 2016 the
bank’s capital was less than 50.0% of the minimum
statutory requirement of about USD 7.3 Million.
This development is significant for three reasons:
• It raises investor confidence in the region’s
central banks’ response mechanism: Bank of
Uganda is widely deemed to have swung into
action swiftly signaling upped antennae by
central banks in the region following a turbulent
episode in Kenya’s banking sector which
threatened to destabilize the economy at the
end of Q1 2016. The need for a stable banking
sector in East Africa has grown over the years
with private sector credit playing an increasingly
significant role in driving economic growth with
domestic credit provided by the financial sector
as a percentage of GDP in East Africa growing
from 17.7% in 1995 to 25.2% in 2015. With
Crane Bank being Uganda’s fourth largest bank
by assets and largest locally-owned commercial
bank, a precipitous decline into crisis could have
posed threats of systemic proportions to the
sector
ECONOMIC OUTLOOK
DEBT MARKET UPDATE
Declining Yields as Liquidity Rises
The yield curve posted a general decline between
September and October 2016 as liquidity in the
money market rose further with the interbank
rate averaging 12.6% in September compared to
13.1% in the preceding month. Similarly, inflation
maintained a downtrend to 4.2% in September
2016, compared to 6.7% in the same period a year
earlier, with Bank of Uganda’s latest 100.0 bps
benchmark rate slash to 13.0% buoying investor
confidence over subdued risk in the near term.

Company
Realigning Rwanda’s External Position
While keeping an eye on the race to the 2017
general election, we shift focus to the country’s
external position highlighting three developments
worthy of note:
• In his recent visit to Mozambique, President Paul
Kagame sought extradition of twelve nationals
for alleged involvement in the 1994 genocide. In
the same period, Rwanda threatened to severe
ties with France following the latter’s reopening
of the inquiry into the plane crash which
triggered the genocide. These developments are
critical for Rwanda’s political risk outlook owing
to two considerations: One, matters relating
to the genocide continue to be a key factor in
shaping Rwanda’s regional and international
position. Relations between Rwanda and South
Africa, for instance, are normalizing after a spat
in 2014 following assassination of dissidents
who were residing in South Africa. Two, fostering
peace and stability ought to be predicated by
commitment to truth and reconciliation over the
country’s past
Proposed Law Boosts Business Landscape
Efforts to improve the business climate continue
eliciting interest with the latest being the bill
tabled before the Parliament (October 2016)
which aims at streamlining the warehouse receipt
system and inject new impetus into the country’s
commodities exchange platform ─ the East Africa
Exchange. Within the sub-Saharan Africa region,
Rwanda has one of the most vibrant commodities
exchanges alongside the Ethiopia Exchange and
the South Africa Futures Exchange.
POLITICAL OUTLOOK
RWANDA
Inflation Declines
Despite Rwanda’s inflation rate declining to 5.8%
in September 2016, 100.0 bps lower than the
preceding month, we maintain a cautious view
on the near term outlook pegged on continued
weakness by the Franc. Inflation remains high by
historical levels and is likely to be nudged further
up by the surge in food prices.
ECONOMIC OUTLOOK
Franc Slides on Foreign Exchange Shortage
Liquidity in the money market remains relatively
tight with the interbank rate having risen by 80.0
bps to 6.7% in September 2016, a necessary
move to stem further pressures on the franc and
inflation uptick.
DEBT MARKET UPDATE
Exchange Remains Bearish
The Rwanda Stock Exchange All Share Index
remained flat throughout September 2016,
declining marginally by 60.0 bps to close the
month at 128.4 units. We expect the listing of I&M
Bank scheduled for Q4 2016 as well as Pioneer
Corporate bonds¹ should stimulate trading at the
bourse from both foreign and local investors.

Company
StratLink in the News
StratLink Africa continues to make commentary on thematic issues in frontier and emerging markets. Below please find
a link to the latest piece.
Please click the button to view the full article
International Growth Centre: The Commodity Price Rout and Africa’s Unusual Electoral Cycle- In this piece, we discuss
how the ongoing electoral cycle in Africa is being shaped by the plunge in commodity prices in the global market with a
focus on muted growth in labour productivity as well as a growing number of persons in working poverty.

Company
STRATLINK - AFRICA TEAM
Konstantin Makarov – Managing Partner
konstantin.makarov@StratLinkglobal.com
Dina Farfel – Partner
dfarfel@StratLinkglobal.com
Kyle Drexler – Associate
kyle.drexler@StratLinkglobal.com
George Waithaka – Senior Corporate Finance Analyst
george.waithaka@StratLinkglobal.com
Lewis Muguro - Analyst
lewis.muguro@StratLinkglobal.com
Benson Njeri – Analyst
benson.njeri@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
ContactDetails
STRATLINK AFRICA
StratLink - Africa, Limited.
Delta Riverside, Block 4,
4th Floor, Riverside Drive,
Nairobi, Kenya
nairobi@stratlinkglobal.com
www.stratlinkglobal.com
+254202572792

20161101 november market update abridged

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