africa market update - june 2016

2SEPTEMBER 2015 | MARKET UPDATE – AFRICA www.stratlinkglobal.com


Table of Contents


JUNE 2016 | MARKET UPDATE – AFRICA

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NIGERIA 4

KENYA 5

TANZANIA 6

UGANDA 8

RWANDA 9

GABON 7

3JUNE 2016 | MARKET UPDATE – AFRICA www.stratlinkglobal.com


459.1 Million35.9 Million


499.1 Million


25.3 Million


320,00019.9 Million

Capital Invested by Country (USD)

AFRICA DEALS LANDSCAPE JANUARY 2016 - MAY 2016

Capital Invested by Sectors

10,0002.2 Million

820,000

20.4 Million



Capital Invested by Deal Type

Deals Snapshot• Ghana Home Loans received USD 22.5 Million of loan financing from European Financing Partners and Netherlands Development

Finance Company on May 23rd, 2016

• SolarNow Services (Uganda) received USD 2.0 Million of debt financing from Sun Funder on May 19th, 2016

• Xan�um Integrated Solu�ons (South Africa) was acquired by Oberthur Technologies, for an undisclosed sum, through an LBO on May 18th, 2016

• SteamaCo (Kenya) raised USD 938,888.0of seed funding from Andrew Reicher and other undisclosed investors on May 17th, 2016

Source: PitchBook, StratLink Africa

South Africa

Ethiopia

Egypt

Namibia

Uganda

MozambiqueRwanda

Burkina Faso

Kenya

Madagascar

TanzaniaMauri�us

Morocco

Tunisia

Liberia

Nigeria

75.1 Million

Congo

Eritrea

Zambia

Sierra LeoneGhana

Merger & Acquisi�on ................... Growth & Expansion..

Corporate Dives�ture .................. Buyout/LBO ...............

IPO ................................................... Asset Acquisi�on ..........

PIPE ................................................. Share Repurchase ........

Angel ............................................... Acquisi�on Financing ...

28.0% 24.5%

17.0% 11.9%

7.0% 3.0%

3.0% 2.0%

1.0%

Early Stage VC ................................. 0.0%

1.0%

Others .......................... 7.0%

27.8%

13.9%

9.9%

7.9%

4.1%

2.4%

2.2%

1.4%

1.2%

10.2%

Retail

Metals, Minerals & Mining

Communica�ons & Networking

Commercial Services

Healthcare

Pharmaceu�cals

So�ware

Capital Markets

Insurance

Consumer Non-Durables

Commercial Banks Others

4.0%

13.5% 1.5%

Hospitality

28.0%

17.0%

10.0%

7.0%

3.0%3.0%

7.0%2.0%1.0%

1.0%0.0%

21.0%



Emerging Sectors as Oil and Agriculture Take a Back Seat

Telecommunications, Manufacturing and Real Estate continue to emerge as key drivers of the economy even as the extractives and agriculture sectors diminish as a proportion of the economy. This presents favourable prospects for the country as policy focuses on economic diversification to mitigate shocks such as those being experienced in view of oil prices presently. Manufacturing is still punching below its weight due to challenges including the shortage of foreign currency to facilitate importation of inputs and ongoing issues in supply of electricity.

Strained Economy Presents Risks for Political Climate

With the economy contracting and inflation in double digits, Nigeria’s political climate is exposed to risks emanating from citizens disenfranchised by an adverse environment. Available data shows that youth unemployment and underemployment

have been on the rise over the last two quarters, sending a signal of a deteriorating economic climate that is undermining creation of opportunities for engagement of the youth.

POLITICAL OUTLOOK

BUSINESS NEWS ENVIRONMENT

Source: National Bureau of Statistics, StratLink Africa

Economy by Sector Composition

0.0%10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

1990 2016

Others Telecommunica�onsAgriculture Real EstateTrade ManufacturingOil & Gas

NIGERIA

State Adopts More Flexible Foreign Exchange Policy

In our February 2016 issue, we tabled a case of likely devaluation of the Naira between Q1, 2016 and Q2, 2016. Whereas the May 2016 monetary policy adjustment on foreign exchange restrictions (introduction of flexibility in the interbank foreign exchange market structure) fell short of our anticipated devaluation, it is within the expectation of much needed policy realignment at a time when the economy is confronting headwinds. Tight foreign exchange controls have hitherto been instrumental in obscuring the pressure the Naira has been under, with the parallel market giving a signal of a beleaguered currency.

ECONOMIC OUTLOOK

Yield Curve Suggests Fears of Economic Slowdown Abound

The yield curve posted a hump as at May 25th, 2016, sending indications of investors jittered over further economic slowdown and elevated inflation pressures in the near term. News of the economy’s contraction in Q1, 2016 is likely to have necessitated investors’ reconsideration of the macroeconomic risk environment, demanding a premium for the near term.

DEBT MARKET UPDATE

Market Rallies as Foreign Investor Inflows Bounce Back

Strong foreign investor inflows have supported the exchange with the NSE 30 Index posting an uptrend between February and March, 2016. In the latter month, foreign investor inflows grew by 40.6%, month-on-month, to USD 77.3 Million whilst the inflow-outflow ratio improved to 0.8 from a low of 0.3 in the preceding month. The market was also buoyed by stocks in the oil sector which exhibited a bullish trend over the last month.

EQUITY MARKET UPDATE

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Can Kenya Retain Regional Hub Status?

The loss of the Uganda oil pipeline deal and Rwanda’s Standard Gauge Railway route to Tanzania has sent shivers over Kenya’s position as the region’s commercial and industrial hub in the years ahead. Whereas we believe the country remains pivotal in the East and Central Africa region, the emergence of economies such as, Tanzania and Ethiopia threatens to realign the dominance landscape. Tanzania and Uganda are the key destinations of foreign direct investment in the region accounting for 56.9% of total inflows as at 2014.

Emerging Confidence Crisis Undermines Political Risk

We place the country’s political risk climate under watch following recurrent protests by factions of the opposition, led by the Coalition for Reforms and Democracy (CORD), over the Independent Electoral and Boundaries Commission (IEBC). The stalemate between the government and the opposition presents a potential pressure point for the political climate ahead of the 2017 general election.

POLITICAL OUTLOOK

BUSINESS ENVIRONMENT

Region’s Foreign Direct Investment by Countries

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2000 2005 2010 2014

RwandaBurundiUnited Republic of TanzaniaUgandaKenyaEthiopia

Source: UNCTAD, StratLink Africa

KENYA

Government Misses Revenue Target on Adverse Business Environment

Overall revenue mobilization by the Kenya Revenue Authority in the first nine months of financial year 2015/16 (July 2015 – March 2016) stood at 92.4% performance rate raising USD 8.4 Billion. The underperformance has been attributed to an adverse business environment that was experienced in 2015. Notable challenges stemmed from an unfavourable monetary environment that saw the shilling tumble against the dollar as inflation breached the Central Bank’s target ceiling. The environment has since stabilized offering some respite from disruption occasioned by a volatile monetary climate. We expect the shilling to hold resiliently between 100.0 and 101.0 over the next quarter while maintaining a keen eye on possible policy adjustments by the USA Federal Reserve.

ECONOMIC OUTLOOK

Yields Subdued as Inflation Normalizes

Liquidity remains high in the money market supported by open market operation maturities with the interbank rate averaging 4.0% in May 2016, posting minimal upward movement from the preceding month. Inflation has edged further down over the last month, standing at 5.0% in May 2016, and 132.0 bps lower than March 2016.

DEBT MARKET UPDATE





Bold Plans for the Energy Sector

UAE’s Dubai-based Dodsal Group is reported to have discovered 2.7 Trillion cubic feet of gas in Tanzania’s Ruvu Basin Coast valued at USD 8.0 Billion. The initial discovery of approximately 50.5 Billion cubic feet of gas in 2011 put Tanzania firmly on the gas map and on investors’ radar. However, the sector has been bedevilled by corruption scandals, thus, delaying policy decisions. Nonetheless, the future looks bright given efforts put in place by government to attract investment which have seen Koyo Corporation from Japan announce interest in investing USD 1.0 Billion in a gas-fired power plant in the southern coast.

Upgrading the Energy Infrastructure

In a bid to upgrade energy sector infrastructure and boost industrial growth, Tanzania plans to invest USD 1.9 Billion each year by 2025 in energy projects. The country is also looking to upgrade the electricity network given that it has been losing business to its peers attributable to unreliable infrastructure. Tanzania, which has been hit by power shortages due to its dependence on hydropower and recurrent droughts, aims to reduce dependence on hydro sources and boost power generation capacity to 10,000.0 MW from the current 1,500.0 MW, using natural gas and coal.

POLITICAL OUTLOOK


East Africa Geopolitical Shift favouring Tanzania

Tanzania has secured the Uganda oil pipeline deal and Rwanda’s rail links development deal, wresting the two from neighbouring Kenya, cementing its position on the regional platform. This development anchors Tanzania as a strategic partner to member states especially as the region, and continent as a whole, pursues an aggressive integration agenda meant to unlock opportunity for future growth. The deals with Rwanda and Uganda should play a significant role in helping Tanzania shed the long held tag of an ‘unwilling partner’ in the regional integration agenda. According to the recently launched Regional Integration Index, Tanzania is the least integrated country in the East Africa region.

TANZANIA

Majority of Sectors Post Decline in Private Sector Credit Growth

Year-on-year growth of credit to a number of sectors either stagnated or declined in 2015, pointing at a general deceleration in private sector activity as the economy grappled with an adverse external environment as well as heightened political temperatures ahead of the October 2015 poll. In May 2015, the central bank hiked the minimum reserve ratio requirement by 200.0 bps to 10.0%, a fact that is also likely to have undermined banks’ capacity to lend to business. With the monetary environment exhibiting stability and political risk perception having improved, 2016 is bound to witness much better performance in private sector credit growth to majority of the sectors.

ECONOMIC OUTLOOK

Decreasing inflationary pressure as well as low appetite for borrowing in the domestic market was reflected in the decline in the short-term yields albeit, marginally, in May 2016. Inflation maintained the steady decline witnessed in previous months, declining by 30.0 bps to 5.1% in April 2016.

DEBT MARKET UPDATE





Favourable Business Environment ahead of Election

The business environment remains broadly stable even as the country heads for polls in August 2016. Gabon has a history of relative political stability, compared to its peers across the region, which supports investor confidence in the country’s ability to navigate the present electoral cycle in a favourable manner. Concern is rife, however, over the democratic space and the possibility of a resurgence of the strife witnessed in 2009 in the wake of a contested election outcome. This risk could be elevated in light of mounting opposition to the incumbent.

Consumption on Slowdown

Bongo Seeks Second Term in Office

President Ali Bongo will be seeking a second term in the August 2016 general election, a race that is likely to see him emerge victorious as he enjoys the advantage of incumbency. The election comes against the backdrop of the death (April 12th, 2015) of opposition luminary, Andre Mba Obame, with the focus shifting to the strategies that will be deployed by the opposition in its efforts to turn the tables after nearly five decades of the Bongo dynasty.

POLITICAL OUTLOOK


Source: Business Monitor International. StratLink Africa

Private Final Consumption per Capita (USD)

0.0

1,000.0

2,000.0

3,000.0

4,000.0

2010 2011 2012 2013 2014 2015

Gabon Angola GhanaKenya Nigeria

GABON

Ratings Downgrade Signals Lurking Risks despite Strong Non-Oil Growth

Fitch downgraded the country’s long-term foreign and local currency issuer default ratings to negative from stable, in May 2016, in line with our anticipation that despite strong growth in the non-oil sector, subdued oil prices are bound to render aggregate growth fragile in 2016. We expect pressure to continue mounting on the economy’s external position, notably on the back of the collapsed Doha Talks (April 2016) that dampened hopes of a rebound in global oil prices. Gabon’s application to re-join the Organization of Petroleum Exporting Countries (OPEC) after leaving in 1995 signifies its position as an economy affected by the slump in prices and appreciation of the need for a common voice around propping the same.

ECONOMIC OUTLOOK

Source: Business Monitor International, StratLink Africa

Real GDP Growth Converging with Peers’

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

(f)

2017

(f)

Angola Gabon Nigeria





Banking Industry Risks Seen Rising in 2016

Bank of Uganda forecasts a rise in the banking sector risk on the back of a challenging macroeconomic environment and lingering risk from depressed global commodity price in 2015. The banking sector witnessed a rise in credit risk evidenced by the increase in the ratio of non-performing loans (NPLs) to total loans in 2015, pointing at a business environment that has been undermined by domestic and external challenges.

POLITICAL OUTLOOK


Museveni Sworn in as President

Yoweri Museveni was sworn in for a fifth term as President of Uganda on May 12th, 2016 at just about the same time opposition stalwart, Kizza Besigye, was charged with treason for holding a mock inauguration ceremony. It indicates that the country still carries baggage from the concluded electoral cycle with observer missions such as, that from the European Union raising concern over the degree of freedom and fairness in the election.

Key Partners Storm out of Inauguration

The opposition is likely to ride on the constitutional set presidential age limit of 75 years to anchor its post-election agenda on need for reform and possibly re-introduction of term limits. A section of delegates from Unites States of America (USA) and the European Union stormed out of Museveni’s inauguration ceremony following his condemnation of the International Criminal Court (ICC) and potentially setting his fifth term off to an antagonistic beginning with key bilateral and development partners. USA is the largest bilateral donor to Uganda with aid of approximately USD 767.4 Million annually.

UGANDA

ECONOMIC OUTLOOK

Shilling Maintains Resilience as Inflation Abates

Uganda has witnessed declining inflationary pressure since the start of the year partly attributable to the trickle down effects of the aggressive monetary tightening in the second half of 2015 where the Bank of Uganda hiked the benchmark rate by 600.0 bps cumulatively to 17.0% in December, 2015. As reported in our May 2016 Market Update, the Bank is adopting a more accommodative policy stance slashing the benchmark rate by 100.0 bps to 16.0% in April 2016. Inflation has been declining from 7.4% in January to 5.1% in April, 2016, a marginal 10.0 bps short of the bank’s 5.0% medium target.

Source: Bank of Uganda, StratLink Africa

Monthly Interbank Rate (Average)

DEBT MARKET UPDATE

Yields Decline on Mitigated Inflation

There was relative liquidity tightening in the money market between April and May 2016 with the interbank rate increasing by 90.0 bps to 12.4% in April 2016.

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

Apr-

15

Jun-

15

Aug-

15

Oct

-15

Dec-

15

Feb-

16

Apr-

16





POLITICAL OUTLOOK

Rwanda on Track to Improve Financial Inclusion

Efforts by government to foster a business-friendly environment have seen Rwanda tower its regional peers in the World Bank’s ease of doing business rankings. Similarly, in its 2015 Global Competitive Report, the World Economic Forum (WEF) ranked Rwanda as the most competitive economy in the region followed by Kenya, Tanzania, Uganda and Burundi. Rwanda ranks favourably in its ability to attract and retain foreign investment compared to its peers, ranking at position 58 globally; whilst ranked Kenya 99, Tanzania 120, Uganda 115 and Burundi 136.

Challenges Persist

However, Rwanda still faces limitations including, infrastructure bottlenecks, limited access to finance and insufficient capital for innovation. The percentage of persons aged 15 years and above that have access to formal borrowing in Rwanda stands at 8.0% compared to 16.0% and 15.0% for Kenya and Uganda, respectively. This indicates that in the crucial area of access to credit, the country lags behind regional peers.


Deteriorating Relations with Burundi

Fragile relations with neighbouring states remains our focus of the political environment in Rwanda following allegations, by Burundi, that the country expelled an estimated 1,300 of its nationals for refusal to move to refugee camps. The allegation comes on the heels of recent accusations by Burundi that Rwanda was backing rebels seeking to oust President Pierre Nkurunziza, allegations which Rwanda has refuted. These developments are bound to keep prospective investors cautious over the region which has witnessed, in the recent past, political turmoil in South Sudan and Burundi. Rwanda’s exports to Burundi have grown from 10.5% of its exports to the region in 2010 to 13.8% in 2015, suggesting the latter’s growing significance as a trade partner.

RWANDA

External Position Faces Pressure as Mineral Exports Tank

We assume a cautious position over the economy’s external position on the back of weak performance by principal mineral exports. The value of Cassiterite, Coltan and Wolfram exports posted a 42.1% decline between 2014 and 2015 to USD 117.8 Million. In the same period, the proportion of principal mineral exports to total exports declined from 33.9% in 2014 to 21.1% in 2015. As such, the economy faces vulnerability to continued fiscal and monetary pressures.

ECONOMIC OUTLOOK

Uptick in Yields as Liquidity Tightens

While government borrowing maintained the downtrend plunging by 25.3% to USD 36.1 Million between March and April, 2016, the T-Bill market experienced marginal, rise in yields in the period under review reflecting the tightening liquidity. The interbank rate rose by 41.0 bps to an average of 5.6% in April 2016. Yields were also nudged upwards by rising inflation which rose marginally from 4.6% registered in March 2016 to 4.7% in April 2016. The 91 Day, 182 Day and 364 Day papers registered marginal gains of 0.07%, 0.07% and 1.19% to 5.8%, 6.3% and 8.5%, respectively, in the period under review.

DEBT MARKET UPDATE





StratLink in the News

StratLink Africa continues to make commentary on thematic issues in frontier and emerging markets. Below please find links to the latest pieces.

Please click the buttons to view the full articles

Ventureburn: Three Bright Spots in South Africa’s Dismal Economic Performance - In this piece, Konstantin Makarov, analyses opportunities in South Africa that have been obscured by the economic downturn.

Entrepreneur: Five Hot African Industries Investors Should be Watching - In this piece, Konstantin Makarov discusses opportunities in the African continent with a focus on five industries including Fintech and Online Retail.

London School of Economics Business Review: Ghana Races to the Ballot with Increased Concern over the Economy - In this article, Senior Research Analyst, Julians Amboko, assess Ghana’s pre-election climate and investor expectations.

CCTV Africa: Thoughts on Kenya’s Monetary Policy Rate Slash - In this interview Julians Amboko, sheds light on the factors that drove Kenya’s Central Bank to slash the benchmark rate in May 2016.

http://ventureburn.com/2016/05/3-bright-spots-investors-can-find-south-africas-dismal-economic-news/

http://www.stratlinkglobal.com/blog/thoughts-on-kenyas-monetary-policy-rate-slash-may-2016/

http://blogs.lse.ac.uk/businessreview/2016/05/20/ghana-races-to-the-ballot-with-increased-concern-over-the-economy/?utm_content=buffer07b24&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

https://www.entrepreneur.com/article/273129


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