We are pleased to release the January 2019 Africa Market Update themed Mitigating rising pressures in sub-Saharan Africa economies. This report comes against the backdrop of a challenging year for economies in the region given a general rise in monetary and fiscal pressures in 2018. On the whole, we expect 2019 to present a litmus test for policy adjustments aimed at countervailing the growing headwinds faced by economies in sub-Saharan Africa notably from a monetary perspective. The report covers the economies of Nigeria, Zambia, Kenya, Tanzania, Uganda, Rwanda, Ethiopia and Ghana.
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Africa Market Update - January 2019
1. MARKET UPDATE – AFRICA
JANUARY 2019
2018 Review & Outlook 2019
Steering an uneasy course:
Mitigating rising pressures in sub-Saharan Africa economies
NIGERIA | ZAMBIA | KENYA | TANZANIA | UGANDA | GHANA | ETHIOPIA | RWANDA
2. 2JANUARY 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
A Financial Advisory
Company
JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
NIGERIA 5
ZAMBIA 12
KENYA 18
UGANDA 32
GHANA
ETHIOPIA
RWANDA
38
44
49
TANZANIA 25
Table of Contents
3. 3JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Value of Disclosed Transactions by Country (USD Mln)
AFRICA DEALS LANDSCAPE
January 2018 – December 2018
Source: PitchBook, StratLink Africa
Transaction activity by sectors Transaction activity by type of deal
5 Largest Disclosed Deals - 2018
• Nigeria - Non-alcoholic beverages manufacturer, Chi, was acquired by Coca Cola for USD 5.1 billion with the take-over set to be completed within Q1 2019
• Angola - Petrobras Oil and Gas was acquired by Vitol Holding, Delonex Energy and Africa Oil for USD 1.5 billion in October 2018
• Algeria - Sonatrach Total Enterprise Polymeres was formed as a joint venture between Sonatrach and Total for USD 1.4 billion in May 2018
• Algeria - Imetal Group sold a 49% stake in the El-Hadjar Iron and Steel Complex to Emarat Dzayer for USD 1.3 billion
• South Africa – Dis-Chem Pharmacies was acquired by Ivlyn No 4 Proprietary for USD 1.1 billion in April 2018
Note: The chart above covers only the twenty most active economies in terms of the value of transactions undertaken in 2018.
South Africa
Nigeria
Algeria
Egypt
Angola
Morocco
Kenya
Libya
Mozambique
Namibia
Senegal
Ethiopia
Uganda
Ghana
Mauritius
Madagascar
Burkina Faso
Mali
Tanzania
Zambia
13,825.8
9,781.9
2,796.1
2,788.1
1,685.0
1,563.5
1,094.0
900.0
892.7
693.2
477.0
405.7
387.4
207.5
113.3
94.2
64.0
61.2
60.1
58.3
Communications &
networking
Energy services
Insurance
Metals, minerals
and mining
Commercial
services
Retail
Others
23.0%
16.1%
11.2%
6.0%
4.1%
2.0%
37.6%
Mergers and acquisitions 49.0% Corporate divestiture 25.6%
2.0% Others 23.4%
49.0%
25.6%
2.0%
23.4%
4. 4JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Note to Investors:
Sub-Saharan Africa in 2019
Steering an uneasy course – Mitigating rising pressures in sub-Saharan Africa economies
Our January 2018 Africa Market Update was themed ‘Harnessing the growth spurt: Can
sub-Saharan Africa consolidate the gains of fragile growth?’. This issue came against the
backdrop of economies in the region rebounding from the downturn triggered by the rout
in commodity prices between 2014 and 2015. In a number of countries, uneven growth
between commodity and non-commodity driven segments of the economy stood out as a
key risk driver. As projected, 2018 was, by and large, a challenging years for frontier markets
with a build-up of vulnerabilities witnessed on the monetary and fiscal sides informed
principally by concerns over rising external debt and deepening depreciation of currencies. In economies
such as Nigeria and Zambia, we tabled a case for fragile recovery with the expectation that Central Banks were
bound to confront headwinds in steering the monetary environment amidst dwindling foreign exchange reserves and
resurgence of inflation. In Ghana, we anticipated a slowdown in a switch to expansionary monetary policy, a trend
that was witnessed with the Bank of Ghana keeping the benchmark rate at 17.0% in the last four meetings of the
2018.
Our January 2019 issue is themed ‘Steering an uneasy course: Mitigating rising pressures in sub-Saharan Africa
economies’. Whereas we remain broadly optimistic in our outlook on the region, we are cognizant of a number of
headwinds, both domestic and external, which threaten to derail the recovery of sub-Saharan Africa. In Nigeria,
the Central Bank’s forward guiding statements at the end of 2018 signal the likelihood that growth will continue
to punch below capacity in 2019 as uptake of credit by the private sector is bound to continue being constrained.
Coupled with a general election in February and rising unemployment, this suggests that the private sector is headed
for a challenging period at a time when there is urgent need to stir balanced growth. Zambia will be an economy
to be closely monitored in 2019. Faced with growing concerns over the external debt position, it is bound to be a
daunting path as the government seeks to make good its quest for fiscal consolidation in the months ahead. With
Ghana poised to unwind the expansionary monetary policy adopted in 2018, our focus will be on how this impacts
the already tight credit conditions in the economy and how the private sector performs in this regard. These risks
are, however, not without bright spots for the region. In 2018 Ethiopia witnessed accelerated efforts to liberalize
the economy. The months ahead present an opportunity to give clarity on the path to be pursued by the country
regarding key sectors such as Banking and Finance and Telecommunications which remain under state control. On the
whole, we expect 2019 to be a year in which the policy space, both monetary and fiscal, to countervail pressures in a
number of economies will be put to test.
StratLink Africa
Research Desk
7. 7JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Nigeria heads for the February 19th, 2019 general
election with the following standing out as key
issues.
Tailwinds
• The country faces a general election amidst
a significantly better environment from an
internal security standpoint than it did the 2015
general election. With Boko Haram increasingly
diminished, Nigeria’s political risk profile has a
major tailwind ahead of the Q1 2019 poll
• The stable transition upon the loss of the
incumbent in the last general election sets a
favorable precedent in which the verdict of the
people as pronounced by Electoral Commission
is respected
• The decision by the Federal High Court to annul
the amendment of Section 25 of the Electoral
Act which would pave way for changing the
order off elections was a major score for the
Electoral Commission ahead of the February
2019 poll
Headwinds
• The surge in unemployment presents a major
risk to the stability of the country especially in
an election cycle. The mass of disenfranchised
persons is rendered susceptible to manipulation
by the political elite including to stoke instability
in parts of the country
• Nigeria’selectionsaretraditionallycharacterized
by a decisive winner at the poll. We believe that
this has played a key role in helping defuse the
tension often associated with post-election
strife in a number of peer economies. Failure by
either of the main candidates, from the People’s
Democratic Party and the All Progressives
Congress, to yield a decisive outcome at the poll
is bound to present a pressure point for Nigeria
Voter Turnout: A Key Issue in 2019
Voter turnout in Nigeria’s elections has been on
a general decline since the 2003 election. This
suggests that there has been growing apathy from
the electorate regarding the general election. In
the forthcoming election, this will be a key issue to
look at given the pervasive concern over the state
of the economy and how it has impacted ordinary
citizens.
POLITICAL OUTLOOK
GDP: USD 417.2 Bln | Population: 196.0 Mln
NIGERIA
Outcome of General Elections in Nigeria
Source: Electoral Commission Nigeria, StratLink Africa
Source: Electoral Commission Nigeria, StratLink Africa
Rate of Unemployment in Nigeria
Source: Nigeria Bureau of Statistics, StratLink Africa
Election Year Voter Turnout
2003 69.1%
2007 57.5%
2011 53.7%
2015 43.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Q1
2015
Q3
2015
Q1
2016
Q3
2016
Q1
2017
Q3
2017
Q1
2018
Q3
2018
The March 2015
general elecƟon
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2003 2007 2011 2015
Winning Candidate Lead Challenger Others
8. 8JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Will Bright Spots Countervail Lingering Risks?
The business environment wound up 2018 with a
slowdown in agriculture dimming the prospects of
a vital non-oil bright spot. Our view on the business
environment in 2019 is hinged on, amongst others,
two factors:
• The slowdown of agriculture notwithstanding,
the manufacturing sector gathered pace
after contracting at the tail end of 2017. With
commercial bank lending rates ticking upwards,
we expect a relatively slow first half of 2019
for the private sector. The sagging price of oil
in the global market could also translate into
scarcity of foreign currency in the economy,
adversely affecting the manufacturing sector
through need for importation of inputs using
hard currency.
• The proposed hike in the minimum wage, which
has been provided for in the 2019 budget
proposal, is bound to play a key role in stirring
demand and providing a boost for the economy.
With the November 2018 Monetary Policy
Communique citing adverse effects from the
output gap, how this hike props consumption
will be a matter to be closely followed in 2019
BUSINESS NEWS ENVIRONMENT
Source: Nigeria Bureau of Statistics, StratLink Africa
Agriculture and Manufacturing
NIGERIA
Commercial Bank Lending Rate
Source: National Bureau of Statistics, StratLink Africa
Weak Growth and Tight Monetary Policy Dim
Outlook
Daunting policy decisions await Nigeria in 2019
prodding us into a cautiously optimistic outlook
on the economy. The following are our key
considerations:
• In November 2018, the Central Bank signaled
a contractionary trajectory as far as monetary
policy is concerned. This suggests that the
credit conditions are set to tighten further
raising concern over the private sector activity
outlook for the months ahead. In light of this,
we expect to witness reversal of the commercial
bank lending rate after a full year of steady
decline. The pace of growth of credit to the
private sector is likely to decelerate after the
slight acceleration witnessed in 2018
• Economic growth though rebounding is still
punching significantly below pre-crisis highs.
This suggests that Nigeria’s rebound from the
2016 recession has been fragile thus far and is
poised to be undermined by the likelihood of
tighter monetary policy in the horizon. A key
factor informing this has been Nigeria’s uneven
growth momentum which has seen the oil
segment of the economy gaining pace whilst
the non-oil segment remained lethargic
ECONOMIC OUTLOOK
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Q1
2017
Q2
2017
Q3
2017
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Manufacturing Agriculture
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
17.5%
18.0%
18.5%
Jan-15
Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17
May-18
Oct-18
Average Credit Lending Rate - LHS
Growth in Credit to the Private Sector
9. 9JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Sovereign Yield Curve
Inflation in Nigeria
GDP Growth
Tax Revenue Mobilized (USD)
Source: Bloomberg, StratLink Africa
Source: Nigeria Debt Management Office, StratLink Africa
Source: National Bureau of Statistics, StratLink Africa
Source: National Bureau of Statistics, StratLink Africa
NIGERIA
Resurging Inflation Poses Threat to Declining
Yields in 2019
The yield curve corrected in 2018 boding well
for investor sentiment around the economy’s
prospectsinthemediumterm.Therewasageneral
decline in yields for short-term government paper
even as the long-term witnessed a strong uptick. In
2019 we expect a general rise in yields especially
as inflation pressures resurge in the economy.
• In the first three quarters of 2018, the Federal
Inland Revenue Service mobilized USD 10.7
billion in tax revenue reporting a performance
rate of 76.8%. With tax revenue failing to meet
its target, the Federal Government is likely
to confront challenges in meeting planned
expenditure despite the 2019 proposed budget
being smaller than that of 2018. Possible
borrowing from the domestic market will result
in tightening credit conditions for the private
sector through crowding out
Theflat-liningofinflationinthesecondhalfof2018
indicates that the likelihood that the economy
could tame inflation within the target band, 6.0%-
9.0%, in the near-term is remote.
DEBT MARKET UPDATE
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Q12013
Q32013
Q12014
Q32014
Q12015
Q32015
Q12016
Q32016
Q12017
Q32017
Q12018
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Q1 2018 Q2 2018 Q3 2018
Billions
Target Actual
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
3M 6M 1Y 3Y 5Y 7Y 10Y 15Y
Mar-25-2018 Nov-30-2018
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Headline InflaƟon Non-food InflaƟon
Food InflaƟon
10. 10JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Nigeria Stock Exchange 30 Index
Growth in Stock of Money in Circulation
Gross Foreign Exchange Reserves (USD)
Source: Central Bank of Nigeria, StratLink Africa
Source: Central Bank of Nigeria, StratLink Africa
Source: Bloomberg, StratLink Africa
Stock Exchange to remain Bearish through Q1
2019
The Nigeria Stock Exchange took a beating in 2018
with the 30 Index declining by 20.8% from the
start of the year to the December 31st, 2018. The
exchange is likely to remain bearish through Q1
2019 especially in light of the general election and
the need for investors to assess the post-election
policy direction of the country.
The stock of currency in circulation also witnessed
acceleratedgrowthin2018,atrendwhichispoised
to keep the Central Bank closely monitoring pass-
through effects to inflation.
Naira to Face Mounting Pressure as Reserves
Dwindle
The country’s foreign exchange reserves closed
2018 at USD 43.2 billion, 9.6% lower than the June
2018 peak. This trend is set to pile pressure on
the Naira especially as the price of oil in the global
market weakens amidst rising supply.
The market experienced net foreign investor
outflows to the tune of USD 10.8 million per
month in 2018 compared to net inflows USD
60.3 million per month in 2017. This has been a
key factor undermining the performance of the
exchange in the year under review. The last two
quarters of 2018 in particular were characterized
by strong capital flight from the exchange.
EQUITY MARKET UPDATE
NIGERIA
Margin by which the Nigeria Stock
Exchange 30 Index has fallen YTD as
at December 31st, 2018
20.8%
40.0
41.0
42.0
43.0
44.0
45.0
46.0
47.0
48.0
49.0
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Billions
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
2,200.0
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Billions
Volume - RHS 30 Index
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
11. 11JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Net Foreign Investor Inflows (USD) Banking 10 Index
Source: Nigeria Stock Exchange, StratLink Africa
Source: Bloomberg, StratLink Africa
Investors bound to be Cautious over Banking
Stocks
The Banking 10 Index closed 2018 15.3% lower
than it started in January. On the whole, it stood
favorablycomparedtotheoverallmarket.Available
data suggests that the sector is still grappling with
challenges such as a high non-performing loan
ratio, at 15.0%, which are bound to keep investors
cautious about the sector.
NIGERIA
(400.0)
(300.0)
(200.0)
(100.0)
0.0
100.0
200.0
300.0
400.0
500.0
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Millions
0.0
200.0
400.0
600.0
800.0
1,000.0
1,200.0
1,400.0
1,600.0
1,800.0
2,000.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Millions
Volumes - RHS Banking 10 Index
12. 12JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
ETHIOPIA
SLUGGISH RETAIL SALES SIGNAL ANEMIC BUSINESS ENVIRONMENT AMIDST FAVOURABLE
GROWTH NUMBERS
ZAMBIA MARKET UPDATE
13. 13JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Zambia in 2018: A look at four charts
The Kwacha lost resilience as foreign exchange reserves declined
Sovereign yield curve signaled flat-lining by Q3 2018
Non-performing loan ratio improved through 2018
Earnings from Copper (USD Mln) posted mixed signals in 2018
8.5
9
9.5
10
10.5
11
11.5
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
2,000.00
2,200.00
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Reserves (USD Mln) Kwacha to USD Exchange - RHS
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
182 Day 273 Day 364 Day 2 Year 3 Year 5 Year 7 Year 10 Year 15 Year
Jan-18 Jun-18 Sep-18
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18
14. 14JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Positive Outlook in 2019
We hold a favorable view of Zambia’s political risk
profile in 2019 with the expectation that growing
scrutiny, both domestically and externally, of the
prevailing macroeconomic environment is bound
to create pressure for sound policy in the country.
Already, reforms such as the establishment of the
Multi-Sectoral Public Service Board, which will
be mandated to scrutinize investment proposals
before budgetary allocations are made, have been
earmarked for 2019. If well harnessed, such policy
reforms could present a significant tailwind for
Zambia’s risk profile in the months ahead. With
the government set to rebase the economy in
2019, we are wary that this could present both
opportunity and challenge for Zambia’s economy:
• Regarding opportunity, rebasing promises to
present a much better view of the salient issues
underlying the economy and give better insight
on some of the areas that ought to be receiving
policy focus
• Regarding the risk, rebasing could be misused
to increase the country’s appetite for debt at a
time when there should be stepped up efforts
to avert this likelihood.
High Unemployment: Perennial Risk to Political
Stability
An unemployment rate of 42.2% in Q2 2018 also
presents a potential pressure point in the country’s
political stability especially as the government is
expected to be delivering on promises made in the
run-up to the 2016 election.
Unemployment Rate in Zambia – Q2 2018
POLITICAL OUTLOOK
GDP: USD 24.9 Bln | Population: 17.6 Mln
ZAMBIA
Segment Rate
Aggregate 42.2%
Rural 51.7%
Urban 33.5%
Three Factors set to Drive the Business
Environment in 2019
• Growth in Retail Sales is Sluggish
The business environment continues to be
subdued with growth in retail sales remaining
sluggish despite picking up at the tail end of 2018.
As such, we expect the business environment to
be broadly sluggish within the first half of 2019
especially as consumers confront rising inflation
which further erodes their purchasing power.
This notwithstanding, it is worth noting that with
growth in retail sales averaging 0.9% in the first
three quarters of 2018, this represents accelerated
momentum from the contraction of 4.1% reported
in the same period in 2017. It, however, still stands
significantly below the 3.8% and 11.4% registered
within the first three quarters of 2016 and 2015,
respectively.
• Headline Inflation is Ticking Up
Headline inflation breached the target ceiling of
8.0% in August 2018 indicative of rising pressures
domestically.
BUSINESS ENVIRONMENT
Source: Bank of Zambia, StratLink Africa
Year-on-Year Growth in Retail Sales
-10.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
2014Q1
2014Q3
2015Q1
2015Q3
2016Q1
2016Q3
2017Q1
2017Q3
2018Q1
2018Q3
Source: Zambia Central Statistical Office
15. 15JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
With the next Monetary Policy meeting slated
for February 2019, we expect Bank of Zambia to
tighten monetary policy hiking the benchmark rate
by 50.0 – 100.0 bps. This will be geared towards
arresting the rise in inflation and mitigating
pressure on the Kwacha while took a beating
towards the end of 2018.
• Supply of Foreign Currency
With earnings from copper being on a general
declineforthebetterpartof2018,supplyofforeign
currency in the domestic environment is bound to
be a matter of great interest in 2019. In the first
half of 2018, supply of foreign currency exceeded
demand staving off the risk of a foreign currency
crunch as has been witnessed in economies such
as Ethiopia and Nigeria.
Source: Bank of Zambia, StratLink Africa
Source: Bank of Zambia, StratLink Africa
Headline Inflation
Supply and Demand of Foreign Currency (USD Mln)
ZAMBIA
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
0.0
500.0
1,000.0
1,500.0
2,000.0
Q1 2018 Q2 2018
Supply Demand
External Debt Sustainability Indicators
Source: World Bank, StratLink Africa
StateHardPressedforRobustFiscalConsolidation
In 2018, Zambia’s economy was clouded by
concerns around the country’s external debt
sustainability which manifested in the state of a
number of key debt sustainability metrics, notably
the external debt-to-exports ratio, debt service-
to-exports ratio and external debt-to-tax revenue
ratio. In 2019, the economy will be hard pressed to
undertake robust fiscal consolidation in an effort
to stem uptake of more debt.
The country’s exposure to foreign debt pressures
is bound to be accorded greater focus given the
weaknessexhibitedbytheKwachatowardstheend
of 2018 and the dwindling reserves. As indicated
in the foregoing assessment of the Business
Environment, we expect the Bank of Zambia to
hike the benchmark rate in the February 2019
meeting by 50.0 – 100.0 bps in a bid to cushion
the local unit from growing pressure.
ECONOMIC OUTLOOK
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
160.0%
180.0%
200.0%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
2008 2012 2017
External debt-to-Exports RaƟo
Debt service to Exports
External debt-to-Tax Revenue (Right Hand Axis)
16. 16JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
ZAMBIA
Sovereign Yield Curve
Source: Bloomberg, StratLink Africa
Sovereign Yield Curve Tending towards Inversion
in 2019
The sovereign yield curve registered a general
rise in 2018 before tending towards a horizontal
shape in Q3. This is a reflection of the rapid uptick
in yields at the short-term end of the curve which
was, in part, indicative of investor jitters after
headline inflation breached the 8.0% target ceiling
in August 2018. Should the rise in inflation prevail
into double digits, we are likely to see the curve
invert in the course of 2019. In light of the decision
to hold the benchmark rate at 9.75% in November
2018, Bank of Zambia’s decision in the February
2019 meeting will be crucial in informing investor
expectations in the first half of 2019.
A look at weighted T-Bill and T-Bond rates suggests
that the downtrend in yields witnessed between
2016 and 2017 could now be reversing and the
government is bound to face rising borrowing
costs, domestically. This will necessitate stronger
efforts in 2019 to tame appetite for domestic debt.
DEBT MARKET UPDATE
Kwacha to USD Exchange Rate
Q1 - Q3 2018 Revenue Target and Out-turn (USD)
Source: Bloomberg, StratLink Africa
Source: Central Bureau of Statistics, StratLink Africa
Improved Revenue Mobilization Promises to
Ease Fiscal Strain
Revenue mobilization in the first three quarters
of 2018 was relatively strong reporting a 104.4%
performance rate. This compares favorably to
the 93.6% performance rate posted within the
first three quarters of 2017. Tax revenue, in
particular, reported a performance rate of 106.0%
in the first three quarters of 2018, boding well
for the government as far as sourcing revenue
domestically is concerned.
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Margin by which the Zambia
Kwacha depreciated in 2018
19.4%
2,000.0
2,100.0
2,200.0
2,300.0
2,400.0
2,500.0
2,600.0
Q1 2018 Q2 2018 Q3 2018
Millions
Target OuƩurn
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
182
Day
273
Day
364
Day
2
Year
3
Year
5
Year
7
Year
10
Year
15
Year
Jan-18 Jun-18 Sep-18
17. 17JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
ZAMBIA
EQUITY MARKET UPDATE
2019 Poised to Witness Shift to Safer Investment
Vehicles
The Lusaka Stock Exchange tanked for the better
part of 2019 after the January through early March
2018 rally. The exchange was afflicted by the
pervasive adverse perception attached to frontier
markets as well as growing concerns around
Zambia’s macroeconomic environment, notably
from a debt sustainability optic. In 2019, investors
are bound to be keener on taking up the safer fixed
income investments as they assess developments
around the macroeconomic environment and how
they impact the exchange.
Margin by which the Lusaka Stock
Exchange All Share Index gain in
2018 as at December 15th
1.9%
Lusaka Stock Exchange All Share Index
Source: Bloomberg, StratLink Africa
Weighted T-Bill and T-Bond Rates
Outstanding Government Securities (K’ Bln)
Source: Bank of Zambia, StratLink Africa
Source: Bank of Zambia, StratLink Africa
Government Shifting towards Long-term Debt as
it enters 2019
The stock of long-term grew relatively fast in
2018 as the government sought to cushion itself
from the demands of servicing debt that matures
relatively fast.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
T-Bill T-Bond
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
T-Bills T-Bonds
0.0
100.0
200.0
300.0
400.0
500.0
600.0
5,000.0
5,100.0
5,200.0
5,300.0
5,400.0
5,500.0
5,600.0
5,700.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Millions
Volume (Right Hand Axis) All Share Index
19. 19JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Kenya in 2018: A look at three charts
First three quarters of 2018 outpace previous year’s GDP growth figures
Budget deficit narrowed in 2018 but rising debt stock is cause for concern
Yield Curves - Treasury manages to maintain domestic borrowing costs low
0.0%
2.0%
4.0%
6.0%
8.0%
Q1 Q2 Q3
2017 2018
0.0
5.0
10.0
15.0
20.0
25.0
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018e
Total revenue, USDbn Total expenditure, USDbn Budget balance, % of GDP (LHS)
8.4%
8.8%
9.2%
9.6%
10.0%
10.4%
10.8%
11.2%
11.6%
12.0%
12.4%
12.8%
13.2%
13.6%
14.0%
3M 6M 1Y 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 15Y 20Y 25Y 30Y
04-Jan-19 05-Jan-18
20. 20JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Shifting Alliances
Thefirstquarterof2018 sawradicaldevelopments
in Kenya’s political risk profile following
reconciliationeffortsbetweenthetwoprotagonists
in the 2017 electoral cycle. The truce between
Raila Odinga and President Uhuru Kenyatta served
to significantly defuse uneasy calm in the political
landscape after prolonged tensions following the
elections in 2017 that were amplified by the mock
swearing in of the opposition leader.
The handshake of 9 March 2018 was another
major milestone in Kenya’s journey towards
getting rid of the adverse perceptions towards
Kenyan politics which have characterized previous
electoral cycles. Resolution of the Presidential
election disputes at the Supreme Court in 2013
and 2017 were preceding key milestones which
put the country’s political risk profile to the test.
The truce laid the foundation on which to rebuild
confidence in Kenya as an investment destination
after having survived a deeply polarizing political
environment.
On the other hand, this development has raised
questions over the future of the opposition and its
role in checking the government of the day. There
is still lingering uncertainty with regard to the
formations that will shape the opposition going
forward and the degree to which they will further
the keen and critical eye with which the state has
been monitored in the past.
The newly found partnership has created a
favorable environment within which focus on
policy can be nurtured over the next few years
especially in light of the adopted Big Four agenda
which lays emphasis on manufacturing, housing,
healthcare and food security. The President’s
ambitious Big Four agenda will require significant
spendingon behalfof the government which raises
the question of where the funds to complete the
planned projects will be sourced. Uhuru Kenyatta
in September 2018 assented the Finance Act 2018
thereby bringing into law a raft of new taxes,
and changes to existing ones, aimed at raising
government revenues and narrowing the country’s
POLITICAL OUTLOOK
GDP: USD 88.0 Bln | Population: 51.0 Mln
KENYA
budget deficit however, the implementation of
some of these has proved challenging. The chart
below illustrates how government revenue as
a proportion of GDP has been declining gently
over the past few years whereas expenditure as a
percentage of GDP has remained elevated.
Referendum Possibly on the Horizon
President Uhuru Kenyatta and Raila Odinga in
May 2018 gazetted a fourteen member taskforce
to lead the Building Bridges initiative that aims
to assess the national challenges outlined in the
“Building Bridges to a New Kenyan Nation” joint
communique. The initiative is yet to be fully
formalized as the taskforce in charge finalizes
country-wide consultations with a variety of
stakeholders as per their mandate. The most
contentious issue that the Building Bridges
proposal will have to tackle is that of whether
to hold a referendum before the 2022 elections.
A referendum would avail the possibility of re-
introducing the position of Prime Minister which
some see as a play against Deputy President (DP)
Ruto’s campaign for presidency in 2022. The
lead up to the next general elections will see the
brewing tensions between the DP and the duo of
President Kenyatta and Raila scale up even as we
are now seeing legislators in the Mt Kenya region
begin to pick sides.
Government Revenue and Expenditure
Source: BMI, StratLink Africa
2010
2011
2012
2013
2014
2015
2016
2017
2018e
15.0%
17.5%
20.0%
22.5%
25.0%
27.5%
30.0%
Total revenue, % of GDP
Total expenditure, % of GDP
21. 21JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
KENYA
Rate Cap and High NPL Ratio to Exacerbate
Banks’ Risk Aversion
Growth in credit to the private sector picked up
slightly in 2018 to reach a peak of 4.3% between
June and August of the same year before dropping
back down to 3.8% in September however, the
rate of expansion remains significantly below the
average growth in credit to the private sector of
15.6% achieved in the 12 months prior to the
introduction of the legislation in August 2016. The
law capping interest rates has had a significant
role in restricting credit to the private sector.
The interest rate cap has limited Banks’ ability
to lend to the private sector which is likely to be
worsened by the increase in the Non Performing
Loans (NPL) ratio over the long term. As banks
become increasingly risk averse credit rationing
is likely to increase and negatively impact the
economy.
BUSINESS NEWS ENVIRONMENT
Banking System Net Domestic Credit to Private
Sector, % Change y-o-y
NPL Ratio
Source: CBK, StratLink Africa
Source: CBK, StratLink Africa
Quarterly GDP Growth Rates
GDP Growth and Inflation
Source: KNBS, StratLink Africa
Source: BMI, StratLink Africa
Economic Growth Momentum of 2018 at Risk
Kenya’s GDP growth in the third quarter of 2018
was 6.0%, recording quite some improvement
relative to the 4.7% and 5.7% third quarter growth
rates achieved in 2017 and 2016, respectively.
Economic expansion in the third quarter of last
year came about as a result of strong agricultural
output buoyed by favorable weather as well as
improvements in the manufacturing, construction,
and electricity and water supply sectors of the
economy.
The graph above clearly indicates that economic
growth in the first three quarters of 2018
outperformed the same quarters in 2017.
Subdued price pressures last year played a key
role in supporting economic activity with inflation
averaging 4.7% in 2018 relative to a high 8.0% in
the previous calendar year.
Note: Annual GDP Growth figure for 2018 is a BMI forecast
ECONOMIC OUTLOOK
0.0%
2.0%
4.0%
6.0%
Apr-17
May-17
Jun-17
Jul-17
Aug-17
Sep-17
Oct-17
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
0.0%
5.0%
10.0%
15.0%
Jan-14
Jun-14
Nov-14
Apr-15
Sep-15
Feb-16
Jul-16
Dec-16
May-17
Oct-17
Mar-18
0.0%
2.0%
4.0%
6.0%
8.0%
Q1 Q2 Q3
2017 2018
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2014 2015 2016 2017 2018
GDP Growth Average InflaƟon
22. 22JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Outlook for 2019
We believe that the evolution of a number of
key macroeconomic indicators in the calendar
year ahead will pose a downside risk to Kenya’s
economic growth:
• Increased inflationary pressure – this is likely
to come about as the weather returns to more
normal patterns thus causing upward pressure
onfoodprices.Greaterinflationarypressurewill
see the Central Bank take a tighter monetary
policy stance which in turn may adversely affect
creditdisbursedtotheprivatesectorwhichgrew
at a slow 3.8%¹ y-o-y in September 2018. These
factors would lead to a dampening of economic
activity however, with the interest rate cap still
in place the Monetary Policy Committee will be
cautious due to the compromised mechanism
through which changes in the key interest rate
affect the economy
• Risks remain despite narrowing budget
deficit – government expenditure is likely to
remain high as spending on the President’s
Big Four agenda gains momentum while other
infrastructure projects such as major road
construction and the continued development
of the Standard Gauge Railway add to the
Overall,weanticipatethattherearenon-trivialrisks
to economic growth that will make it challenging
for the economy to surpass its performance in
2018.
KENYA
Central Bank Rate (CBR) and Inflation
Source: Bloomberg, CBK, StratLink Africa
Fiscal Position
Source: BMI, StratLink Africa
expenditure bill. New taxes brought into law
last year, such as higher excise duty on bank
transfers and increased levies on mobile money
transfers, aim to increase revenue collection
however, delays in implementing some of
these, such as the reduction in Value Added
Tax (VAT) on fuels from the proposed 16.0% to
8.0% due to public opposition, pose headwinds
to revenue generation.
Despite the narrowing of the budget deficit
from 9.3% to 7.5%² of GDP between 2017 and
2018, respectively, the country’s stock of debt
continues to rise along with servicing costs
especially with respect to foreign currency
denominated debt. Global monetary tightening
in the year ahead is likely to put depreciatory
pressure on the shilling and thus exacerbate
foreign currency debt payments while the
withdrawal of the IMF’s credit facility continues
to weigh on confidence in Kenya’s management
of its fiscal affairs
2
BMI estimate1
CBK
0.0
5.0
10.0
15.0
20.0
25.0
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2010
2011
2012
2013
2014
2015
2016
2017
2018e
Total revenue, USDbn
Total expenditure, USDbn
Budget balance, % of GDP (LHS)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan-15
Apr-15
Jul-15
Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
InflaƟon CBR
23. 23JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Government Aims to Lengthen Maturity Profile
on Domestic Debt
Lastyear,theTreasuryforthemostpartmanagedto
maintain its domestic borrowing costs suppressed.
This is evident in the movement of the yield curve
which dropped across all maturities but most
drastically for shorter term government securities.
In the year to 5 January, 2019, yields for three and
six month Treasury Bills fell by 1.4% and 1.3%,
respectively, while yields on bonds with maturities
between 15 years and 30 years fell by between
0.4% and 0.2%, indicating greater investor demand
for shorter term government securities. This trend
came about despite inflation gradually increasing
in the course of 2018, from 4.8% in January to
5.7% in December.
Bloomberg BVAL Yields Index
Change in Yields between 5-Jan-18 and 4-Jan-19
Domestic Debt by Instrument (USD Mn)
Source: Bloomberg, StratLink Africa
Source: CBK, StratLink Africa
Source: Bloomberg, StratLink Africa
DEBT MARKET UPDATE
Investor preference for shorter term government
securities is also evident in the change in
composition of domestic debt by instrument.
Between December 2017 and September 2018,
the proportion of government domestic debt held
in T-Bills increased from 31.9% to 38.1% while
the proportion held in bonds fell from 65.8% to
60.2%³.
This presents a problem for the government who
has been trying to lengthen the maturity profile
of its domestic debt through greater uptake of
long term bonds. The Treasury’s most recent ten
year bond issue, on 17 December 2018, yielded
a performance rate of 72.2% with just under two
thirds of the amount sought being accepted thus
prompting a subsequent TAP sale.
In 2019, we can expect to see the government
continue its attempt to shift towards longer term
debt in order to achieve a more optimal debt
servicing schedule. In addition, the government
will maintain efforts to keep its borrowing costs
low however, with inflation on the rise this may
prove challenging as the Central Bank may need to
adopt a tighter monetary policy stance.
KENYA
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
Sep-18Dec-17Dec-16
Treasury Bills Treasury Bonds Other DomesƟc Debt
-1.4%
-1.2%
-1.0%
-0.8%
-0.6%
-0.4%
-0.2%
0.0%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
8.4%
8.8%
9.2%
9.6%
10.0%
10.4%
10.8%
11.2%
11.6%
12.0%
12.4%
12.8%
13.2%
13.6%
14.0%
3M 1Y 3Y 5Y 8Y 10Y 20Y 30Y
06-Jul-18 04-Jan-19 05-Jan-18
3
CBK
24. 24JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
KENYA
Global Trends Impact 2018 Equities
Last year proved to be a challenging one for
equities with the Nairobi Securities Exchange
20 Index (NSE 20) shedding 23.5% relative to a
15.8% gain in the previous year while the Nairobi
All Share Index (NASI) fell by 18.0% in 2018 after
having climbed by 29.1% in 2017.
The companies that appreciated the most in share
price in 2018 were KenolKobil, Barclays Bank and
Stanbic Holdings that gained 41.3%, 23.6% and
19.9%, respectively, while those that lost the most
in terms of share price were ARM Cement, Kenya
Power and Lighting Company and Kenya Airways
which shed 57.3%, 55.3% and 48.1%, respectively
EQUITY MARKET UPDATE
Nairobi Securities Exchange 20 Share Index
Nairobi All Share Index
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
Top Gainers
% Change in Share Price - 2018
Top Losers
% Change in Share Price - 2018
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
While the economy recorded improved
performance and lower inflation in 2018 relative to
the previous year, the tightening of global financial
conditions saw capital flow out of emerging
markets which affected Kenya to an extent. Foreign
investor net outflows for 2018 were higher than
2017 with the strengthening greenback playing a
key role on top of unfavorable investor sentiment.
The year ahead holds promise as the Nairobi
Securities Exchange (NSE) continues to push its
Ibuka initiative which aims to increase the number
of listings on the exchange through an incubation
an acceleration program. In addition, the Capital
Markets Authority is working on a Regulatory
Sandbox for Fintech companies allowing them
to test innovative products and services in a safe
space which will hopefully see new and beneficial
technologies hit capital markets.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
2,500.0
2,700.0
2,900.0
3,100.0
3,300.0
3,500.0
3,700.0
3,900.0
4,100.0
02-Jan-18
02-Mar-18
02-May-18
02-Jul-18
02-Sep-18
02-Nov-18
02-Jan-19
Millions
Volume NSE 20 Index (LHS)
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
130.0
140.0
150.0
160.0
170.0
180.0
190.0
200.0
02-Jan-18
02-Mar-18
02-May-18
02-Jul-18
02-Sep-18
02-Nov-18
02-Jan-19
Millions
Volume NASI (LHS)
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
KenolKobil
Barclays Bank
Stanbic Holdings
Standard Chartered Bank
BriƟsh American Tobacco
-60.0%
-50.0%
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
ARM Cement
Kenya Power & LighƟng
Kenya Airways
NaƟon Media Group
Centum Investment Co
26. 26JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Tanzania at a glance: A look at four charts
Shilling maintained resilience against the greenback as demand for the greenback remained at par with the supply
Projected decline in the mining sector to weigh on GDP in the short term
Moderate inflation in 2018 as softer food prices offset the impact on domestic energy costs of higher global oil price
2018 witnessed poor appetite for government short-term securities as yields remained low
2,200.0
2,220.0
2,240.0
2,260.0
2,280.0
2,300.0
2,320.0
Jan-18
Jan-18
Jan-18
Feb-18
Feb-18
Mar-18
Mar-18
Apr-18
Apr-18
May-18
May-18
Jun-18
Jun-18
Jul-18
Jul-18
Aug-18
Aug-18
Aug-18
Sep-18
Sep-18
Oct-18
Oct-18
Nov-18
Nov-18
Dec-18
Dec-18
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
0.65
0.70
0.75
0.80
0.85
0.90
2015 2016 2017 2018 e 2019 f
Growth(RHS) % of GDP (RHS) Value in USD/Bln
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%
4.0%
4.2%
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
91 Day 182 Day 364 Day
27. 27JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GDP: USD 54.8 Bln | Population: 59.0 Mln
2019: Stable Outlook with Mixed Fortunes
Tanzania’s 2018 political environment was
pervaded with uncertainty and mixed fortune. On
one hand, President Magufuli’s administration was
scoring with his firm hand against corruption and
wastage of public resources, on the other hand
he was being accused of allegedly being too firm
handed with political opponents, bordering abuse
of democratic freedoms. From enjoying high
popularity ratings of over 90.0% after his election
in 2015, the President closed 2018 with a poor
rating of below 50.0%. We reckon the decline is a
possible reflection of the unmet desires and fears
of his administration’s mode of governance. We
nevertheless, expect his rating to pick up once
significant progress in project implementation can
be seen and starts to trickle down through the
economy.
Tentative but Rising Resistance as CCM Seeks to
Amend the Political Parties Act
Undertones of authoritarianism, sour relations
with neighbors and development partners,
coupled with calls for electoral law reforms were
maintained in 2018. Consequently, the forecast
period was punctuated with banter between
President Magufuli’s administration and the
opposition as well as development partners; a
continuation of relations from 2017. We also
expect increased political undertones in 2019,
especially in view of the proposals by the ruling
Chama Cha Mapinduzi (CCM) to amend the
Political Parties Act (PPA) seeking to among other
proposals, increase the powers of the registrar of
political parties, currently limited to regulatory
functions. Essentially, the proposed amendments
threaten to officially outlaw opposition activities,
as part of a crackdown started with President
Magufuli’s administration through proposals to
ban political parties from operating as pressure
groups or from receiving financial support from
foreign donors; a blow to the opposition who have
been trying to level the playing field with CCM.
The contentious proposals also seek to prohibit
political parties from influencing public opinion
in a particular direction, in essence curtailing
any government criticism and perpetuating
restrictions on democratic freedoms. We expect
that these proposals will further stir brewing
tension between government and the opposition.
CCM Still Dominates Political Scene despite PPA
CCM still dominates Tanzania’s political landscape,
despite the original PPA which established
multiparty democracy in Tanzania as the
opposition parties continue to struggle against
an uneven playing field. Consequently, several
parliamentarians have defected to the ruling CCM
over the past year, seeking to reap the benefits
of incumbency, amid limited space for political
dissent. We therefore, reckon that CCM will
continue to dominate the political landscape while
benefiting from a weakening opposition. A weak
opposition, coupled with a clear CCM majority in
parliament─ with around 75.0% of all seats in the
National Assembly─ implies that the new act will
overcome any resistance from the opposition.
Tanzania Seeking New Trade Allies
Tanzania’s relations with traditional key
development partners, particularly the United
States of America and the European Union, hang
in the balance and are likely to remain strained
in 2019 as they grow suspicious about Tanzania’s
commitment to democracy and its openness to
foreign investment in view of the country’s recent
policy adoptions and pronouncements which have
seen it shunned by funding partners, potentially
putting at risk diplomatic, trade and development
links. Owing to these developments, Tanzania has
been warming up to non-traditional partners in
a bid to mitigate potential adverse effects of the
souring relations. Thus, we foresee advanced
bilateral ties with India and China which, have
been a key source of financial aid in the past,
underpinned by the countries’ business interests
in Tanzania (a second Chinese Bank was recently
licensed to operate in Tanzania). On the other
hand, Tanzania’s relations with fellow members of
the East African Community will remain broadly
cordial, albeit with trade disputes between Kenya
and Tanzania that may cause periodic disruptions.
However, we do not expect bilateral relations to
falter significantly. Nonetheless, we expect a stable
political outlook for Tanzania in 2019, with a few
dissenting unrests which are bound to be swiftly
contained.
POLITICAL OUTLOOK
TANZANIA
28. 28JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Tough Operating Environment For Businesses
2018 was a tough year for businesses operating
in Tanzania in light of the government’s abrupt
tax increases, erratic regulatory changes and
lack of transparency that potentially undermines
the government’s Development Vision 2025
that prioritizes industrialization and job creation,
with a commitment to pursue a private-sector-
led development strategy. However, the year
also witnessed positives, including the Bank of
Tanzania’s decisive action, in its supervisory role,
to close down five banks due to unjustifiably low
capitalization, directed the merger of three other
banks, and tackled a protracted non-performing
loans (NPLs) syndrome, effectively averting a
potential banking crisis.
Regulatory Bureaucracy Hampering Potential for
FDI Growth
Tanzania also endured a tumultuous previous
year to trample peers in attracting Foreign
Direct Investment (FDI) worth USD 1,180.0
million in investments attributed to investment
liberalization and the recovery in the price of gold,
one of its key export commodities. Be that as it
may, the FDI inflows dropped by 13.6%, year-on-
year, principally attributed to policy changes in
tax administration and extractives royalties which
have seen major mining firms like Acacia, grapple
with losses, in addition to a ban on exports of
unprocessed minerals that is bound to adversely
affect the country’s foreign mining assets. The
requirement for all foreign telecommunication
companies to list at least 25.0% of their equity on
the local bourse in an effort by the government
to increase domestic ownership, may have sent
jitters to some investors in the sector as well. In
2019, we expect that economic policy agenda
will maintain a protectionism slant thus, private
investment is bound to fall short of helping the
government achieve its development goals.
Nonetheless, public spending will go some way
towards advancing the industrialization agenda,
with plans to expand logistics infrastructure,
if implementation of the same can overcome
funding shortfalls.
BUSINESS NEWS ENVIRONMENT
TANZANIA
1
Fitch Solutions
Services and Industry to Drive Growth in 2019
Following a moderation in real GDP growth in
2018, to an estimated 6.7%¹, we expect growth
to ease further still in 2019, as private investment
remains subdued amid the government’s erratic
policy agenda as signs of a deteriorating regulatory
environment are likely to offer headwinds to
investor sentiment, dampening growth in the
longer term. Real GDP growth, nonetheless, will
continue to be supported by robust investment
into transport infrastructure as we expect services
and industry to be the main engines of growth in
2019. Exports are likely to drag on growth given
declining tailwinds from new gas production and
falling gold production.
Construction Sector Facing Headwinds from Poor
Local demand and Price Distortion
Transport and logistics projects— such as the
ongoingconstructionofthestandard-gaugerailway
and the expansion of rural energy infrastructure—
coupled with some real estate projects will support
growth of the construction sub-sector in the near
term. Nonetheless, poor local demand and price
distortions, occasioned by increased imports, offer
possible headwinds to the construction sector,
factors which are driving sector participants to opt
to cut production, the ongoing implementation
of major construction projects, notwithstanding.
Nonetheless, expansion in the construction sector
is likely to remain strong, supported by robust
Source: Tanzania Bureau of Statistics, StratLink Africa
Real GDP vs Sector Growth
ECONOMIC OUTLOOK
0.00%
5.00%
10.00%
0.0%
5.0%
10.0%
15.0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Agriculture Industry
Services Real GDP (RHS)
29. 29JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Agriculture to Benefit from Bumper Harvest
In the meantime, the agricultural sector – which
accounted for 30.1% of GDP in 2017 – will likely
see tailwinds in the short-term from bumper
harvests in 2018 owing to favorable weather
conditions in the period under review, bolstering
food supply and increased production volumes. Be
that as it may, we expect structural headwinds to
the sector in the long term from erratic weather
conditions in the region as well as poor storage
facilities –anecdotal evidence shows that poor
storage facilities is among high contributors to
post-harvest losses in Tanzania. Therefore, we
expect this acceleration to be short-lived as
weather patterns normalize.
Projected Decline in the Mining Sector to Weigh
on GDP in the Short Term
We project a decline, however, in the contribution
of the mining sector which, has historically
been one of the key drivers of growth, amid the
unfavorable policy environment given Tanzania’s
continued push through a highly restrictive
policy on several fronts. We expect this declining
growth in the extractives sector to weigh on real
GDP growth in the short to medium terms as the
investment environment remains uncertain which,
should also see reduced new investments in the
sector. Hence, growth in the mining sub-sector
is bound to slow down after growing at a healthy
17.5%. Moreover, in the longer term, resource
nationalism, though noble, is likely to weigh on
investment into the extractive sector.
public investment. For instance, construction on
the Dar es Salaam-Morogoro-Makutupora section
of the Standard Gauge Railway project which
began in early 2018 as well as the expansion of
Dar es Salaam and Mtwara port, aimed at boosting
the country’s shipping capacity, will also sustain
activity in the sector. Overall, the industry sector
has seen increased growth leading to a 6.5% rise in
the past four years to USD 2.1 billion from mineral
receipts of which, gold accounted for about 89.0%
of the total receipts.
Mining Industry Value, Growth and Share of GDP
Agriculture as a Share of GDP
Select Industry sub-Sectors as % of GDP
Source: BMI, StratLink Africa
Source: Fitch Solutions, StratLink Africa
Source: Tanzania Bureau of Statistics, StratLink Africa
TANZANIA
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Mining and Quarrying
Manufacturing
ConstrucƟon
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
0.65
0.70
0.75
0.80
0.85
0.90
2015 2016 2017 2018 e 2019 f
Growth(RHS) % of GDP (RHS)
Value in USD/Bln
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
18.00
19.00
2015 2016 2017 2018 e 2019 f
Value (USD/Bln) Growth (RHS)
30. 30JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Southward Trending Yields as Liquidity Eases
The money market witnessed easing liquidity in
2018 compared to 2017 as well as the past five
years, evidenced by the southward trending
interbank rate. The interbank rate fell from
highs of 13.5% in 2016 down to 2.0% in 2018.
The easing liquidity was principally driven by the
expansionary monetary decisions by the Central
Bank as it sought to stimulate private sector
lending and consequent economic growth in a
bid to mitigate the effects of a protracted liquidity
crunch. In August 2018, the Central Bank revised
its discount rates, the rate used by commercial
banks to borrow from the central bank as a lender
of last resort, downwards to 7.0% from 16.0%.
Low Appetite for Short-Term Government Bids
2018 witnessed poor appetite for government
short-term securities as yields remained low.
Consequently, the longer term one year bid
offering favorable yields comparatively, remains
the most preferred instrument for investors.
The three month instrument was shunned by
investors throughout the year as they sought
better yields, leading to several instances of no
bid posting on the instrument. Similarly, inflation
has generally remained subdued in the period
under review, recorded at 3.3% as of December
2018, supporting the low yields. Overall, average
yields for all the three short term government
instruments declined in 2018. The 91 Day paper
declined to 2.9% as of December 2018 from 7.7%
in 2016. Likewise, the 182 Day paper fell by 11.7%
down to 4.1% over the same period. While the
364 Day yield decline from 16.5% to 7.1% over the
period under review.
2018: Subdued Volatility on the Shilling
The Shilling fought to remain stable in 2018
against the greenback as demand for the
greenback in the market remained at par with
inflows from agricultural sector besides central
bank propping. We expect increased stability in
2019 on the back of increasing export receipts
supported by recovery in the agriculture sector as
well as commodity prices. Be that as it may, we
still project benign depreciation by the local unit
against the greenback in view of the fairly soft
demand for imports and the probable peaking
of the United States government contractionary
monetary policy. Similarly, a widening deficit is
bound to maintain depreciatory pressure. The
Shilling depreciated by 70.0bps and 270.0bps,
month-on-month and year-on-year, respectively,
between 2017 and 2018. Recently, the Bank of
Tanzania placed a moratorium on licensing of
forex bureaus in a bid to crack down on illegal
operations and money-laundering, this however,
did not have a major impact on the movement of
the local unit. Thus, we expect a stabilization path
in 2019.
Source: Bank of Tanzania, StratLink Africa
Source: Bank of Tanzania, StratLink Africa
Source: Bloomberg, StratLink Africa
Interbank Rate (Yearly Average)
T-Bill Yield (Yearly Average)
Shilling vs USD, year on year
TANZANIA
DEBT MARKET UPDATE
0.0%
5.0%
10.0%
15.0%
0.0
10,000.0
20,000.0
30,000.0
40,000.0
50,000.0
2014 2015 2016 2017 2018
InterbakRate(Blue)
VolumeinTZMlns
0.0%
5.0%
10.0%
15.0%
20.0%
91-Day 182-Day 364-Day
2016 2017 2018
2,200.0
2,220.0
2,240.0
2,260.0
2,280.0
2,300.0
2,320.0
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
31. 31JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Tanzania All Share Index, year-on-year
Tanzania All Share Index Month-on-Month
Sector Indices year-on-year
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
Source: Dar es Salaam Stock Exchange, StratLink Africa
TANZANIA
Sector Indices Stay in the Red
In line with the bearish bourse, the sector indices
stayed in the red in 2018. The Industrial and Allied
Index declined by 4.0% to 5285.2 units while the
Commercial Services sector Index closed at 2282.8
units, reflecting a decline of 7.3%. The Banking
Index posted the greatest decline, dropping by
10.4%, month-on-month to 2216.9 units, in the
period under review, weighed down by poor
performance of sector shares, owing to a tough
operating environment for banks. In 2018, the
Bank of Tanzania placed six banks under statutory
management due to poor capitalization in an
effort by the bank to step up action against non-
performing banks.
Bear Run at the Bourse in 2018
The bourse stayed in the red for the better part
of 2018 pulled down by poor performance from
actively trading shares such as, the embattled
Acacia mining share price. The All Share index
shed off 14.6%, year-on-year and 1.1% between
November and December, 2018. Likewise, the
domestic Tanzania Share Index declined by 5.8%
to 3,691.36 units, in the period under review. Local
investors dominated the buyers’ market while
local investors dominated the sellers’ market, in
the period under review. With three companies
(Tanzania Cigarettes, Tanzania Breweries and
Jubilee Holdings) comprising about 56.0% of
total market capitalization, the market is heavily
influenced by the trends in large caps, potentially
skewing performance. However, the number of
listings is expected to increase as the government
presses for businesses to carry out more Initial
Public Offers (IPOs).
All Share Index Change,
month-on-month,
as at 31st December, 2018
All Share Index Change,
year-on-year,
as at 31st December, 2018
-1.1%
-14.6%
EQUITY MARKET UPDATE
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-18 Dec-17
1,500.0
1,700.0
1,900.0
2,100.0
2,300.0
2,500.0
2,700.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
Price(Gray)
VolumeinTZMillions
1,940.0
1,960.0
1,980.0
2,000.0
2,020.0
2,040.0
2,060.0
2,080.0
2,100.0
2,120.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Nov-18
Dec-18
Dec-18
Dec-18
Dec-18
Price(Blue)
VolumeinTZMillions
33. 33JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Uganda in 2018: A look at three charts
Quarterly GDP growth picks up in Q3 of last year
Foreign exchange reserves used to stem currency depreciation
Gold is second highest earning merchandise export
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
2,800.0
2,900.0
3,000.0
3,100.0
3,200.0
3,300.0
3,400.0
3,500.0
3,600.0
3,700.0
3,600.0
3,650.0
3,700.0
3,750.0
3,800.0
3,850.0
3,900.0
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Gross FX Reserves (USD Mn) Average UGX to USD (LHS)
0.0
100.0
200.0
300.0
400.0
500.0
FY 13/14 FY 14/15 FY 15/16 FY 16/17 FY 17/18
USDMillion
Coffee
Gold
Fish and Fish Products (Excl. Regional)
Oil re-exports
34. 34JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Museveni Has His Work Cut Out for Him
Last year was a tumultuous one for politics in
Uganda with the following being some of the
most significant events that are likely to shape
the political landscape in the year to come and
beyond:
• In 2018 the Constitutional Court ruled in favor
of the removal of the presidential age limit of 75
years, essentially paving the way for Museveni
to run for re-election in 2021 and possibly rule
for life. Removing the presidential age limit
has been a contentious issue with opposition
leaders, civil society and religious leaders
passionately fighting the move
• Kyaddondo East Member of Parliament, Robert
Kyagulanyi, better known as Bobi Wine, is
a popular musician who was elected to his
position in June 2017. Bobi Wine has proven
to be a threat to the President having backed
candidates who went on to take three seats
away from the President’s National Resistance
Movement (NRM) in by-elections held in
Arua, as well as having actively campaigned
against the government’s social media tax and
the removal of the Presidential age limit. The
President seems to be actively suppressing MP
Bobi Wine, with allegations that he was tortured
after which he had to be flown out for medical
treatment and more recently the police was
deployed to block the musician’s Boxing Day
concert. Bobi Wine’s entrance into the political
space is relevant because the support of the
youth will be key in clinching the presidential
elections in 2021. Critics, however, question
whether Bobi Wine’s ability to mobilize crowds
can effectively translate to votes and whether
he will be able to overcome the oppression that
other opposition leaders, such as Kizza Besigye,
have endured over prolonged periods of time
POLITICAL OUTLOOK
GDP: USD 27.7 Bln | Population: 44.3 Mln
UGANDA
• In the first half of 2018, Uganda’s Minister
of State Planning proposed a raft of tax
amendments aimed at boosting government
revenue collections. One particular proposal
to levy a 1.0% tax on all mobile money
transactions proved particularly controversial
especially due to the negative effect it would
have on those that rely on the service the most
and who are not able to access more formal
financial services, the lower income segment of
the population. Less Ugandans have accounts
at financial institutions than they do mobile
accounts and while only 11.7% of Ugandans
send domestic remittances through financial
institutions, 69.4% do so via mobile money
transfers¹. The tax was eventually revised down
to 0.5% applicable only to withdrawals however,
the impact was already evident with the value
of mobile money transactions having dropped.
Another unpopular tax was the daily levy
charged to social media users which also led to
public uproar
Museveni’s government has been on the receiving
end of public outrage in the recent past with Bobi
Wine presenting an opposition figure with a strong
backing. As we inch towards the next elections in
2021 it remains to be seen whether Museveni’s
seat at the helm will be threatened.
Percentage Distribution of Population by Age Group,
2014
Source: 2014 National Census, StratLink Africa
1
World Bank and Global Findex
47.9%
20.6%
12.8%
18.5%
0 to 14 15 to 24 25 to 34 35+
35. 35JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
UGANDA
Gold Sector Needs Reform to Reap Benefits
Gold has rapidly become one of Uganda’s key
merchandise exports, second only to coffee in
terms of foreign exchange earnings in the last
financial year. Between the financial year (FY)
2014/15 and FY 2017/18 the value of gold exports
increased by a factor of 1,469.0 to USD 343.3
million while coffee exports stood at USD 492.5
million.
However, a closer look at the gold sector brings to
light a number of issues. Uganda is allegedly being
used as a route to sell gold smuggled from South
SudanandtheDemocraticRepublicofCongowhere
proceeds are used to fund the ongoing conflict.
Furthermore, Uganda’s Financial Intelligence
Authority (FIA) is enforcing the registration of gold
mining activities in order to address the issue of
lost royalty earnings for the government through
undeclared trade of the precious metal.
So while gold has been a lucrative source of foreign
exchange earnings for the country, there is a long
way to go before the sector is fully legitimized
and the commodity can become a reliable export.
Corruption within the government continues to
be a major problem for the gold sector as well as
the country as a whole and until it can be seriously
addressed the issues currently being experienced
with the gold trade will persist.
BUSINESS NEWS ENVIRONMENT
Key Merchandise Exports (USD Mn)
Source: 2014 National Census, StratLink Africa
Aligning Monetary Policy with Growth
Uganda’s economy expanded by 6.8% in the
third quarter of 2018, marginally slower than the
7.0% growth seen over the same quarter of the
previous year but markedly higher than the 2.0%
GDP growth seen in the third quarter of 2016.
These figures show that the average GDP growth
in the first three quarters of 2018 and 2017 were
equal at 6.0%.
Third quarter expansion last year was mainly
driven by the services and industry sectors which
grew by 8.2% and 6.9%, respectively, while the
agriculture sector grew by 3.0%.
Outlook for 2019
The following are some of the key macroeconomic
scenarios to watch out for in the year ahead:
• Cautious tightening of monetary policy – the
Monetary Policy Committee (MPC) has over
the past couple of years has been cutting the
Central Bank rate, which dropped from 17.0% in
January 2016 to 9.0% in September 2018, and
as a result has supported improved economic
activity over the same period. Average
inflation in 2017 and 2018 was 5.7% and 2.6%,
respectively, which supported the Bank of
Uganda’s (BoU) expansionary monetary policy
stance however, in October last year the MPC
decided to increase the rate to 10.0% in what
was likely a preemptive move in anticipation of
increased inflationary pressure in the medium
term.
Quarterly GDP Growth
Source: BoU, StratLink Africa
ECONOMIC OUTLOOK
0.0
100.0
200.0
300.0
400.0
500.0
FY
13/14
FY
14/15
FY
15/16
FY
16/17
FY
17/18
Coffee
Gold
Fish and Fish Products (Excl. Regional)
Oil re-exports
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Q12016
Q22016
Q32016
Q42016
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
36. 36JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
The justification behind the hike was upside risks
to inflation likely to be caused by: rebounding
commercial bank credit disbursements to the
private sector which accelerated from 3.2%
growth in November 2017 to 11.7% in the
same month of 2018; a potential reversal in the
trajectory of food prices, as weather patterns
normalize, which were falling for the better part
of 2018 with food inflation at-5.0% in December
of the same year; strong GDP growth brought
about by Uganda’s new National Industrial
Development Policy directive focusing agro-
industrialization, the extractive and knowledge
basedindustriesaswellascontinuedinvestment
in large public infrastructure projects.
On the other hand the downside risks to
inflation include global financial uncertainty
and weaker growth, delays in the executions of
public infrastructure works and continued weak
domestic demand seen in low core inflation
which dropped from 3.9% in September to 2.8%
in December last year
against its American counterpart in the first six
months of 2018, but these subsequently rose
back up as the local unit strengthened.
• Currency vulnerability – the shilling was put
under significant pressure in 2018, having
depreciated to a low of 3,891.6 to the dollar in
June before regaining ground to close the year
at 3,705.9 against the greenback. The BoU had
to employ foreign exchange reserves to stem
the sliding shilling, which lost 6.8% of its value
Source: BoU, StratLink Africa
Source: Bloomberg, StratLink Africa
Source: BoU, StratLink Africa
FX Reserves and Dollar Exchange Rate
Current Account Balance (USD Mn)
CBR and Inflation
UGANDA
Pressure on the currency came as a result of the
expanding current account deficit as net imports
of goods and services continued to expand in
2018 with government project-related imports
being one of the main drivers behind this trend
The year ahead will see the government try to
minimize project delays and setbacks in order to
support economic growth especially with regard
to achieving set targets within the oil industry in
order to boost future foreign exchange earnings
to support the current account and minimize
currency volatility.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Headline InflaƟon Core InflaƟon
Central Bank Rate
2,800.0
2,900.0
3,000.0
3,100.0
3,200.0
3,300.0
3,400.0
3,500.0
3,600.0
3,700.0
3,600.0
3,650.0
3,700.0
3,750.0
3,800.0
3,850.0
3,900.0
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Gross FX Reserves (USD Mn)
Average UGX to USD (LHS)
-800.0
-600.0
-400.0
-200.0
0.0
Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
37. 37JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Low levels of inflation throughout 2018 ensured
that investors benefit from high real returns on
government securities and as a result demand for
them has remained high. Strong economic output
forecasts and potentially rising inflation in the year
ahead are likely to see yields remain elevated.
Yields Likely to Remain Elevated in 2019
The yield curve has shifted upward quite
significantly in the year to 9 January 2019 with
the most drastic change seen for the three year
government security whose yield rose by 5.1%
over the same timeframe. The government
increased its domestic borrowing over the course
of last year with the amount on offer at treasury
bills auctions increasing by 45.3% between January
and December thereby driving down the price of
T-Bills and raising yields.
Sovereign Yield Curve
Amounts Offered at T-Bill Auction, USD Million
Source: Bloomberg, StratLink Africa
Source: BoU, StratLink Africa
Uganda’s Cipla Quality Chemical Industries
became the 9th domestic company to list on the
Uganda Securities Exchange in September 2018,
six years after its last IPO. The firm’s share price
fell by 27.5% between the IPO and 9 January 2019
as a result of modest profits in the first half of the
current financial year. Low government spending
over the same period was likely a contributing
factor to the weak profits and it remains to be
seen whether Cipla’s share price will recover.
Cipla Share Price Dips
The All Share Index began 2018 on an upward
trend, appreciating by 16.0% between the
beginning of the year and its peak of 2,292.8 in
June before depreciating quite sharply to close the
year at 1,649.4, down 28.1% relative to the year’s
high point.
All Share Index
Cipla Quality Chemicals
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
EQUITY MARKET UPDATE
UGANDA
BUSINESS NEWS ENVIRONMENT
0.0
20,000.0
40,000.0
60,000.0
80,000.0
100,000.0
120,000.0
180.0
200.0
220.0
240.0
260.0
280.0
17-Sep-18
1-Oct-18
15-Oct-18
29-Oct-18
12-Nov-18
26-Nov-18
10-Dec-18
24-Dec-18
7-Jan-19
Volume (RHS) Share Price (UGX)
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
17.0%
18.0%
3M 6M 1Y 2Y 3Y 5Y 10Y
09-Jul-18 09-Jan-19 09-Jan-18
0.0
10.0
20.0
30.0
40.0
50.0
60.0
18-Jan-18 19-Dec-18
1,600.0
1,700.0
1,800.0
1,900.0
2,000.0
2,100.0
2,200.0
2,300.0
2,400.0
3-Jan-18
3-Feb-18
3-Mar-18
3-Apr-18
3-May-18
3-Jun-18
3-Jul-18
3-Aug-18
3-Sep-18
3-Oct-18
3-Nov-18
3-Dec-18
3-Jan-19
2017 Average
39. 39JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Ghana in 2018: A look at four charts
Government maintained a check on expenditure but revenue performance disappointed
Declining foreign exchange reserves left the Cedi exposed to mounting pressure from the global environment
Appetite for domestic debt picked pace towards the end of 2018
The pace of disinflation slowed necessitating a cautious expansionary monetary stance
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2015 2016 2017 2018
Revenue Expenditure
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
5,500.0
6,000.0
6,500.0
7,000.0
7,500.0
8,000.0
Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18
Foreign Exchange Reserves (USD Mln) Months of Import Cover - Right Hand Axis
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 (P)
Millions
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
40. 40JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GDP: USD 58.5 Bln | Population: 29.5 Mln
GHANA
2019 to Set Stage for 2020 Election
In 2018 Ghana enjoyed a broadly favorable political
risk environment with the National Public Sector
Reform Strategy (2018 – 2023) forming a key pillar
of the government’s agenda. Looking in 2019,
we expect the country to enter into the election
cycle ahead of the 2020 polls with the National
Democratic Congress set to conduct primaries for
presidential hopefuls on January 19th, 2019. We
hold a favorable view of the country’s political risk
profile with remote pressures likely to emerge
from the decline in the global price of oil which, if
sustained, could see fiscal and monetary pressures
rise again and spill over into the socio-economic
environment. The value of oil exports has been
rising, providing the economy with a vital source
of foreign currency inflow.
The coming months will be characterized by
a rise in political rhetoric as parties look to
consolidate their political constituencies ahead
of the next election. We expect the score card
of the incumbent New Patriotic Party to come
under intense scrutiny especially with regard
to management of the economy in the face of
significant headwinds. A key risk we will be looking
out for will be the potential derailment of the
government from its policy priorities against the
backdrop of an electoral cycle.
POLITICAL OUTLOOK
Value of Oil Exports (USD Mln)
Source: Central Bureau of Statistics, StratLink Africa
Business Environment Faces Tightened Credit
Conditions
Despite significant improvement, the business
environment in continues to grapple with
tightened credit conditions. This has presented a
headwind to the economy and is poised to remain
a challenge looking into 2019.
We view this as a likely reflection of the
deteriorating asset quality amongst commercial
banks which is bound to have triggered high risk
aversion in lending. With non-performing loan
ratios above 20.0%, banks are likely to remain
cautious.
BUSINESS NEWS ENVIRONMENT
Average Commercial Bank Lending Rate
Non-Performing Loan Ratio
Source: Central Bureau of Statistics, StratLink Africa
Source: Bank of Ghana, StratLink Africa
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
3,000.0
3,500.0
4,000.0
4,500.0
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
25.0%
25.5%
26.0%
26.5%
27.0%
27.5%
28.0%
28.5%
29.0%
29.5%
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Oct-14
Feb-15
Jun-15
Oct-15
Feb-16
Jun-16
Oct-16
Feb-17
Jun-17
Oct-17
41. 41JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GHANA
Rising Monetary Pressures Raise Headwinds in
2019
In 2018 our view of Ghana’s economy was
anchored on the expectation of strengthened
fiscal consolidation to mitigate the headwinds
the economy was confronting. Whereas we have
witnessed sustained efforts to keep government
expenditure in check, this has unfortunately
been accompanied with a decline in the revenue
performance rate. As a result, the economy
continues to grapple with a relatively tight fiscal
space.
In 2019, we view the combination of this tight
fiscal space and deteriorating monetary conditions
as the key challenge facing the economy. With
the foreign exchange reserves declining, the Cedi
is poised to face growing pressure over the next
twelve months with the likelihood of closing the
year, 2019, exchanging within the 5.0 – 5.2 units
to the greenback band.
Source: Debt Management Office, StratLink Africa
Revenue and Expenditure Performance Rate
ECONOMIC OUTLOOK
Rate Hike Imminent in January 2019 Meeting
We expect Bank of Ghana’s first Monetary Policy
Committee to endorse a rate hike edging it closer
to19.0%asitseekstoarresttheriseininflationand
foreign exchange pressure. The benchmark rate
has been retained at 17.0% for three consecutive
meetings,inlinewithourJanuary2018expectation
of a slowdown in the expansionary stance adopted
for the better part of 2017.
Margin by which the Cedi
depreciated against the USD in 2018
6.6%
Foreign Exchange Reserves and Months of Import Cover
Cedi to USD
Source: Debt Management Office, StratLink Africa
Source: Bloomberg, StratLink Africa
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
140.0%
2015 2016 2017 2018
Revenue Expenditure
2.5
2.7
2.9
3.1
3.3
3.5
3.7
3.9
4.1
4.3
5,500.0
6,000.0
6,500.0
7,000.0
7,500.0
8,000.0
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Foreign Exchange Reserves (USD Mln)
Months of Import Cover - Right Hand Axis
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
5.0
Nov-17
Dec-17
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
42. 42JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GHANA
Domestic Debt Issuance (Cedi)
Source: Bank of Ghana, StratLink Africa
We believe this rise reflects our position on the
relatively tight fiscal space in the economy despite
the check on government expenditure. The decline
in revenue mobilization performance is bound to
leave the government tapping increasingly into
the domestic market given the rising interest
rates that have rendered the global market
unattractive. Tax revenue, in particular, has been
one of the sources that punched below the target
in the first three quarters of 2018 posting a 93.0%
performance rate.
Headline Inflation to Top Investor Focus in 2019
Looking into 2019, investors will be cautious about
inflation given that the reversion to single digits is
under threat from rising food prices and external
factors such as the Cedi.
Tail End of 2018 Witnessed Spike in Domestic
Borrowing
There was a rise in the government’s appetite for
domestic debt towards the end of 2018 with the
Q4 2018 issuance calendar pointing at a rise in
uptake. In line with this, the market witnessed a
general rise in yields between June and September
2018 in what we assess was a reflection of the
rising appetite for domestic borrowing by the
government and concerns over the decelerated
pace of disinflation. June 2018 headline inflation
rose to touch the target ceiling of 10.0% before
closing the year at 9.4%.
Sovereign Yield Curve
Headline Inflation
Source: Bank of Ghana, StratLink Africa
Source: Ghana Statistical Service, StratLink Africa
DEBT MARKET UPDATE
0.0
2,000.0
4,000.0
6,000.0
8,000.0
10,000.0
12,000.0
14,000.0
16,000.0
Q4
2017
Q1
2018
Q2
2018
Q3
2018
Q4
2018
Q1
2019 (P)
Millions
8.5%
9.0%
9.5%
10.0%
10.5%
11.0%
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
20.0%
91 Day 182 Day 2 Year 3 Year
Jan Jun Sep
43. 43JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GHANA
Month-on-month change in the Ghana
Stock Exchange Composite Index as at
November 29th, 2018
Proportion by which the Ghana
Stock Exchange Composite Index
declined in 2018
-11.2%
3.0%
Market Poised to remain Bearish in Q1 2019
Compared to its peers in the region, the Ghana
Stock Exchange was relatively resilient in 2018.
The Composite Index closed the year 3.0% lower
than it started at a time when other exchanges in
sub-Saharan Africa were significantly subdued by
developments in the global economy. Underlying
this performance was the fact that Ghana enjoyed
a relatively stable macroeconomic environment
in the period under review, a fact that propped
investor confidence in the market. Of note,
the banking sector reforms were a key driver of
confidence.
In 2019, Ghana is bound to face a tougher
environment through which it can improve its
macroeconomic environment. This is bound to
keep investors cautious about investing in the
stock exchange. Further, developments in the
global markets will be pivotal in determining the
appetite the stock exchange attracts alongside its
other peers in sub-Saharan Africa.
Ghana Stock Exchange Composite Index
Source: Bloomberg, StratLink Africa
EQUITY MARKET UPDATE
Source: Bloomberg, StratLink Africa
Ghana Stock Exchange Composite Index (M-o-M)
With an election taking place in Nigeria in mid-
February 2019, investors looking to position
themselves in West Africa are bound to take
particular attention on Ghana.
0
0.5
1
1.5
2
2.5
2,300.0
2,400.0
2,500.0
2,600.0
2,700.0
2,800.0
2,900.0
3,000.0
Sep-18 Oct-18 Nov-18
Millions
Volume - RHS Last Price
0.0
5.0
10.0
15.0
20.0
25.0
2,000.0
2,200.0
2,400.0
2,600.0
2,800.0
3,000.0
3,200.0
3,400.0
3,600.0
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Millions
Volume - RHS Composite Index
45. 45JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Ethiopia at a glance: A look at four charts
Inflation estimated to have remained well above the 8% target throughout 2018
The Birr maintained resilience in 2018 but facing mounting pressure from enduring liquidity crunch
Impact of the forex crunch on key manufacturing and construction sectors to slow down growth momentum
High spending pressures expected in 2019
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Dec-15
Feb-16
Apr-16
Jun-16
Aug-16
Oct-16
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
27.0
27.2
27.4
27.6
27.8
28.0
28.2
28.4
28.6
Jan-18
Jan-18
Jan-18
Feb-18
Feb-18
Mar-18
Mar-18
Apr-18
Apr-18
May-18
May-18
Jun-18
Jun-18
Jul-18
Jul-18
Jul-18
Aug-18
Aug-18
Sep-18
Sep-18
Oct-18
Oct-18
Nov-18
Nov-18
Dec-18
Dec-18
Dec-18
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
2016/17 2017/18 e 2018/19 e 2019/20 e
Revenue Expenditure Fiscal Balance
46. 46JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
GDP: USD 81.7 Bln | Population: 107.5 Mln
ETHIOPIA
2019: Renewed Optimism
Ethiopia began 2018 with the shock resignation
of the Prime Minister leading to the election
of a reformist Prime Minister from the Oromia
community on March 28th 2018, a clear indication
that the party is coming to terms with the risks
causedbythewaveofunrelentinganti-government
protests whose base has been the Oromia region.
In our reviews in 2018, we highlighted potential
scenarios following the resignation in view of
Ethiopia’s future political outlook that have come
to fruition. The Prime Minister has also hinted at
the need to move towards a multiparty democracy,
holding several meeting with the opposition
leaders as evidence of government’s goodwill in
implementing reforms.
Facing the Future with an Open Palm
In many ways, election of the new Prime Minister
signaled a dramatic shift in the ruling EPRDF’s style
of governance. The new Prime Minister seems to
have departed from the former government’s high
handed leadership style and approach to dissent,
to extend an olive branch to the opposition as
well as dissenting voices in a bid to dissipate the
simmering tensions, as part of his reform drive.
The ruling party seized the opportunity presented
by the Prime Minister’s resignation to step up
overtures of reform and the approved review of
the Anti-Terrorism Act (2009) which, has been a
source of disenfranchisement, points towards
government’s willingness to depart from the past
and tone down on its highly criticized dissent
approach. Last month, the council of ministers
approved a bill that seeks to remove legal barriers
placed on civil society by the Act. We are of the
view that this is a step in the right direction and
if maintained, this route could present short-term
adjustment pressures whilst promising a more
stable environment in the long-term.
Sweeping Reforms
The new Prime Minister has been made sweeping
changes in Ethiopia with a view to improving
the political environment and attracting more
private investment inflows. He has overturned the
judiciary, released political prisoners, reformed
security services, executed a peace deal with long
standing foe, Eritrea and is opening up Ethiopia’s
borders for common trade and investment with
both regional and international partners and
it looks like he will do the same with regional
partners. Notably, the Prime Minister lifted
the draconian state of emergency in June 2018
and publicly announced plans to amend the
constitution to institute term limits on the tenure
of the Prime Minister. Whilst this is welcome, we
believe opening up the democratic space further
by re-examining the Anti-Terrorism Proclamation
(2009) and its implication on the country’s future
political outlook, is key during this transition
period.
Threats Linger
Unfortunately, the reform agenda has been
threatened by flurries of ethnic activities from
the Prime Minister’s own backyard, a pointer
towards unresolved issues gripping the country
as it grapples with heavily constrained democratic
space. Fragmentation of the political landscape
also threatens the reform agenda. Likewise, we
are of the view that economic reforms, such as
the proposed sale of public enterprises, though
welcome, are bound to disrupt established
channels of patronage and further heighten the
risk that fissures in government will spur volatility.
However, the ongoing ethnically instigated
violence with several bouts of violence erupting in
recent months, forms one of the greatest risks to
Ethiopia’ political outlook in both the longer and
near terms.
Overall, StratLink projects a gradual advancement
of political reform over time with expectations of
lingering tensions should these grand expectations
not be met; it is bound to raise the risk of
widespread violent protests in the near term. We
are therefore, of the view that Ethiopia’s political
outlook will remain volatile but contained, in the
near term as government forges ahead with its
POLITICAL OUTLOOK
47. 47JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
2019: Improved International Relations and
Trade Ties
It has been a year of momentous change in
Ethiopia and it will continue in 2019 as the country
continues to institute reforms that seek to improve
doing business, including opening borders to
form a common market with regional partners.
Ethiopia’s business environment maintained a
favorable outlook in 2018, despite a few hiccups,
such as the long drawn out foreign currency
crunch with suggestions of some multinationals
opting to shift their investments out of Ethiopia.
Nonetheless, Ethiopia’s business environment
improved in 2018 as evidenced by the World Bank
Doing business Index highlighting improvements
in most of the doing business metrics reflecting
increasing effort by the government to institute
reforms aimed at improving doing business.
Ethiopia Doing Business Score 2019
0 Low-100 Best
Improving Relations and FDI Inflows
Ethiopia is emerging as one of the most attractive
investment destinations in Africa and recent
policy announcements are expected to further
boost the country’s appeal to private investors.
We opine that government will continue to
seek to maintain a wide range of international
partners so as to maximize trade and investment
opportunities. The recent political changes in
Ethiopia will lead to improved relations with
BUSINESS NEWS ENVIRONMENT
ETHIOPIA
Metric 2019 2018
Overall 49.06 48.15
Starting a business 70.79 68.43
Dealing with construction permits 52.84 49.18
Getting electricity 59.71 59.29
Registration of property 51.33 51.32
Access to credit 15.00 15.00
Paying taxes 63.26 62.86
Trading across border 56.00 56.00
Enforcing contracts 62.77 59.99
Protecting minority investors 28.33 28.33
trade allies. Sustained progress on political reform
could lead to still closer ties but, in any event,
relations with China will probably remain a higher
priority, with Ethiopia aiming to play a key role
in the Belt and Road Initiative, China’s flagship
diplomatic trade plan. Although the broad thrust
of policy is unlikely to alter substantially in 2019,
government has signaled its desire for greater
private-sector involvement. One of the most
striking economic policy announcements since the
Prime Minister took over has been the declaration
of possible privatization of state-owned firms,
a very substantial step from a regime that has
traditionally been wary of private enterprise.
While the practical implementation of this is
going to be complex and is likely to face strong
opposition from different sectors of the public,
government seems intent on moving forward.
However, by opening up key economic sectors to
foreign participation, the government is clearly
hoping to provide extra impetus to FDI inflows,
thereby relieving some of the foreign-currency
shortages currently hampering a faster pace of
development.
Ethiopia’s FDI growth decelerated by 10.0% to USD
3.6 billion after posting a record growth in 2016,
with industrial parks and infrastructure the main
target areas, but remained strong, almost USD 1.0
billion higher than the level posted in 2015.
FDI Inflows (USD millions)
Source: UNCTAD, StratLink Africa
0.0
1,000.0
2,000.0
3,000.0
4,000.0
5,000.0
2012 2013 2014 2015 2016 2017
48. 48JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
ETHIOPIA
Birr vs USD
Foreign Exchange Reserves (USD/MLN)
Source: Bloomberg, StratLink Africa
Source: Bloomberg, StratLink Africa
We expect increased pressure on the Birr in the
forecast period. However, the risks will be tamed
by close management from the central bank with
very occasional sharper downward adjustments
as happened in October 2017 when the central
bank devalued the Birr by 15.0% to Birr 26.9 to the
greenback. Since then, the currency has weakened
more gradually, to Birr28.3 to the greenback as of
31st December, 2018. This is a potential possibility
over the long term, in view of the ongoing foreign
exchange crunch. Whilst Ethiopia is going through
a transition, the underlying story remains an
investment-led push driven by the government
with significant distortions to currency policy. This
is bound to have profound impact on the country’s
foreign exchange reserves in future.
from those who believe that national development
is best served by keeping strategic industries
and critical infrastructure in public ownership.
Nonetheless, the Birr remained stable in 2018,
depreciating by 60.0bps, month-on-month and
250.0 bps, year-on-year.
Economy Powers Ahead
In 2019, we expect that improvements in business
confidence and solid economic fundamentals
will support decent medium-term economic
growth but still short of the country’s 11.0%
annual economic growth target by the Growth
and Transformation Plan II (GTP II), the successor
economic development programme to the initial
2010-15 GTP, which runs until 2020. The growth
plan is underpinned by the government’s long
term plan of transforming the economy from
agriculture-based to manufacturing -based with
the eventual aim of the country reaching middle-
income status by 2025.
Source: Fitch Solutions, StratLink Africa
Real GDP Growth vs Value of Agriculture and
Manufacturing
Headwinds to Growth from the Enduring Foreign
Exchange Crunch
While Ethiopia remains a global leader in terms of
growth, the enduring foreign exchange is bound
to slow down the growth momentum in the
short-term as it continues to weigh on the key
construction and manufacturing sub-sectors, who
rely on imported inputs and form a key pillar of the
Growth and Transformation Plan II (2015 – 2020).
Thus, as highlighted in the business section, the
government is hoping to provide extra impetus to
FDI inflows by opening up key economic sectors
to foreign participation, thereby relieving some of
the foreign-currency shortages currently impeding
a faster pace of development. Be that as it may,
privatization plans may be impeded by resistance
ECONOMIC OUTLOOK
0.0%
5.0%
10.0%
15.0%
0.0
10.0
20.0
30.0
40.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018e
2019f
Agriculture (USD/Bln)
Manufacturing (USD/Bln)
Real GDP Growth
27.0
27.2
27.4
27.6
27.8
28.0
28.2
28.4
28.6
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
1,500.0
2,500.0
3,500.0
4,500.0
Sep-12
Apr-13
Nov-13
Jun-14
Jan-15
Aug-15
Mar-16
Oct-16
May-17
Dec-17
Jul-18
50. 50JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
Rwanda at a glance: A look at four charts
Policy trends to improve the business environment and boost FDI inflows
Upward economic trajectory expected as Economy recovers from below par performance in 2017
Price deflation throughout most of 2018 owing to high base effects
Low trending yields on the back of tempered inflationary pressure
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
2012 2013 2014 2015 2016 2017
Kenya Uganda Tanzania Rwanda East Africa (RHS)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
2016Q1
2016Q2
2016Q3
2016Q4
2017Q1
2017Q2
2017Q3
2017Q4
2018Q1
2018Q2
2018Q3
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Feb-18
Aug-18
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Dec-16
Feb-17
Apr-17
Jun-17
Aug-17
Oct-17
Dec-17
Feb-18
Apr-18
Jun-18
Aug-18
Oct-18
Dec-18
91 Day 182 Day 364 Day
51. 51JANUARY 2019 | MARKET UPDATE – AFRICA www.stratlinkglobal.com
2019:Stable Outlook with RPF Firmly on the
Reins
Rwanda’s internal political outlook is set to remain
stable in 2019 as President Paul Kagame retains his
firm hold on power through his ruling Rwandan
Patriotic Front (RPF). The political dominance
of RPF was cemented with another strong
parliamentary victory after the September 2018
legislative elections following which, Rwanda’s
opposition made history with two members of
the Democratic Green Party of Rwanda — the
only registered opposition party — winning two
seats in parliament. Until this election only two
political parties outside the RPF-led coalition
were represented in parliament, nonetheless, the
members from both parties served as ministers
in a national unity government underscoring the
lack of any real alternative to RPF. Even so, the
latest election marks the emergence of genuine
political pluralism, but opposition MPs remain in
a very small minority and in this regard, StratLink
foresees minimal change with regard to RPF’s
dominance in parliament and the wider political
landscape throughout the year. A prominent
reinforcement of RPF supremacy, as well as
Rwanda’s de facto stability, is the weakness of the
main opposition parties, which lack the financial
clout, strong leadership and political freedom
needed to become a significant force. Likewise,
Rwanda still has a long way to go for effective
political pluralism in the country as the political
environment remains highly restrictive marked by
intimidation and imprisonment of any challengers
to government. Nonetheless, we opine that the
release of long time political prisoner Victoire
Ingabire coupled with the election of opposition
members to parliament marks a good start for
opening up of political space in Rwanda.
Rwanda Pushing for Increased Regional and
Global Influence
Rwanda’s 2018 external landscape was also
permeatedbyincreasingpushfor,notonlyregional
but also, global influence through the African
Union (AU) platform, as well as the Francophone
leadership role. President Kagame as the chairman
POLITICAL OUTLOOK
GDP: USD 9.7 Bln | Population: 12.5 Mln
RWANDA
of the AU, is keen to spearhead key reforms with
the intention to implement structural changes at
the Commission before his one year term lapses
at the end of January 2019. President Kagame is
keen to leave a legacy that entails streamlining
and empowering the commission, while seeking a
more narrowly focused AU headed by a powerful
commission with increased financial autonomy.
Of note is that, Rwanda also hopes to become
the first African nation to join the Organization
for Economic Cooperation and Development
(OECD), the 36-member club of the world’s
most developed economies, a bold step in a bid
to get an alternate platform to persuade private
investors while escalating efforts to mobilize
private investments. Rwanda is banking on its high
doing business rankings which, is key to join the
organization to build on the gains from its business
reforms to learn and work closely with developed
economies. With sustained momentum, these
ambitions can be actualized in 2019 and beyond.
Sustained Cordial Relations with International
Partners
2018 witnessed increased bilateral visits to
Rwanda by its trade and diplomatic allies seeking
to foster bilateral relations. Chinese President Xi
Jinping visited Rwanda on a two-day state tour, the
first ever visit by a Chinese head of state. While
another landmark visit was by the Indian Prime
Minister, Narendra Modi. Both India and China
are moving to further reinforce their roles as
Africa’s closest economic and diplomatic partners.
Therefore, relations with Tanzania will remain
cordial as the two countries increase cooperation
on infrastructure projects, notably the joint
construction of the Standard Gauge Railway.
Diplomatic issues with Uganda have erupted
repeatedly but the two countries have consistently
been to resolved the issues, a trend we believe
will be replicated throughout 2019. Summarily,
we expect sustained cordial relations with
international partners in 2019 owing principally to
the country’s efficient use of development funds
and President Kagame’s administration’s low
tolerance for corruption.