January 2018 Africa Market Update

2JANUARY 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A Financial Advisory
Company
JANUARY 2018 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA 5
ZAMBIA 11
KENYA 18
UGANDA 32
GHANA
ETHIOPIA
ANGOLA
RWANDA
38
44
49
53
TANZANIA 25
Table of Contents
NIGERIA
• Why the Central Bank is likely to assume a dovish stance in 2018
• Fragile recovery ahead in 2018 as growth numbers show an economy running
on one engine
ZAMBIA
• Government poised to consolidate fiscal gains in 2018
• Thinned out foreign exchange reserves expose the Kwanza to headwinds in
2018
GHANA
• Rebound in commodity prices to test the government’s commitment to fiscal
consolidation in 2018
• Slowed disinflation to nudge Bank of Ghana to more cautious policy expansion
in 2018
KENYA
• Eyes on unemployment as government sets ambitious jobs creation goal
• Economy to be tested with post-election recovery
• Yields on long term bonds rise
ANGOLA
• President Lourenco to face headwinds on mission to reform
• Central Bank gets rid of fixed exchange rate regime
At a Glance
TANZANIA
• A new dawn for the business environment
• Declining foreign funding threatens budget implementation
• Magufuli’s austerity and intolerance for corruption and criticism, a departure
from the past
RWANDA
• Resilient economy in the face of turbulence
• Stable outlook as Kagame stays on
• Infrastructural growth and access to energy to drive the 2018 business
agenda
ETHIOPIA
• Concession to offer temporary tailwinds
• Relatively robust growth in 2018 supported by increasing investments and
export opportunities
UGANDA
• President signs Age Limit Bill into law
• Economy performs well in Q1 2017/18
• Government loses out on gold royalties

Capital Invested by Country (USD)
AFRICA DEALS LANDSCAPE
January 2017 – December 2017
Source: PitchBook, StratLink Africa
Deal Activity by Industry (Proportions)
Deal Activity by Types (Proportions)
Major Deals – 2017
• Eni Gas Field (Mozambique) sold a 25.0% stake to ExxonMobil for USD 2.8 Billion on September 6th, 2017
• Vodafone Group sold a 35.0% stake of Safaricom Ltd (Kenya) to Vodacom Group for USD 2.7 Billion on May 15th, 2017
• TC’s Energy (Ghana) received USD 2.0 Billion in development capital from Milost Global on August 14th, 2017
• Eni Zohr Acreage (Egypt) sold a 40.0% stake to Rosneft and BP for USD 1.5 Billion on October 9th, 2017
• Lundin Mining sold a 24.0% stake in Tenke Fungurume Mining (DRC) to BHR Partners for USD 1.1 Billion on April 19th, 2017
South Africa
Kenya
Nigeria
Ghana
Congo
Egypt
Uganda
Morocco
Namibia
Mauritius
Senegal
Ethiopia
Ivory Coast
Benin
Tanzania
Madagascar
Tunisia
Lesotho
Swaziland
Guinea
Niger
7.8 Billion
3.5 Billion
3.5 Billion
2.8 Billion
2.1 Billion
1.9 Billion
1.0 Billion
1.0 Billion
477.0 Million
44.0 Million
381.0 Million
378.0 Million
274.0 Million
170.0 Million
132.0 Million
84.0 Million
44.0 Million
12.0 Million
8.0 Million
1.2 Million
10,000.0
36.0%
36.0%
11.5%
11.5%
9.1%
9.1%
9.0%
9.0%
7.3%
7.3%
6.3%
6.3%
4.3%
4.3%4.3%
4.3%
4.0%
4.0%
3.2%
3.2%
2.4%
2.4%
2.7%
2.7%
Secondary Transaction - Private Merger/Acquisition
Corporate Divestiture Growth/Expansion
Buyout/LBO Asset acquisition
Add-on Asset Divestiture (Corp)
IPO Secondary Oﬀering
PIPE Others
20.0%
15.1%
14.7%
10.2%
6.3%
5.9%
4.7%
3.5%
3.3%
2.3%
13.9%
Metals, Minerals & Mining ...............................
Exploration, Production & Reﬁning ..................
Other Business Products & Services .................
Communications & Networking .......................
Utilities .................................................................
Commercial Services ...........................................
Consumer Non-Durables .....................................
Software ..............................................................
Other Financial Services ......................................
Commercial Products ..........................................
Others ................................................................

Note from the Research Desk:
The general upturn in growth in 2017 has ignited optimism that the commodity price triggered
slough could finally be in the rear view of sub-Saharan Africa’s growth prospects. Previously
strained economies such as Zambia and Ghana presented bright spots for investors in 2017.
Notably, the rebound by Nigeria and South Africa from recession has given new impetus to
the upswing, countervailing the drag inflicted by smaller economies such as Mozambique,
Namibia and Botswana. Our outlook for 2017 was themed ‘The New Norm: Rebooting
growth engines in an uncertain global economy’ and was anchored, principally, on two
issues:
• It tabled a case for efforts by economies in the region to adjust to a relatively adverse
global economy. The region has since witnessed adoption of both conventional, such
as fiscal consolidation in Zambia and Angola, and more nuanced, such as Mauritius’
adoption of negative income tax for applicants whose basic salary was below USD 294.0 (Rs 9,900.0) per
month or below USD 11,589.0 (Rs 390,000.0) per annum, approaches to prop faltering growth prospects as
economies adjust to the new norm
• Additionally, the outlook assessed that President Donald Trump’s ‘America First’ policy was likely to present a
new norm for economies in sub-Saharan Africa. In line with this, the March 2017 Draft Budget proposed a 28.0%
year-on-year slash in funding to the Department of State and the US Agency for International Development
(USAID)
Our outlook for 2018 is themed ‘Harnessing the Growth Spurt: Can Sub-Saharan Africa consolidate the gain of
fragile growth?’ and tempers rising optimism around the rebound in growth with the realization that, by and large,
the region’s growth landscape is still uneven and imbalanced with regard to underlying drivers. StratLink believes
that one important risk that is often overshadowed by the resurgence of Nigeria and South Africa is sluggish recovery
from low income commodity reliant economies. For many such countries, with low tax revenue mobilization and
shallow capital markets to support domestic borrowing, the capacity for counter cyclical measures is weak and
threatens to derail recovery in the near term (For more on this, please read our blog post- http://blogs.lse.ac.uk/
businessreview/2017/08/08/sluggish-recovery-by-low-income-countries-could-be-africas-next-big-challenge/ ).
On the whole, the following are likely to be key themes in 2018:
• The boon and bane of the price of oil: The trajectory of the price of oil will remain a matter of interest. As the
price steadies north of $60 per barrel, we expect to see Nigeria begin loosening its tight monetary stance, albeit
cautiously, within the first half of 2018 whilst Angola is likely to tighten in view of foreign exchange pressure. On
the flip side, net oil importers that have benefited from subdued prices over the past two years are bound to
see inflation nudge upwards going forward
• Politics of continuity and change: Countries such as Angola, Zimbabwe and the Gambia underwent watershed
transition in 2017. As such, 2018 will be characterized by a focus on the policies and/or reforms that are likely to
shape these economies going forward, In Kenya, whereas the Supreme Court’s decision to uphold the October
26th, 2017 election outcome brought a protracted electoral cycle to an end, macro-political risk is poised to
remain a key feature in the investment landscape
• The Southern Africa wild card: Southern Africa was a wild card for most investors in 2017 and we expect it to
remain so in 2018 informed by relatively high monetary and fiscal pressures experienced by countries such as
Angola and Mozambique

NIGERIA MARKET UPDATE
FRAGILE RECOVERY AS ECONOMY REBOUNDS FROM RECESSION

2017 Marked by Relative Stability
The political risk profile was largely favorable in
2017 buoyed mainly by reduced incidences of
attacks by militia and passage of the Medium
Term Expenditure Framework and Fiscal Strategy
(2018-2020) to the House of Representatives
on October 18th, 2017. The latter development
was significant in laying out a policy framework
at a time when the economy is grappling with
adverse fiscal conditions. A key pressure point was
President Buhari’s prolonged absence, following a
three months sick leave in London, which ignited
anxiety over policy continuity.
Three Reasons for Cautious Optimism over 2018
The generally favorable environment
notwithstanding, we are cautiously optimistic over
the political risk environment in 2018 given the
following consideration:
• Commencement of 2019 Electoral Cycle: Being
a year that precedes the one of the next general
election, the political risk profile is bound to
come under intense pressure. In 2017, the
separatist organization, Indigenous People
of Biafra, was a source of concern especially
when it called for a boycott of the November
Anambra State gubernatorial election, a factor
that is likely to have informed the low turnout.
In 2018, Buhari’s health and fitness to continue
serving as President is bound to come under
focus
Democratic Party
• Budget passage and execution lethargy:
The Senate indicated, on December 19th, 2017,
that it is unlikely to complete its review of the
2018 Budget Appropriation Bill in January 2018,
raising concern that the country could yet
again confront delay in passage of the budget.
A key factor to look out for in the budget will
be the allocation made to security given that
the country confronts resurgence of activity
by the Boko Haram and Niger Delta Militants.
This is especially important given reports that
the Multinational Joint Task-force (comprised
of military personnel from Benin, Cameroon,
Chad, Niger and Nigeria) which seeks to combat
Boko Haram is underfunded
• Soaring unemployment and accompanying
social pressure: The steady rise in the rate of
unemployment ever since the last election
presents a major challenge ahead of the 2019
poll. At 18.8% in Q3 2017, unemployment stood
at its highest rate since 2014 signaling the drag
that adverse economic conditions have had on
creation of income generating opportunities.
This is likely to be one of the key themes in the
coming electoral cycle and could be potentially
used to discredit the Buhari administration
More importantly, with the Independent
Electoral Commission having scheduled the
Presidential and National Assembly elections for
February 16th, 2019 and those of gubernatorial
positions and State Assembly/Federal Capital
Territory (FCT) Council for March 2nd, 2019,
political factions are set to commence 2018
on high gear with activity. There is likely to
be a spirited contest between the incumbent
All Progressives Congress and the People’s
POLITICAL OUTLOOK
GDP: USD 481.1 Bln | Population: 187.0 Mln
NIGERIA
25.0%
Voter turnout in the Anambra State election
compared to 43.7% in the 2015 general election
Unemployment Rate
Source: National Bureau of Statistics, StratLink Africa
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Q1
2014
Q3
2014
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017

More Sector to Present Bright Spots in 2018
In 2017, agriculture stood as the sole bright spot
in the economy with other sectors reporting
contraction through Q3. In 2018, we expect
to witness at least two non-oil sectors joining
agriculture in positive growth with construction
likelytobebuoyedbyimprovingfiscalconditionsas
the price of oil gains ground whilst manufacturing
is poised to benefit from improvements in access
toforeigncurrencyandtheoverallmacroeconomic
environment.
Source: Bloomberg, StratLink Africa Ltd
Source: Nigeria Bureau of Statistics, StratLink Africa Ltd
Growth in Private Sector Credit 2017
Q3 2017 Growth
Greenback Scarcity Likely to Recede in First Half
of 2018
In 2017, the business environment was dominated
by two factors:
• Scarcity of the greenback which presented
a major challenge to businesses that rely
on importation of inputs. We expect to see
improvement in this situation in the first half
of 2018 informed by steady growth in the
Central Bank’s foreign exchange reserves with
December 2017 posting the strongest month-
on-month growth at 11.7% compared to an
average 3.5% in the year under review
• Contractioninprivatesectorcreditinthesecond
half of the year signaled the deteriorating
state of the private sector even as the overall
macroeconomy showed signs of rebounding.
This was also accompanied by contraction in
the stock of money in circulation in September
and October 2017 leading us to believe there is
a monetary policy rate hike in the offing, likely
to take place within the first half of 2018 (Please
see Economic Outlook for more on this)
BUSINESS NEWS ENVIRONMENT
Source: Central Bank of Nigeria, StratLink Africa Ltd
Gross Foreign Exchange Reserves (USD)
NIGERIA
25.0
27.0
29.0
31.0
33.0
35.0
37.0
39.0
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Billions
$ 38.7 Bln
Central Bank of Nigeria’s gross foreign exchange
reserves as at December 28th, 2017
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
Agriculture
AccommodaƟon
ConstrucƟon
Trade
Manufacturing

Oil Production and OPEC Basket Price
GDP Growth
NIGERIA
Recovery to Prompt Monetary Expansion in 2018
Despite the economy’s rebound from recession in
2017, a number of headwinds dim the prospects
for 2018:
• An economy running on one engine: The
economy’sreboundwaslargelydrivenbygrowth
in the oil sector with measly performance in
the non-oil segment. In Q3 2017, for instance,
the oil segment posted 25.9% growth against
0.8% contraction in the non-oil segment. This
suggests that the economy is benefiting from
the rise in oil production and the gain in the
price of oil and therefore still susceptible to oil
related shocks
• Non-oil driven fiscal headwinds prevail: In
line with the preceding point, the economy is
still facing challenges in raising non-oil revenue
(in the first seven months of 2017, net non-oil
revenue registered a performance rate of 67.6%
at USD 2.6 billion¹). As a result, government
expenditure still faces a significant drawback in
view of the fact that non-oil revenue accounts
for 46.6% of aggregate revenue
• Unfavorable monetary conditions and a case
for expansionary policy: As indicated in the
foregoing Business Environment, contraction in
credit to the private sector in the second half
of 2017 has presented a major challenge for
Nigeria’s monetary policy environment. In 2017,
the Central Bank retained the benchmark rate
at 14.0% and the Cash Reserve Ratio at 22.5%
driven by high inflation and efforts to guard
against rising pressure in the foreign exchange
market. With inflation posting consistent
decline in 2017 and the stock of money in
supply contracting, year-on-year, in September
and October of the same year, we believe there
is a cautious rate hike imminent in the first half
of 2018 that could see the benchmark rate close
June 2018 in the 13.0%- 13.5% band
ECONOMIC OUTLOOK
1
National Bureau of Statistics Nigeria
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
1.5
1.6
1.7
1.8
1.9
2.0
2.1
2.2
2.3
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Oil ProducƟon (Mln Barrels per day)
OPEC Price, USD (RHS)

Headline Inflation
Sovereign Yield Curve
Interbank Rate
Source: Central Bank of Nigeria, StratLink Africa
Source: Bloomberg, StratLink Africa
2017 Marked by General Decline in Yields
Despite tight liquidity through the year, the
defining feature of the debt market in 2017 was
the downtrend in yields as inflation declined
through the year driven by a tight monetary policy
environment. Additionally, 2017 saw the Federal
Government issue its debut diaspora bond raising
USD 300.0 Million as well as its debut Naira
denominated (N 100 Billion) Sukuk.
Central Bank poised to favor a more flexible
exchange rate regime in 2018
We expect liquidity in the money market to
remain tight through Q1 2018 as the Central Bank
keeps an eye on the Naira especially following the
16.2% depreciation of the local unit on August
1st, 2017. This depreciation was triggered by the
Central Bank’s decision to allow commercial banks
to use the Investors’ & Exporters’ FX Window
when quoting the Naira. With the price of oil on
a general uptick and buoying foreign exchange
reserves, the Central Bank is likely to adopt a
relatively more flexible exchange rate regime in
the months ahead.
Investor appetite for bonds rebounded in Q3
2017
Investor appetite for the debt market began
2017 on a high before decelerating in the second
quarter. This is likely to have been driven by the
rally witnessed in the stock market following the
Central Bank’s creation of a foreign exchange
trading window for investors in a bid to ease
access to foreign currency.
DEBT MARKET UPDATE
NIGERIA
5.0%
7.0%
9.0%
11.0%
13.0%
15.0%
17.0%
19.0%
21.0%
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
9.0%
11.0%
13.0%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
3M 6M 1Y 3Y 5Y 7Y 10Y 15Y 20Y
Nov-17-2017 Jun-30-2017
Mar-22-2017

EQUITY MARKET UPDATE
Bullish Market in 2017
The stock exchange was generally bullish in
2017. A key factor underlying this trend was the
introduction of a foreign exchange trading window
for investors at the end of Q1 2017. As a result of
this, the foreign investment inflow-outflow ratio
grew from a monthly average of 0.8 in Q1 2017 to
2.3 in Q2 and Q3 2017. Foreign investor interest in
the market is bound to remain relatively through
Q1 2018 high given the ongoing economic
recovery.
Foreign Investment Inflow-Outflow Ratio
Source: Nigeria Stock Exchange, StratLink Africa
NIGERIA
Bonds Performance Rate
Top Ten Diaspora Remittance Recipients (2015)
- USD Mln
Source: Debt Management Office, StratLink Africa
Source: World Bank, StratLink Africa
Thought on 2018: Likely issuance of second
diaspora bond
Given the success of the debut diaspora bond in
2017 (130.0% performance rate), we are likely
to witness another issuance especially as the
government is keen on averting crowding out of
private sector borrowing. We maintain the view
that issuance of the diaspora bond was significant
given Nigeria’s position as one of the world’s top
recipients of remittances.
183.9%
USD 133.6 Million
Average bonds’ performance rate in Q4 2017
compared to 106.9% in Q3 2017
Average monthly foreign investment inflow into the
Nigeria Stock Exchange in 2017 compared to USD
81.6 Million in 2016
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
India
China
Philippines
Mexico
France
Nigeria
Egypt
Pakistan
Germany
Bangladesh
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17

Foreign Investment Inflow and Outflow (USD)
Nigeria Stock Exchange 30 Index
Source: Nigeria Stock Exchange, StratLink Africa
Whereas banking stocks outperformed the market
in 2017, we expect that the relatively high non-
performing loan ratio will remain a key point of
concern for investors. Another trend that could
define the banking sector in the first half of 2018 is
that the prime lending rate is likely to remain high
even if a rate hike is undertaken owing to the risk
perception attached to the business environment.
46.3%
Year-on-year gain of the 30 Index as at
December 17th, 2017
NIGERIA
0.0
50.0
100.0
150.0
200.0
250.0
300.0
350.0
400.0
450.0
Jan-15
May-15
Sep-15
Jan-16
May-16
Sep-16
Jan-17
May-17
Sep-17
Millions
Inﬂow Ouƞlow
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
1,000.0
1,000.0
1,100.0
1,200.0
1,300.0
1,400.0
1,500.0
1,600.0
1,700.0
1,800.0
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Millions
Volume (RHS) 30 Index
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
180.0
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nigeria Stock Exchange 30 Index
Banking 10 Index
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2010 2011 2012 2013 2014 2015 2016
Nigeria Stock Exchange
Non-Performing Loan Ratio

ETHIOPIA
GOVERNMENT TO CONSOLIDATE FISCAL GAINS IN 2018
ZAMBIA MARKET UPDATE

2018 Promises Energy Sector Reforms
Our political risk assessment for 2017 was hinged
on, amongst others, two key items:
• Need for reforms in the energy sector in light
of the 2015/16 energy crisis. Indeed, Budget
2018, tabled before the National Assembly
in September 2017, placed emphasis on the
energy sector. The government is, in 2018,
expected to table the Energy Regulation Bill
and the Electricity Bill which are aimed at
strengthening oversight and private sector
participation, respectively. On the whole, a
general increase in electricity generation, due
to favorable weather conditions, has helped
improve the situation
One of the key proposals in 2018 will be the Feed-
In Tariff framework aimed at creating an incentive
for private investment in the sector. Diversification
of the country’s generation mix from hydro and
thermal is also set to be a point of priority focus
• Need for strengthened efforts towards national
unity following a closely contested election
in 2016. In July 2017, parliament approved
the President’s invocation of Article 31 of the
Preservation of Public Security Act effectively
putting the country in a state of ‘threatened
emergency’. This came against the backdrop
of a series of fire incidents alleged to have
been politically instigated. Whereas the
government’s decision to lift the state of
threatened emergency in October 2017 helped
recede the deteriorating political risk profile,
we believe long-terms risks still remain. This
view is further reinforced by the President’s
cautionary statement to the judiciary warning
it against barring him from contesting for office
in the 2021 election. This evokes concern over
the autonomy of institutions. The need for
independent institutions is critical especially in
a country whose recent elections have been
characterized by relatively small margins of
victory and disputed outcomes
POLITICAL OUTLOOK
ZAMBIA
Source: Electoral Commission of Zambia, StratLink Africa
Electricity Generation (GwH)
1
Business Monitor International
2,300.0
2,500.0
2,700.0
2,900.0
3,100.0
3,300.0
3,500.0
3,700.0
3,900.0
Q12015
Q22015
Q32015
Q42015
Q12016
Q22016
Q32016
Q42016
Q12017
Energy Generation Mix
Source: Business Monitor International, StratLink Africa
Hydropwer Thermal Others

Growth in Household Spend Bodes Well for 2018
The economy’s recovery after a difficult period
in 2015 and 2016 made 2017 a, by and large,
favorable year for the business community.
Average household spending in 2017 rose by
15.4%, year-on-year, to USD 2,648 showing signs
of growth from the 2015 and 2016 trough in which
growth averaged-11.7%¹. We expect this to remain
a key tailwind for the business environment in
2018 with investors keen to tap into the resurging
demand.
coffee, tea, hot drinks, fruit and vegetable juices,
soft drinks and mineral water). Of importance is
that over the last ten years, the proportion of soft
drinks in this market has risen from 73.1% in 2006
to 78.4% in 2015. Additionally, the soft drinks
segment has posted faster growth, CAGR 4.8%,
in the period under review compared to 1.5% for
coffee, tea and other hot drinks.
Zambia’s position in Southern Africa’s non-
alcoholic beverages market
In Southern Africa, with the exception of South
AfricaandAngola,Zambiahasarelativelylargenon-
alcoholic beverages market with the Zimbabwe
market following closely at USD 117.0 million.
Given that food and non-alcoholic beverages
accounting for 38.6% of households’ expenditure,
this is a segment of the Zambian market that is
poised to continue attracting considerable interest
from investors especially with the two dominant
markets, South Africa and Angola, plagued by
adverse economic conditions.
Coca-Cola move signals appetite for non-
alcoholic beverage segment
Coca-Cola’s acquisition of Zambian Breweries Plc’s
non-alcoholic beverage unit was one of the main
corporate actions in 2017. We view this as a move
aimed at consolidating Coca-Cola’s footprint in
the USD 132.8 million market² (defined as sales of
BUSINESS ENVIRONMENT
Household Expenditure in 2017
Segmenting the Non-Alcoholic Beverage Market
Food & Non-alcoholic
Housing & uƟliƟes
Furnishing
EducaƟon
Transport
RecreaƟon
Clothing & foot wear
Others
ZAMBIA
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2006 2010 2015
(EsƟmated)
Coﬀee, Tea & other hot drinks SoŌ drinks
1
2

Borrowing as a Percentage of GDP (First Half of 2017)
Fiscal Deficit to GDP Ratio (First Half of the Year)
Source: Bank of Zambia, StratLink Africa
Reprieve as Fiscal Deficit Falls below Target
The economy wound up 2017 with a notable
bright spot being indications that much needed
fiscal consolidation is underway. The fiscal deficit
to GDP ratio in the first half of 2017 stood at
6.0% against a targeted 8.8%³. Coming against
the backdrop of 2016 during which, in the same
period, the government missed its fiscal deficit
target by a wide margin, this builds confidence in
efforts aimed at stabilizing the economy following
the 2015 – 2016 headwinds.
Government exceeded domestic borrowing
target in 2017
It is also important to observe that the government
exceeded its domestic borrowing target whilst
performing below its target on foreign borrowing.
This is likely to have been necessitated by two
factors:
• Conditions in the global environment: The
global environment was unfavorable for
issuance of debt. Mozambique’s default on a
USD 119.0 million repayment in March 2017
was a cause for caution amongst investors
on frontier market debt. Additionally, the
November 2017 hike in interest rates by Bank
of England signaled continued emergence by
advanced markets from the zero terrain interest
rates
• Domestic environment: Despite recovery in
2017, the Zambian economy continued to
encounter both monetary and fiscal headwinds.
Notable in 2017 was the depreciation of the
Kwacha in the second half of the year
Outlook 2018: More focus to be channeled on
the monetary environment
With 2017 suggesting the economy’s fiscal mend
is underway in line with the Zambia Plus recovery
strategy, we expect growing focus towards the
monetary side in 2018. Inflation averaged 6.5% in
Q32017,placingitwithinBankofZambia’smedium
term target of 6.0%- 8.0%. This notwithstanding,
data on loans and advances by commercial banks
to the private sector indicates that a lot remains to
be done in order to stir business’ uptake of credit.
We view the November 2017 monetary policy
rate slash as an indication that Bank of Zambia
is set to adopt more cautious expansion in 2018
characterized by fewer slashes.
ECONOMIC OUTLOOK
ZAMBIA
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2016 2017
Projected Realized
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
DomesƟc Foreign
Target Realized
3
Bank of Zambia

ZAMBIA
2017 Dominated by Declining Yields
In the fixed income market, two developments
defined 2017:
• The yield curve continued to correct with
long-term papers attracting higher yields than
those in the short-term. This was reflective of
a general improvement in the macroeconomic
environment with investor confidence in the
short-term being propped by the government’s
adherence to much needed fiscal prudence
• Yields maintained a downtrend through 2017
driven by the steady decline in inflation
With inflation showing resistance to further
decline in the 6.3%- 6.6% band, it is likely that the
central bank will exercise greater caution in any
further expansion.
DEBT MARKET UPDATE
2
Bank of Zambia data
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
91days
182days
273days
364days
2Yr
3Yr
5Yr
7Yr
10Yr
15Yr
Feb-17 Mar-17 Apr-17
May-17 Nov-17
Growth (Y-o-Y) in Loans and Advances to Businesses
Kwacha to USD Exchange
Another factor that is likely to prod the central
bank into more cautious monetary expansion is
the depreciation suffered by the Kwacha in the
second half of 2017. This happened as the central
bank’s foreign exchange reserves thinned from
USD 2.3 billion (3.7 months of import cover)⁴ in
December 2016 to USD 2.1 billion (2.9 months of
import cover) in September 2017.
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
Jan-12
Aug-12
Mar-13
Oct-13
May-14
Dec-14
Jul-15
Feb-16
Sep-16
Apr-17
Nov-17
8.7
8.9
9.1
9.3
9.5
9.7
9.9
10.1
10.3
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17

ZAMBIA
Stock Exchange Rallies in 2017
The market rallied in 2017 buoyed by the
economy’s turnaround from the 2015/16
slowdown. Additionally, the fact that fixed income
yields were on a general decline in 2017 is also
likely to have seen investors shift focus to the stock
market in search of higher returns.
Banking stocks drive the market despite
headwinds
Banking stocks drove the market with the Banking
Stock Index plateauing off in Q3 and Q4 2017. We
note that the sector continues to grapple with
subdued uptake of credit by the lethargic business
environment.
LSE All Share Index change year to
date as at December 17th, 2017
LSE All Share Index change year to
date as at December 17th, 2017
14.8%
26.1%
All Share Index
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
3,900.0
4,100.0
4,300.0
4,500.0
4,700.0
4,900.0
5,100.0
5,300.0
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Millions
Volume All Share Index
Headline Inflation
Interbank Rate
We expect to see Bank of Zambia tighten liquidity
in the coming months in view of rising foreign
exchange pressure.
Outlook 2018: Government to maintain high
appetite for domestic debt
Bank of Zambia has increased the auction size
for Treasury Bills and Bonds by 5.6% and 65.0%,
respectively, effective January 1st, 2018. This is a
likely signal that in 2018, the government is keen
to maintain high appetite for domestic debt.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17

ECONOMY TO BE TESTED WITH POST-ELECTION RECOVERY
KENYA MARKET UPDATE

Macro Political Risk Takes the Back Burner
The country was dominated by macro political risk
in 2017 characterized by a protracted electoral
cycle that saw repeat presidential polls conducted
on October 26th, 2017 following the annulment
of the August 7th, 2017 ballot. Whereas
much of this risk has receded, we maintain a
cautiously optimistic view given opposition led
undertones of discontentment with the overall
electoral management process. Failure by some
constituencies to participate in the repeat
election stands out as a pressure point even as the
government commences its second term.
Factors Poised to Shape 2018’s Political Risk
Profile
• Government to leverage numbers in lower
and upper houses
With the Jubilee Party having won a significant
number of seats in both the Senate and the
National Assembly, the government is likely to
face less challenges in adoption of policy in its
second term than it did in the first. Further, with
majority of the elected Governors being from the
ruling party, there is a likelihood that the second
term could witness less antagonism between the
national and the devolved governments.
POLITICAL OUTLOOK
KENYA
Micro political risk to gain prominence
Withmacropoliticalrisktakingthebackburner,the
focusislikelytoshifttohowchangesingovernment
policy impact the business environment in the
coming months. In light of this, we anticipate the
following:
1. Public finance and cost of basic living: With the
maize flour subsidy program ending, the rise in
the cost of staple food is bound to be one of the
mainissuesdefiningpost-electionpublicfinance
Members of Parliament
Governors
Source: Independent Electoral and Boundaries Commission,
StratLink Africa
Senate
Jubilee ODM
Wiper KANU
ANC Ford Kenya
Jubilee ODM
Wiper Independent
ANC Ford-Kenya
Jubilee
ODM
Ford Kenya
Wiper
Independent Candidate
NARC
KANU
Maendeleo Chap Chap

debate. Whereas shedding of election related
expenditure bodes well for the government
in 2018, the downward review of revenue
projections for 2017/18¹ suggests there is little,
if any, fiscal space to accommodate extension of
the subsidy as households look to recover from
a generally adverse business environment in
2017
2. Rate caps and the business environment:
From the business environment, effects of the
adoption of caps on commercial banks’ rates
will continue to be a matter of interest. Given
that economic growth registered a general
slowdown in 2017 (4.7% average for the first
three quarters compared to 5.7% in the same
period in 2016), there is likely is to be pressure
for efforts to prop the private sector
3. Unemployment and labor market constraints:
The government’s pledge of creating 1.3 million
jobs per annum is also likely to be a matter of
interest. Given an average 804,175 jobs per
annum created in the first term, the pledge is
ambitious and many will be keen to observe
which policies are put in place to catalyze the
same.
Further to this, 2017 was characterized by a
series of strikes by sections of workers including
doctors and nurses. This is a pointer to challenges
underlying the labor market and are bound to
persist through 2018. Unlike 2017, we do not
KENYA
Job’s Created 2013 - 2016
Source: Kenya National Bureau of Statistics, StratLink Africa
700,000.0
720,000.0
740,000.0
760,000.0
780,000.0
800,000.0
820,000.0
840,000.0
860,000.0
2013 2014 2015 2016
1
2017 Budget Review and Outlook Paper
expect the government to issue a directive for an
increase in the minimum wage in 2018
Note: The graph above gives the gazetted
minimum wage for Nairobi, Mombasa and Kisumu
as indicated by the Kenya National Economic
Survey 2016.
4. Regional competitiveness: Kenya’s
competitiveness within the East African region
shouldbeamatterofpriorityfocusinthesecond
term. The general decline in Kenya’s exports to
the region bespeaks declining competitiveness
especially as regional peers’ industrial capacity
is enhanced
Gazetted Statutory Minimum Wage (Kes)
Kenya’s Trade Balance with EAC (USD)
5,000.0
7,000.0
9,000.0
11,000.0
13,000.0
15,000.0
17,000.0
19,000.0
21,000.0
23,000.0
2003
2005
2007
2009
2011
2013
2015
2017
100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
260.0
Q1
2016
Q2
2016
Q3
2016
Q4
2016
Q1
2017
Q2
2017
Q3
2017
Millions

KENYA
The Troubled Coffee Subsector
Kenyan coffee was recently ranked by Coffee
Review’s list of Top 30 for 2017 as being among
some of the world’s best with three local factories
featuring in the list. The cash crop is one of Kenya’s
biggest export earners next to tea and horticulture.
However, despite producing internationally
renowned coffee the sector went through a rough
patch in 2017. The first quarter of the year saw the
value of coffee exported rise quite rapidly to peak
at USD 31.3 million in March before falling sharply
to USD 11.2 million in October. Between June and
October of the same year the volume of coffee
produced contracted relatively to the same time
in 2016 as the effects of the widespread drought
deteriorated harvests of the crop although, high
prices prevented the value of the exports from
dipping more severely. Ineffective government
policies for coffee have created additional
problems. Bad relations between the cooperative
societies representing small-holder farmers
(SHFs) and the Coffee Subsector Implementation
Committee (CSIC) have seen some SHFs fail to
access subsidized fertilizer. There is however hope
that the situation going forward will improve with
the President’s aim to enhance agro-processing
and thus increase value addition to coffee exports.
Coffee Exports
Source: CBK, StratLink Africa
Average GDP Growth
Source: International Labor Organization, StratLink Africa
Slow Inflation in December Points to Muted Q4
Growth
Lastyearwascharacterizedbynumberofsignificant
developments affecting the economy with the
election being a major factor in determining
StratLink’s outlook for domestic economic output
at the beginning of 2017. Historically, GDP growth
rates during election years have been lower than
the respective rates for non-election years. In this
historical context the first three quarters of 2017
performedrelativelywellwithanaveragequarterly
GDP growth rate (Q1 – Q3, 2017) of 4.7% however,
this figure is shy of the annual economic growth
rates seen in the previous two elections, where
expansion rates of 5.7% and 6.9% were achieved
in 2013 and 2007, respectively.
The third quarter of 2017 registered a year-on-
year growth rate of 4.4%, the slowest since the
last quarter of 2013 with financial and insurance
activities recording the most severe slowdown in
growth, falling to 2.4% in the third quarter of 2017
from 7.1% in the same quarter of the previous
year.
The economic performance in the last quarter of
2017 is yet to determine how the economy did
overall for the year however, headline inflation
decelerating to a low 4.5% in December 2017
from 4.7% a month earlier provides an indication
ECONOMIC OUTLOOK
-40.0%
-20.0%
0.0%
20.0%
40.0%
60.0%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Value (USD Mn)
% Change in Volume (y-o-y)
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Pre-2017
ElecƟon Years
Average
Quarterly GDP
Growth for
Q1-Q3, 2017
Non-ElecƟon
Years

of subdued economic output thus curtailing hopes
that resilient economic activity in the last three
months of 2017 could boost annual GDP growth.
Financial and Insurance Activities to Remain
Subdued in 2018
It is StratLink’s view that Kenya’s economic outlook
for 2018 will be significantly shaped by the
International Financial Reporting Standard 9 (IFRS
9) that came into effect globally in January 2018.
The new standard governing accounting rules for
financial instruments was developed in response
to the 2007/2008 financial crisis with the aim of
ensuring that financial institutions address risk
more effectively and prudently. One of the main
changes under IFRS 9 is that impairments will now
be based on an expected loss as opposed to a
current incurred loss with riskier credit exposures
requiring impairments based on their lifetime
Expected Credit Loss (ECL). Banks will have to
significantly increase their bad debt provisions
in order to satisfy the new criteria and as such,
StratLink anticipates the following effects:
• Riskier subsectors will receive less credit:
in order to limit forward-looking credit risk
exposure banks will curb lending to high risk
sectors such as agriculture that, lessons from
2017 will show, is susceptible to adverse
weather conditions
• Riskier borrowers will receive less credit:
similarly to the above bullet, high risk borrowers
KENYA
Headline Inflation
will be less likely to receive credit under IFRS 9
due to the large bad debt provision they would
necessitate. SMEs are likely to be disbursed less
credit as a result of this
• Short-term lending will increase: longer term
credit comes with a higher risk of default and
as a result would require banks to make higher
loan loss provisions to cater for the larger ECL
which is likely to adversely impact long term
project financing, for instance
• Reduced disbursement of unsecured loans:
greater loan loss provision rules will drive banks
towards loans with collateral as this can offset
the higher provisions in the event of a default
and will likely see greater demand for unsecured
debt from Microfinance institutions
The Interest Rate Cap and IFRS 9
The interest rate cap limits the rate at which
banks can lend thus preventing them from pricing
higher default probabilities into lending rates. The
introduction of IFRS 9 is expected to exacerbate
this and make lending to high risk borrowers even
less attractive to banks. Slow private sector credit
growth, which stood at 1.7% in September 2017
(y-o-y), is likely to continue suffering as a result
while growth in credit provision to the government
is likely to remain high as banks become more risk
averse.
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Banking System Net Domestic Credit Growth (y-o-y)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Credit to Government
Credit to Other Public Sector
Credit to Private Sector (RHS)

Debt Stock Pushes Long Term Bond Yields Up
The yield curve underwent a significant upward tilt
in the month to 10 January 2017 with yields on
long term maturity bonds increasing significantly.
The yield on 30 year bonds went up by 1.3%
over the same period, while at the other end of
the curve rates remained constant. This will see
investors benefit from high real yields considering
that inflation in December 2017 was at a low 4.5%.
The government’s issues of a ten year (re-open)
and fifteen year (re-open) bond in December
2017 proved relatively unsuccessful, attaining
a combined subscription rate of only 73.0%.
The following TAP sales of the same bonds were
equally unsuccessful with a 39.1% subscription
rate. Overall, only 61.0% of the targeted USD 290.1
million was raised by the government.
Bloomberg BVAL Yields Index
Total Government Debt, % of GDP
Source: BMI, StratLink Africa
DEBT MARKET UPDATE
10.4%
10.8%
11.2%
11.6%
12.0%
12.4%
12.8%
13.2%
13.6%
14.0%
14.4%
14.8%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
10-Jan-17 08-Dec-17
Amount offered 290.1 193.4
Subscription Rate 73.0% 39.1%
Amount Accepted/ Bids Received 45.9% 100.0%
FXD1/2008/15
&
FXD1/2017/10
(USD Mn)
TAP Sales
(FXD1/2008/15 &
FXD1/2017/10)
Lowsubscriptionratesarealikelyresultofinvestors
looking for higher yields on long term securities
because of the high levels of debt in the country.
This is also evident in the discrepancy between
higher yields in the secondary bond market
relatively to the primary as the Treasury struggles
to keep the cost of debt low. Total government
debt as a percentage of GDP increased significantly
from 48.4% in 2015 to 57.6%² in 2017. StratLink
expects that the increasing stock of government
debt being accumulated will drive up yields in the
year ahead.
48.4%
52.9%
57.6%
2015 2016 2017e
2
BMI. 2017 data is expected.
KENYA

KENYA
Solid Overall Performance for 2017
Overall, the markets performed well in 2017 in
spite of the political uncertainty surrounding the
elections with the NSE 20 and All Share index
appreciating by 15.8% and 29.1%, respectively,
over the year. The biggest gainers for the year
were Standard Group, Crown Paints, KCB Group
and Diamond Trust Bank with 124.2%, 92.4%,
67.0% and 65.8% gains, respectively.
NSE 20 Share Index
NSE 20 index percentage
change in month to 8 January
2018
All Share index percentage
change in month to 8 January
2018
-1.1%
-0.8%
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
2,700.0
2,900.0
3,100.0
3,300.0
3,500.0
3,700.0
3,900.0
4,100.0
01-Jan-17
01-Feb-17
01-Mar-17
01-Apr-17
01-May-17
01-Jun-17
01-Jul-17
01-Aug-17
01-Sep-17
01-Oct-17
01-Nov-17
01-Dec-17
01-Jan-18
Millions
Volume (RHS) NSE 20 Index
All Share Index
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
110.0
120.0
130.0
140.0
150.0
160.0
170.0
180.0
01-Jan-17
01-Feb-17
01-Mar-17
01-Apr-17
01-May-17
01-Jun-17
01-Jul-17
01-Aug-17
01-Sep-17
01-Oct-17
01-Nov-17
01-Dec-17
01-Jan-18
Millions
Volume (RHS) All Share Index
Bank Dividends at Risk
Banks were present in the top equity price
performers list despite suffering lower interest
incomes during the year resulting from the
interest rate cap. With the introduction of the
new accounting standard IFRS 9 it is expected that
profitability will come under pressure as banks will
have to set aside significant funds to satisfy the
new bad debt provision requirements. It is likely
that this will lead to lower retained earnings thus
adversely affecting future dividend payouts.

TANZANIA MARKET UPDATE
2018: OPTMISTIC OUTLOOK AS THE MACROECONOMIC ENVIRONMENT IMPROVES

A Break from the Past
Focus: Our 2016 review report highlighted three
issues that we felt would define the political
landscape in 2017 and we expect will spill over in
2018:
• Undertones of authoritarianism: The continued
tussle between Magufuli and the opposition
was one of the outstanding issues on Tanzania’s
political scene in 2017. President Magufuli’s
leadership style has been criticized as bordering
authoritarianism by the civil society and media.
His perceived war on democracy remains a
glaring dent in his otherwise stellar record in his
two years in office. He has also overseen major
infringements on the freedom of expression and
the opposition’s ability to communicate with
voters under the new Media Services Act, 2016:
Banning public rallies, shutting down media
houses and jailing perceived critics. This and a
stringofotherunpopulardecisionshaveseenthe
President’s approval ratings drop from a high of
96.0% in 2016 to about 71.0% as of June 2017¹.
Nonetheless, the President’s recent attempts
to claw back revenues from multinational
mining firms received mixed reactions. We have
previously stated that Magufuli’s decision to
tighten the noose on opposition could be due to
their (opposition)’s growing strength since for
the first time in Tanzania’s history, the opposition
is becoming a force to reckon with
• Soured Relations with Neighbours: President
Magufuli’s maiden foreign trips after assuming
power focused on the East Africa Community
(EAC), in what we reckoned as his attempt
to remedy the perception of Tanzania as an
uncooperative member in the integration
process. However, as the year progressed, we
witnessed increasing hostile relations between
Tanzania and its neighbours, particularly
Kenya. We expect that improving relations with
neighbours should be key on the government’s
agenda in 2018, given the importance of these
relations not only for fostering EAC integration,
but also, the increasing bilateral trade relations;
Kenya is a key trade partnerfor Tanzania withthe
latter emerging as the single leading destination
of Kenya’s investment, accounting for 12.5% of
the total stock of external assets in 2015²
• Deferred Reforms: The March 2017
appointment of two members of the defunct
Constitution Review Commission (CRC) and
also who supported the controversial three-
tier government model which, was also the
preferred model by the opposition coalition
Ukawa, to key posts of CCM’s public secretary
as well as Constitutional and Justice Minister,
raised hope of the revival of the constitutional
referendum debate. However, the same hangs
in limbo, two years later
Notable Achievements
Magufuli’s austerity and intolerance for corruption
as well as criticism can be popularly interpreted as
a departure from the previous modus operandi.
To this end, the President has put in considerable
efforts to clear administrative and political hurdles
which had led to public service inefficiency, thus,
bogging down the country’s progress. Similarly,
the continued fight against graft and government
inefficiency which, have highlighted as some of
the key issues affecting doing business in Tanzania,
provide assurance to investors of government’s
goodwill to improve the business environment.
Likewise, Magufuli’s decisive actions against
corruption could be the reason why Tanzania was
the only country among peers that improved in
the Transparency International’s 2016 corruption
index. We do not expect much will change on
the political front, particularly, with regard to
the President’s style of leadership, in 2018. In
this regard, we reiterate our opposition that the
opposition need to rethink through their strategies
to remain relevant and effective in checking
government excesses.
POLITICAL OUTLOOK
TANZANIA
1
https://www.twaweza.org/uploads/files/PeoplesPresident-EN-FINAL-A4.pdf 2
Kenya National Bureau of Statistics

the fragile government relations with investors in
2017 will be carried forward into 2018 as investors,
especially in the extractives sector, grapple with
the new laws which, we reckon are bound to
radically change the playing field for investors.
Similarly, the president’s legislative decisions
underscore the fact that the government is not to
be trifled with and his actions could be interpreted
to be as much pre-negotiation tactics as they are
about unilaterally creating a new mining regime,
departing from his predecessors who were
presumed to favor negotiation and incentives.
1: Best Performing; 190: Worst Performing
To what extent these reforms impact the country’s
businessenvironmentinthelongterm,particularly,
for new investments, remains to be seen but
StratLink maintains the view that these reforms are
expected to set the pace for investors in Tanzania
in 2018 and beyond. Despite the growing fears of
uncertainty as firms struggle to adjust to the new
order, we remain cautiously optimistic about the
sector and Tanzania’s business environment in the
medium to long term, particularly, on the premise
that President Magufuli compromises when he
needs to: He settled a dispute with Dangote in
2016, and it is likely that he will amend recent
changes to mining if he needs to.
A New Dawn for the Mining Sector
Focus: Tanzania has witnessed sweeping change
under President Magufuli who has just entered the
third year of his five-year term, and we expect this
to be carried on throughout his term, as he seeks
to streamline public operations which we reckon
should have a positive impact on the general
business environment in the long term. EAC-EU
Economic Partnership Agreement, one of the
major business developments in 2017, hangs in
the balance following the dilly dallying by partners,
mainly Tanzania and Uganda, who are yet to sign
the deal on account of unfavorable trade deal. We
expect the same to be reviewed in 2018.
Focus on the Natural Resources Sector
The natural resources sector remained the focal
point with regard to business reforms with the
role of the contemporary government in seeking
better returns from mining companies, being one
of the key issues. The mining sector- Tanzanian’s
second largest revenue earner after tourism,
contributes roughly 5.0% of GDP, generates about
one-third of export earnings and provides over
10.0% of government revenue- witnessed a tussle
between government and multinational mining
giants over radical policy changes in the sector
which commenced with a ban on unprocessed
mineral ores and culminated into the enactment
of a new mining law that gives government
sweeping powers, to among other things, tear up
and renegotiate mining contract, own at least a
16.0% stake in mining projects as well as remove
the right to international arbitration³. Following
the new laws, the government agreed on a 50-50
profit sharing arrangement with Barrick Gold as
well as a minimum of 16.0% stake to government
in all mining activities.
Precarious Investor Relations
The 2016 USD 600.0 Million dispute with Dangote
Cement brought to the fore precarious relations
between government and investors, particularly,
over investment incentives. It is our opinion that
Kenya 80
Uganda 122
Tanzania 137
Rwanda 41
Ethiopia 161
Country Doing Business Ranking (out of 190 Countries)
3
Reuters News July 10th, 2017
TANZANIA

year to USD 5,490.4Million, in the year ending
September 2017 to support budget financing.
Subdued government revenue collection and
delays in securing financing for projects threaten
to hold back development spending and hurt
economic growth.
Note: 2017 growth is projected to drop to 6.6%,
compared to 7.0% over the same period in the
previous year, on the back of a sharp fall in lending
to the private sector. However, government
remains optimistic of attaining a 7.0% growth in
2017.
Declining Foreign Funding Threatens Budget
Implementation
Foreign grants shrank to USD 220.5Million during
the financial year 2016/17 from USD 668.2 Million
recorded during the financial year 2014/15.
While the same foreign grant fell to USD 9.7
Million in September 2017 down from USD 86.4
Million recorded during a similar month in 2016⁴.
Government expects to mitigate the shrinking
financing through implementation of a new tax
system. There have been calls for Tanzania to
delay in implementation of infrastructure projects
hinged on the fact that its revenue targets for
the financial year 2017/18 may not be achieved.
And the reduction in external financing strongly
supports this call.
As external financing declines, domestic debt
is bound to maintain an uptrend as government
increases its revenue mobilization efforts. The
domestic debt stock rose by 24.0%, year-on-
Focus: Like many of its peers in the East Africa
Community (EAC), Tanzania’s economy faced
mild headwinds occasioned, principally, by tight
liquidity conditions carried over from 2016. Our
2017 review focused on the government’s drive
for fiscal consolidation as well as improving the
general macroeconomic environment which, we
believe will continue to aid in furthering gains
made since the new administration assumed
office. Nonetheless, the economy, whose slow
down began in the last quarter of 2016, remained
sluggish throughout 2017 in an environment of
tight liquidity conditions driven by constricted
lending to the private sector, thereby undermining
private investment and overall economic growth.
The sluggish growth compelled the central bank to
slash the cash reserve ratio by 200.0 bps to 8.0%
in February and also reduce the discount rate from
16.0%downto9.0%inNovemberinabidtosupport
private sector lending and stimulate the economy.
Our expectation for 2018 is that government will
continue on fiscal consolidation drive in view of its
admission that shrinking funds from development
partners are bound to hamper its 2017/18 budget
financing plans, thus, government has been forced
to turn to domestic sources to boost collections.
Government Revenue Resources for the Quarter
Ending September 2017
Government Debt vs Fiscal Balance as a % of GDP
ECONOMIC OUTLOOK
Source: Tanzania Bureau of Statistics, StratLink Africa
Source: IMF, StratLink Africa
TANZANIA
4
October Monthly Economic Review
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2010
2011
2012
2013
2014
2015
2016
2017e
2018f
Fiscal Balance Government Debt
0.0
100.0
200.0
300.0
400.0
500.0
600.0
IncomeTax
OtherTaxes
Non-revenueTax
GrantsSep-16 Sep-17

Private Sector Credit picks up
The economy has faced turbulence in the face of
shrinking credit extended to the private sector
promptingtheCentralbanktoemployexpansionary
monetary policies in a bid to stimulate money flow
in the economy and subsequent economic growth.
The diminishing public spending - coupled with
private sector concerns over policy uncertainty
- curtailed growth in 2017. We suppose that the
impact of these decisions will begin to be felt in
2018 and eventually ease pressure on liquidity.
Yields Maintain Decline in 2017
Focus: Just like in 2016, yields in the short-term
moneymarketinstrumentstrendedsouthreflecting
subdued inflation as well as increasing liquidity
in the money market. The yields fell from highs
of 15.0% in 2016 down to an average of 8.0% in
2017, consistent with the general oversubscription
witnessed in the period. The 91 Day, the 182 Day
and the 364 Day papers ‘yields plunged by 3.1%,
9.2% and 7.4%, year-on-year, respectively and
0.0%, 1.9% and 1.2%, month-on-month, to close
the year at 4.0%, 5.4% and 8.5%, respectively in
the period under review.
Note: Tight monetary conditions have been
instrumental in taming inflation. Inflation closed
2017 at 4.4%, below the central bank’s medium
target of 5.0%, partly supported by the declining
growth in money supply despite the volatile
Shilling.
Interbank Rates Fall
Interbank rates fell in the period under review,
raising hope that commercial bank lending rates
will also follow suit. Overnight interbank rates
slowed to the weighted average rate of 2.9%
in December 2017, the lowest in five months
suggesting that the monetary stress was being
eased in banking sector and also pointing to the
fact that the liquidity situation in the banking
sector is improving. Liquidity remained tight for
the better part of the year before posting a decline
towards the end of Q4 2016 and right into 2017.
The increasing liquidity can also be attributed to
the expansionary policy decisions employed by
Source: Bank of Tanzania, StratLink Africa
Growth of Bank’s Credit to Select Sectors, year-on-year
Growth in Broad Money Supply
T-Bill Yield Trend
DEBT MARKET UPDATE
TANZANIA
3.50%
5.50%
7.50%
9.50%
11.50%
13.50%
15.50%
17.50%
19.50%
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
91 Day 182 Day 364 Day
-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0%
Tourism
Personal
Transport & Comm.
Trade
Hotels
Buiding & Const.
Manufacturing
Agriculture
Sep-17 Sep-16
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17

Interbank Rate
Shilling to USD, year-on-year
Dar es Salaam Stock Exchange All Share Index
TANZANIA
the Central bank which is now pushing to further
reduction in the discount rate to 6.0% to improve
the liquidity situation.
Bourse Closes 2017 on a Bullish Note
Focus: The market was generally bullish in 2017,
contrary to the performance reported in 2016
on the back of improving macro environment.
Statistics from the Dar es Salaam Stock Exchange
indicatethatoverall,2017postedimprovedtrading
activities with shares worth USD230.1 Million
changing hands against 2016’s USD190.0 Million
with foreign investors maintaining dominance
with over 90.0% of trading activities. 2017 also
saw the bourse listing the first Telecommunication
Company, Vodacom Tanzania on August 15th,
2017, in line with the guidelines requiring
telecommunication licensees to offer at least
25.0% of their issued capital to the public and list
on the Exchange. Vodacom set the record of being
the highest ever initial public offer (IPO) in the
history of the Tanzania bourse. We expect that the
bourse should witness more listings in 2018 given
the increased investor appetite for new listings.
Shilling Strengthens against the Greenback
The shilling has maintained its strength against the
greenback, as interbank rate declined. However,
there has been some build-up of volatility, partly
blamed on fraudulent forex deal, as well as
external environment.
2,140.0
2,160.0
2,180.0
2,200.0
2,220.0
2,240.0
2,260.0
2,280.0
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
50.0
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
InterbankRate(Red)
Volume(TZsBillion)
Shilling change, month-on-
month
All Share Index year-on-
year change
All Share Index month-on-
month change
Shilling depreciation, year-
on-year
-0.2%
9.6%
4.9%-2.3%
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
2,000.0
2,100.0
2,200.0
2,300.0
2,400.0
2,500.0
2,600.0
2,700.0
2,800.0
2,900.0
Volume(Millions)
Price(Red)

Sector Indices
Source: Dar es Salaam Stock Exchange, StratLink Africa
All Share index recovered in 2017 after dismal
performance registered in 2016 and we expect the
good performance to continue as the economy
improves, posting a 4.9%, month-on-month and
9.6%, year-on-year gains to close the year at
2,396.2 units, compared to a decline of 4.4%, year-
on-year in 2016. Likewise, most listed counters
closed the year in the green, backed by positive
results, with TBL, CRDB and EABL being the most
actively traded stocks in the year as investors
maintain a bullish outlook on the listed shares.
Sector Indices Record Mixed Performance
Sector indices posted mixed results in 2017. The
Industrial and Allied Index shot up by 18.0% to
close the year at 5,504.3 units lifting the overall
index performance, while the Commercial
Services index remained unchanged at 2,462.2
units in the period under review. On the other
hand, the Banking Index plunged 10.9% to 2,460.9
points. Banks stocks performance was weighed
down by continue provisioning for bad loans, with
non-performing loans (NPLs) rates continuing to
worsen at each reporting period during the year.
We expect that the sector will witness better
results in 2018 supported by improving macro
conditions as well as liquidity in the economy.
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
Dec-16 Dec-17
TANZANIA

ECONOMY ON TRACK TO RECOVERY
UGANDA MARKET UPDATE

Museveni set to run again in 2021
Just before the turn of the year President
Museveni signed the Constitutional Amendment
Bill No. 2 2017, effectively scrapping the nation’s
presidential age limit which will allow him to run
for the next election in 2021. This is now the
second time that the President has amended
the constitution to allow him to retain power
after having done away with the two, five-year
presidential term limit in 2005. The change also
extends Members of Parliament terms from five to
seven years, beginning with the 10th Parliament.
There has been stiff opposition to the Bill which,
when initially introduced in September 2017, led
to an outbreak of violence in Parliament and wide
spread protests as well as the arrest of opposition
leader Kizza Besigye. Now that the Bill has been
signed into law, a number of separate petitions
are being prepared to challenge the same with
members of civil society, lawyers and politicians
driving the effort.
POLITICAL OUTLOOK
UGANDA
Source: Parliament of the Republic of Uganda
MP Votes for Age Limit Bill
Outlook
AlthoughtheBillwascomfortablypassed,therewas
some resistance from members of the President’s
own party, the National Resistance Movement
(NRM) but the prospect of an extended seven
year term quelled some of the push-back. This is
likely to make policy formation more problematic
down the line which is why we see a deterioration
in the country’s Long Term Political Risk relatively
to the Short Term Political Risk. While President
Museveni will offer policy continuity in the near
term, a lack of cohesion within the party may lead
to disputes further down the line.
There is a likelihood that protesting will elevate
to levels that the government will not be able to
contain. Come the next election in 2021, the odds
will be strongly in President Museveni’s favor given
his incumbency and past performance however,
this will almost certainly cause heightened social
unrest.Andfinally,withnoobvioussuccessorinthe
pipeline there exists a real risk of severe instability
were the President to leave power abruptly.
Note: the lower the percentage the higher the
Political Risk
BMI Political Risk Index
Source: BMI
317
97
2
For Against Abstained
40.0%
45.0%
50.0%
55.0%
60.0%
65.0%
70.0%
Rwanda Tanzania Uganda Kenya
Short Term PoliƟcal Risk Index
Long Term PoliƟcal Risk Index

UGANDA
Gold’s Increasing Importance
The precious metal has become a major source
of export earnings, coming in second after coffee
for 2015/16 and 2016/17. Export earnings from
gold grew blindingly fast between 2014/15 and
2016/17, by a factor of 1,451.2.
One of the main reasons for the sudden explosion
in gold export earnings is the establishment of
gold processing firms in Uganda allowing for more
to be earned in comparison to exporting the raw
material. The state of the art, Belgian-owned
African Gold Refinery (AGR) began operating in
Entebbe in 2014 and was inaugurated by President
Museveni in 2017.
Where is the Gold coming from?
Ugandan mines produces less gold than what is
eventually exported with a large proportion of
it coming into the country from the Democratic
Republic of Congo and South Sudan.
The issue this raises is that with rebels controlling
a number of gold mines in Eastern DRC, the
proceeds from the sale of this gold are funding
human rights abuses and violence in the region.
Going forward, the government will firstly have to
improve the tracking of where gold refined within
the country is sourced which will require better
regulation and enforcement in the Minerals sector.
Once this is addressed, stronger mechanisms
around the issuing of gold export permits will be
needed to avoid future royalty losses.
Uganda Loses out on Gold Royalties
The Auditor General’s 2016/17 report painted a
picture of corruption and poor service delivery
within the government of Uganda. A key finding
was that the government lost out on up to USD
16.9 million¹ of gold royalties in the Financial Year
2016/17.
According to the report, the only entity responsible
for issuing export permits for gold, the Directorate
of Geological Surveys and Mines (DGSM) in the
Ministry of Energy and Mineral development,
issued permits for the exportation of 16.3 kg
of gold in 2016/17. However, records from the
Uganda Revenue Authority (URA) show that 8,691
kg of the precious metal were exported creating a
gaping discrepancy that is unaccounted for.
Major Exports (USD Mn)
Source: BoU, StratLink Africa
1
May have been less depending on the source of the gold which affects the
royalty rate applied
151 13.7%
Uganda’s global ranking in the Corruption
Perceptions Index 2016 by Transparency
International
Proportion of total export revenues earned from
gold and gold compounds in 2016
0.0
100.0
200.0
300.0
400.0
500.0
600.0
2010/11
2011/12
2012/13
2013/14
2014/15
2015/16
2016/17
Coﬀee Gold Fish and its Products

Economy Rebounds
The economy is well on its way to recovery having
posted a growth rate of 7.5% in the first quarter of
the financial year 2017/18, surpassing the modest
2.1% growth achieved in the same quarter of the
previous financial year. Economic growth has been
gradually accelerating since hitting a low in the
first quarter of 2016/17 with the second, third
and fourth quarters of the same financial year
registering expansion rates of 2.8%, 4.6% and
6.5%, respectively.
Growth accelerated across all three economic
sectors but agriculture achieved the biggest
improvement in GDP having contracted by 2.0% in
Q1 2016/17 then expanded by 9.0% in Q1 2017/18
which, considering it accounted for 25.3% of GDP
in the same quarter, was the main driver behind
the boost to the economy. Within the agricultural
sector food crop activities contributed the most
expanding by 11.0% (y-o-y) due to improved yields,
while manufacturing output drove growth in
industry, and telecommunication and commercial
bank activity drove growth in the services sector.
Source: Uganda Bureau of Statistics, StratLink Africa
Source: Uganda Bureau of Statistics, StratLink Africa
GDP Growth Rates
First Quarter (FY)
Sector Growth Rates
ECONOMIC OUTLOOK
UGANDA
MPC Opts to Hold Key Rate
The Monetary Policy Committee (MPC) met in
December 2017 where they chose to retain the
Central Bank Rate (CBR) at 9.5%. This decision was
driven by a number of factors:
• InflationinDecember2017was3.3%,thelowest
it has been since March 2015. Considering
that the CBR was cut by 2.5% during 2017, it is
expected that the lagged pass-through effect of
loose monetary policy will continue into 2018
thereby boosting economic activity and driving
up core inflation which, at 3.0% in December
2017, is below the Bank of Uganda’s (BoU) policy
target of 5.0%. Prices for food crops and related
items actually contracted in December 2017,
relatively to the same month in 2016, posting an
inflation rate of-0.7% on the back of improved
agricultural output. This relieves the economy
of cost push inflation thus accommodating the
BoU’s loose monetary policy stance
• The uptick in economic activity is expected to
progress organically and will continue to be
supported as the rate cuts of 2017 take effect in
the year ahead
4.8%
3.8%
1.5%
6.1%
2.1%
7.5%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
2012/13
2013/14
2014/15
2015/16
2016/17
2017/18
-3.0%
-1.0%
1.0%
3.0%
5.0%
7.0%
9.0%
Agriculture Industry Services
Q1 2016/17 Q1 2017/18

Risks to Outlook
The economy is on track to grow at a solid pace
in the medium term with the additional support
of the Bank of Uganda’s dovish monetary policy
stance. The fact that inflation is at a multi-year low
means that the MPC has room to cut the Central
Bank rate in the year ahead if need be without
risking deteriorating the real interest rate too
drastically.
However, there is still an elevated level of non-
performing loans and the cost of credit remains
slow in following the downward trend of the
CBR thus hindering the amount of credit being
extendedto theprivate sector whichcouldhamper
GDP growth. In addition, anticipated government
investments in transport and energy projects are
susceptible to ineffective planning and a shortage
of funds, as seen in the past.
• Significant investments on a number of large
scale projects the government has planned in
energy and transport will support economic
output going forward
Inflation and the CBR
Source: Bank of Uganda, StratLink Africa
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Headline InﬂaƟon Central Bank Rate
3.0%
Core inflation in December 2017
Liquidity in the market improved in the first week
of the year with the overnight interbank rate
falling from 9.1% on 2 January 2018 to 6.7% on the
10th of the same month. This is likely to change
as investors look forward to the first government
bond issue of the year on 24 January 2018.
Slight Drop in Yields on Subdued Inflationary
Expectations
In the two months to 10 January 2018, rates
on government securities fell for those with
maturities between three months and one
year while yields on longer maturity bonds fell
marginally. Expectations that inflation will remain
low and that the Bank of Uganda will retain its
dovish monetary policy stance in the year ahead
are partly responsible the downward shift in the
shorter maturity end of the yield curve since real
yields remain intact.
StratLink believes that yields are unlikely to get
much higher than presently given the Bank of
Uganda’s agenda.
DEBT MARKET UPDATE
UGANDA
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
3M 6M 1Y 2Y 3Y 5Y 10Y
10-Jan-18 07-Nov-17

UGANDA
Interbank Overnight Rate
UGX to USD
All share index year – on – year
change as at 9 January 2017
All Share Index month –
on – month change as at 9
January 2017
33.6%
8.8%
Bourse Shoots up Before Close of 2017
Overall, 2017 was a good year for the Ugandan
equity market with the All Share Index recording
a 30.9% appreciation over the same period. Given
StratLink’s positive outlook with regard to the
country’s economic performance in the medium
term, it is expected that companies listed on the
bourse will experience the benefits of enhanced
growth going forward which is likely to be reflected
in their share prices.
Shilling to come Under Pressure
The turn of the year saw the local unit depreciate
quite drastically as high dollar demand from
commercial banks looking to close 2017 with
comfortable dollar positions weighed on the
shilling. The year ahead is likely to see the shilling
depreciate further and possibly surpass UGX
3,700.0 to the greenback because unattractive low
interest rates will reduce foreign demand for local
bonds thus slowing a key source of hard currency
inflows.
All Share Index
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
10.5%
07-Nov-17
14-Nov-17
21-Nov-17
28-Nov-17
05-Dec-17
12-Dec-17
19-Dec-17
26-Dec-17
02-Jan-18
09-Jan-18
3,570.0
3,580.0
3,590.0
3,600.0
3,610.0
3,620.0
3,630.0
3,640.0
3,650.0
3,660.0
01-Jun-17
01-Jul-17
01-Aug-17
01-Sep-17
01-Oct-17
01-Nov-17
01-Dec-17
01-Jan-18
1,600.0
1,650.0
1,700.0
1,750.0
1,800.0
1,850.0
1,900.0
1,950.0
2,000.0
2,050.0
01-Aug-17
15-Aug-17
29-Aug-17
12-Sep-17
26-Sep-17
10-Oct-17
24-Oct-17
07-Nov-17
21-Nov-17
05-Dec-17
19-Dec-17
02-Jan-18

GOVERNMENT TO CONSOLIDATE FISCAL GAINS IN 2018
GHANA MARKET UPDATE

GHANA
Fiscal Reforms Top Agenda as Government
Winds IMF Support
Ghana’spoliticalriskprofilein2017wasdominated
by micro-political risk as the new administration
took charge following the December 2016 general
election.Ouroutlookfor2017anticipatedausterity
measures under the New Patriotic Party which
assumed office on a platform of addressing the
adverse macroeconomic environment at a time
when the country’s fiscal deficit had deteriorated
to 8.9% of GDP¹. In line with this expectation, the
following developments were notable in 2017:
• Available data on programmed and actual
expenditure in the first six months of 2017
indicatesthelatterstoodwas16.0%lessthanthe
former and suggests the new administration is
undertaking much needed prudent fiscal policy
in light of the macroeconomic environment. Of
note is that:
1. Significant decline has been reported
in wages and salaries, 8.0% below the
programmed amount² at USD 723.4 Million
2. Further, the government reported no
expenditure on subsidies (to utility
companies and petroleum products) against
a programmed expenditure of USD 11.0
Million between Q1 and Q3 2017. This is a
welcome development and suggests there is
promiseinthepolicyenvironment’soutlook,
notably under the pledge of restoring fiscal
discipline and macroeconomic stability,
under the new government
POLITICAL OUTLOOK
1
International Monetary Fund
2
Ministry of Finance Ghana
3
Reuters News Agency August 30th, 2017
• The Ministry of Finance indicated, in July 2017,
that it does not intend to enter into a new deal
with the International Monetary Fund (IMF)
once the recently extended one winds up. In
August 2017, IMF reviewed and extended the
country’s Extended Credit Facility, reported to
have been worth USD 918.0 Million³ at the start
of the programme, to run for a year beyond the
initial April 2018 deadline. With this in mind, we
expect 2018 to be characterized by heightened
fiscal reforms as the economy looks to prop
itself beyond 2019
Outlook 2018: Will the uptick in commodity
prices slowdown fiscal consolidation?
Despite being a remote risk, it remains to be
seen whether the general uptick in commodity
prices, and potential rise in revenue, will derail the
government’s fiscal consolidation efforts in 2018.
With the government having pledged tax cuts in
the run-up to the 2016 election, the likelihood
that the earliest opportunity for expansionary
policy could be seized cannot be ignored.
Actual Expenditure as a Percentage of Programmed
Expenditure
Source: Ministry of Finance Ghana, StratLink Africa
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17

Between 2016 and 2017, NPLs have grown
to be concentrated in the private sector and
could serve as an indicator of the adverse
economic conditions faced by the business
environment.
2. Also worthy of note is the fact that between
April 2016 and April 2017 the banking
sector’s Return on Equity declined from
22.0% to 19.3% and is sending a signal to
investors that there has been relatively
lower efficiency in the sector as a whole
Bank Non-Performing Loans to Total Gross Loans
NPL Distribution
Source: World Bank, StratLink Africa Ltd
Source: Bank of Ghana StratLink Africa Ltd
Banking Sector Comes Under Spotlight
The banking sector came under sharp focus in
2017 following revocation of the licenses of UT
Bank Ltd and Capital Bank Ltd due to what Bank of
Ghana has termed as “severe capital impairment”.
This has placed the spotlight on the banking sector.
The following points are important to observe with
regard to the banking sector.
Official data points to a sector with mixed signals
A number of factors, as indicated by data from
Bank of Ghana, suggest that the banking sector,
on the whole, is robust.
1. As at the end of April 2017, the capital
adequacy ratio stood at 17.4% against the
regulatory threshold of 10.0%
2. As at the end of Q1 2017, the sector’s
profitability seemed to be on a rebound
with income before tax growing by 13.7%,
year-on-year, compared to 1.4% in the same
period in 2016
With that in mind, it is important to point out that
a number of factors also elicit concern about the
sector.⁴
1. A high Non-Performing Loans ratio (NPL),
higher than regional peers such as Kenya,
Nigeria and South Africa, stands out. In
2016, Ghana’s NPL ratio surged to 17.3%,
compared to 14.7% in the previous year5
with Bank of Ghana attributing this trend to
the downgrade of some assets following the
Asset Quality Review (AQR) exercise
BUSINESS ENVIRONMENT
4
Bank of Ghana
5
World Bank
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Ghana Nigeria Kenya South
Africa
GHANA
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jan-16 Jan-17
Private Sector Public Sector

GHANA
Revenue Mobilization Falls Below Target in the
First Half of 2017
The economic environment in 2017 was defined
by a strong and sustained rebound with growth,
year-on-year, averaging 8.3% in Q1, Q2 and Q3,
compared to 3.4% in the same period in 2016.
Additionally, Bank of Ghana furthered the rate
slash cycle began in Q4 2016 with four slashes
in 2017 that saw the policy rate close the year at
20.0% compared to 25.5% at the start of the year.
We witnessed a more aggressive expansionary
policy than our outlook for 2017 had anticipated, a
fact that we believe can be ascribed to two factors:
• The Cedi was more resilient in 2017 than
our outlook had anticipated having held firm
against the greenback for the better part of the
year. This trend was supported by a narrowing
of the current account deficit due to a surplus
in the trade balance and higher inflows of
private transfers. We note that this period saw
the price of oil and gold, two of the country’s
leading exports, rise thus supporting the trade
balance
Monetary Policy Rate
ECONOMIC OUTLOOK
6
• Underperformance in revenue mobilization,
alongside the ongoing fiscal consolidation
efforts, are likely to have created need for a
more aggressive monetary policy to countervail
the drag on the economy. Of all sources of
revenue, only one (taxation on domestic goods
and services) registered a performance rate
above 90.0%. This suggests that majority of
the sources of revenue are under strain and
present a hurdle to the growth momentum
Revenue mobilized from grants was
considerably below target at 60.8% and will
be a matter of great interest to observe how
it performs going forward. With tax revenue
to GDP ratio having declined from 23.4% in
2015 to 20.1% in 2016⁶, there is heightened
need for the country to boost non-tax revenue
sources, such as grants. In the same period in
2016, grants posted a 108.7% performance
rate eliciting concern as to what could have
occasioned the underperformance in 2017
Cedi’s depreciation between
January 3rd 2017 and December
29th, 2017
-2.3%
12.0%
14.0%
16.0%
18.0%
20.0%
22.0%
24.0%
26.0%
28.0%
Feb-13
Jul-13
Dec-13
May-14
Oct-14
Mar-15
Aug-15
Jan-16
Jun-16
Nov-16
Apr-17
Sep-17
Cedi to USD Exchange
4.25
4.30
4.35
4.40
4.45
4.50
4.55
4.60
4.65
4.70
Nov-17
Nov-17
Nov-17
Nov-17
Nov-17
Dec-17
Dec-17
Dec-17
Dec-17

GHANA
Source of Revenue
Headline Inflation
Monetary policy in 2018: Likelihood of more
cautions expansion
We expect to see a more cautious monetary
expansion in 2018 informed by slow decline
in inflation. Headline inflation is still above the
central bank’s target ceiling of 10.0% and will likely
necessitate cautious monetary expansion, if any,
in the first half of 2018.
Tax on income
Taxes on domesƟc products
Tax revenue on internaƟonal trade
Non-tax revenue
Grants
9.0%
11.0%
13.0%
15.0%
17.0%
19.0%
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
As a result of the decrease in the cost of short-
term credit, we continue to witness increase in the
government’s uptake of credit on the short-term
end of the market.
Yields Decline on Inflation Expectations
Thefixedincomemarketsawyieldsdeclinethrough
2017 mimicking the downtrend in inflation. This
was also supported by a general rise in liquidity in
the money market with the interbank rate starting
Q4 2017 at 20.9% compared to 25.2% in January
2017.
T-Bill Yields
Interbank Rate
Source: Bank of Ghana, StratLink Africa
DEBT MARKET UPDATE
11.0%
13.0%
15.0%
17.0%
19.0%
21.0%
23.0%
25.0%
27.0%
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
91 Day 182 Day Headline InﬂaƟon
20.0%
21.0%
22.0%
23.0%
24.0%
25.0%
26.0%
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17

GHANA
Ghana Composite Index appreciation
between January 3rd, 2017 and
December 29th, 2017
52.7%
Market Rallies in 2018
The stock exchange was bullish in 2017 propelled
by confidence in three factors:
• Improvement in the macroeconomic
environment especially with the upturn in
commodity prices after the 2014 – 2016 rout
• The new administration’s policy approach that
indicates focus on addressing the country’s
economic vulnerabilities
• The decline in fixed income yields is likely to
have shifted investors’ interest to the stock
market
Goingforward,weexpecttoseetherallymoderate.
In September 2017, Bank of Ghana raised the
capital requirement for commercial banks to USD
88.0 Million, from USD 26.4 Million. This is likely
to see investors adopt a wait-and-see stance on
banking stocks and slowdown the market.
Ghana Composite Index
Gross Foreign Exchange Reserves vs Months of
Import Cover
T-Bill Bids Uptake Ratio
With gross foreign exchange reserves and months
of import cover declining, we expect liquidity to be
relatively tight in the coming months with a view
to strengthen the Cedi.
Uptake of T-Bills (ratio of amount accepted to that
which was tendered) rose in the second half of
2017.
USD 6.9 Bln
Gross foreign exchange reserves held by Bank of
Ghana as at end of October 2017
3.5
3.7
3.9
4.1
4.3
4.5
4.7
4.9
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
6,000.0
7,000.0
8,000.0
9,000.0
Jan-17
Feb-17
Mar-17
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Gross Reserves (USD Mln)
Import Cover (RHS)
76.0%
78.0%
80.0%
82.0%
84.0%
86.0%
88.0%
90.0%
92.0%
94.0%
5/5/2017
12/5/2017
19/5/2017
26/5/2017
7/6/2017
16/6/2017
23/6/2017
30/6/2017
7/7/2017
14/7/2017
21/7/2017
28/7/2017
4/8/2017
11/8/2017
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1,500.0
1,700.0
1,900.0
2,100.0
2,300.0
2,500.0
2,700.0
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Billions
Volume (RHS) Ghana Composite Index

CONCESSION TO OFFER TAILWINDS, ALBEIT, TEMPORARILY
ETHIOPIA MARKET UPDATE

ETHIOPIA
Oromo and Amhara Protests: Fragile Calm
Prevails
Focus: Our 2016 political outlook for Ethiopia
remained cautiously optimistic on the back of
the fragile political outlook given the ethnic
clashes between the Oromia and Amhara regions
which spilled over into 2017 and bringing to the
fore deeper, simmering discontent amongst the
public who feel marginalized under the infamous
Anti-terrorism Law (2009) that continue to be
widely criticized within and without Ethiopia for
creating an avenue through which the state can
muzzle dissent. The clashes endured in 2017 with
a subsequent media shut down leading to the
extension of the state of emergency which, had
been declared in October 2016, to August 2017,
signifying improvement in the country’s political
risk profile. Our expectations of government
rethinking some of the political decisions and
correcting some of the errors that may have led to
the outbreak of protests may have come to pass
given the decision by government to release some
of the political prisoners marking the beginning of
an improved and inclusive political environment in
2018 and in the future.
Extending an Olive Branch: Signals to a new
Approach to Dissent
The declaration may have taken took long to come
but finally in what may seem like a glimmer of
hope for a more democratic Ethiopia, government
agreed to release some political prisoners and
close the detention camp in what we reckon is
a positive gesture from government towards
political inclusivity and should help cool the ethnic
tensions in the country, albeit in the short term,
while promoting the country’s social and political
stability. The recent concessions constitute the
most significant change in Ethiopia in the last
three years. In as much as the implementation
timelines are yet to be outlined, and whether the
announcement is a genuine step toward reform
or merely a move to stifle growing domestic
and international criticism, we opine that this is
the right step towards addressing the countries
deep-seated political issues and should herald
a new dawn for Ethiopia’s political democracy in
2018. In another positive move, the Ethiopian
House of People’s Representatives is set to form
a committee to probe the recent dispute between
two of Ethiopia’s largest ethnic groups while
providing long term solutions to the dispute.
Long Term Risks Linger
Be that as it may, without further steps towards
combating feelings of marginalization by the
Oromo and Amhara communities, long-term
improvement is unlikely without greater political
integration. We are of the view that other key
issues that warrant the government’s attention
includepermittingpeacefulprotestsandreforming
repressive laws. Such reforms would signal the
ruling coalition’s willingness to listen and embark
on a path that offers greater democratic and
political space. In this regard, we expect greater
political integration in 2018 as government seeks
to foster national cohesion.
Gaps in Much Needed Reforms
Despite the attempts by government to mitigate
rising political pressures by fostering a sense of
inclusion, we feel that the government has to
institute real reform, absence of which, Ethiopia is
bound to witness increasing public dissent in the
long-term. While this move may temporarily quell
demonstrations, it will not address the factors
underlying the unrest, most notably, concerns over
the lack of economic and political representation
by the majority Oromo and Amhara ethnic groups.
This suggests that protests will remain a concern
for investors in Ethiopia over the long term, a
factor which needs long term mitigation solutions
to improve not only the 2018 political outlook, but
also ensure long term stability.
POLITICAL OUTLOOK

Focus: Our 2017 evaluation of Ethiopia’s business
outlook focused on the increasing sino-Ethiopia
cooperation in terms of development financing. In
addition, we still expect that operationalization of
Key projects, for instance, Sebeta-Mieso-Djibouti
Railway project, whose completion is projected for
October 2018, will remain a crucial development
for the business environment in 2018.
Sectors to Watch in 2018
Banking: We expect that the banking sector
in Ethiopia will continue attracting investment
leveraging the benefits of sector liberalization. The
sector started off the year with the registration of
a new bank: Dalol Bank SC, making it the 17th
private bank and making the number of banks 19,
in the sector dominated by the Commercial Bank
of Ethiopia, owing to the stringent registration
requirements including the country’s investment
laws requiring that all shareholders be locals. Key
developments that should shape sector growth in
2018 include:
Accountability Mechanisms: Significant moves to
increase the transparency of commercial banks’
operations and to strengthen accountability
mechanisms.
Bond Trading Market: In October 2017 the
National Bank of Ethiopia announced that the
secondary market for bond trading would be
launched in 2018. We remain optimistic that the
market, once launched, will be upgraded into a
capital market in the long term.
Energy: Ethiopia has an ambitious National
Electrification Program (NEP) for achieving
universal electricity access nationwide by 2025,
given the low electricity coverage of 25.0% with
only 10.0% rural electrification. The country has
also secured USD 400.0 Million in funding from
the World Bank to this end. Hence, we expect
energy projects to take priority in 2018 with rural
electrification taking center stage in order to bring
about holistic transformation.
ETHIOPIA
Source: International Monetary Fund, StratLink Africa
Real GDP Growth
Focus: In our 2017 economic outlook for Ethiopia,
StratLink opined that the perennial drought would
present headwinds to growth through 2017, and
the lagged effects of the drought can be seen in
the soaring food inflation. Nonetheless, we expect
improved food security in 2018, on the back of
improving weather conditions. In this regard,
we are of the opinion that growth will remain
relatively robust in 2018 and beyond supported
by infrastructure investment and increased export
opportunities. However, we note that political
risks will offer longer-term headwinds. 2017
also witnessed a 15.0% devaluation of the Birr
against the greenback with a 200.0 bps increase
in interest rates to7.0% aimed at mitigating the
inflationary effects of the devaluation, effective
October 11th, 2017 as the country sought to boost
exports. Ethiopia’s growth will remain relatively
robust in the coming years owing to infrastructure
investment as we expect that the progression of
the Second Growth and Transformation Plan (GTP
II) will boost infrastructure investment, with power
and transport development set to continue.
Estimated better harvests will likely see some
further tailwinds from the devaluation of the birr
in October and boost growth. Additionally, the
government budget for fiscal year 2017/18 sets
out plans to invest heavily in social infrastructure
ECONOMIC OUTLOOK
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
2010
2011
2012
2013
2014
2015
2016
2017e
2017f

ETHIOPIA
Inflation vs Food Inflation, year-on-year
Source: Central Statistical Agency, Bloomberg, StratLink Africa
Nonetheless, the demand for the country’s
exports should rise in line with the devaluation and
support the country’s foreign exchange deficiency.
While Coffee is one of Ethiopia’s major exports,
revenues from the crop have fallen short of the
government’s targets over the years as global
commodity prices took a dip; the share of exports
to the GDP has been on a decline since 2011, from
15.5% down to 7.3%¹ in financial year 2016. In this
regard,Governmenthasbeenbuildinganumberof
industrial parks nationwide to boost earnings: Out
of the eleven industrial parks under construction,
four are already operational, earning Ethiopia the
much needed foreign exchange. For instance,
food prices after better harvests, and mostly boost
non-food inflation. In the wake of exchange rate
adjustment, Ethiopia witnessed the highest food
inflation in almost five years despite the measures
taken by the central government to control the
money supply, hitting highs of 18.2% in November
before declining slightly to close the year at 17.4%.
The soaring inflation is a major impediment for the
government that had managed to maintain the
inflation rate in a single digit for over two and half
years, since the El Nino induced drought hit the
nation.
as well as the improving coffee outlook which,
should also add to growth.
Birr Maintains Resilience after Devaluation
Ethiopia’s central bank devalued the Ethiopian birr
by 15.0% in October 2017, its first such move in
seven years to boost lagging exports which, are
mostly unprocessed, owing to the birr’s strong
value against major currencies, particularly
the green back. Available data indicates that
increasing shortage of foreign exchange due to low
commodity prices has continued to pile pressure
on the local currency as exports earnings declined.
The Birr remains fragile but maintained resilience
against the greenback, depreciating marginally,
by 60.0bps, month-on-month to close the year at
27.6 units.
Birr to USD
The total export revenue has been falling short
of targets for the last few years owing to weaker
commodity prices: Export revenues declined to
USD2.9Billionin2016/17versusatargetofUSD4.0
Billion. The previous 17.0% devaluation of the Birr
in 2010, principally contributed to about 40.0%
rise in inflation post devaluation. Thus, there is
potential for the weaker Birr to feed into inflation,
squeezing consumer spending power, given that
Ethiopia is dependent on extensive imports of
capital and consumer goods. The devaluation is
also likely to more than offset the impact of lower
21.0
22.0
23.0
24.0
25.0
26.0
27.0
28.0
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
2.5%
4.5%
6.5%
8.5%
10.5%
12.5%
14.5%
16.5%
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
InﬂaƟon Food InﬂaƟon
1
International Monetary Fund World Economic Outlook

ETHIOPIA
Current Account Balance as % of GDP (Fiscal Year)the nation earns about USD1.5 Million monthly
exporting textile and garment from Hawassa
industrial park. Ethiopia also envisages to gain
approximately USD 400.0 Million from textile and
garment exports in this fiscal year². Thus, better
harvests and the inauguration of several industrial
parks will likely see export volumes increase in the
coming quarters.
Optimistic Outlook for the Current Account
Ethiopia’s current account deficit will gradually
narrow in 2018 and 2019 as a recent currency
devaluation suppresses demand for imports and
boosts export competitiveness. Coupled with our
expectation for robust foreign direct investment
and continued access to concessional financing,
the narrowing current account shortfalls will begin
to allow Ethiopia to build up its foreign reserves,
positioning it to more comfortably defend the
crawling peg in the near term after an estimated
current account deficit of 11.2% of GDP in 2017. In
the near term we expect that robust foreign direct
investment (FDI) and ample access to foreign
financing will be sufficient to fund the narrowed
current account shortfalls, allowing the country to
slowly build up foreign reserves.
Source: International Monetary Fund, StratLink Africa
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2010
2011
2012
2013
2014
2015
2016
2017e
2018f
2
The Ethiopian Herald, December 12th, 2017

ETHIOPIA
FIXED EXCHANGE RATE REGIME DITCHED
ANGOLA MARKET UPDATE

January 2018 Africa Market Update

January 2018 Africa Market Update

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