africa markets watch - october 2008

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  • 8/14/2019 Africa Markets Watch - October 2008

    1/26

    Standard Bank

    Africa markets watch Africa October 2008

    Jan Duvenage, Anita Last, Yvonne Mhango & Victor Munyama

    150

    200

    250

    300

    350

    400

    450

    500

    2002 2003 2004 2005 2006 2007 2008

    Reuters/Jefferies Commodity Price Index

    Recent developmentsImplications of the collapse in commodity prices

    Since the Reuters/Jefferies commodity price index peaked

    at the end of June 2008 at 462.72, it has dropped (by 42%

    to 268.32 at the end of October) to levels last seen in

    2005. Most notably, the international oil price has dropped

    by almost US$100 per barrel to date, since it peaked at

    US$147 earlier this year. This has significant implications

    for oil-driven economies like those of Angola and Nigeria

    that depend heavily on oil revenues to build up their

    international reserves, finance their fiscal spending, and

    invest in their oft-neglected non-oil sectors. Given the

    continents dependence on commodities, the effects of

    lower commodity prices have been swift and pervasive. Other than oil, metals prices are also on a downward

    slide. The price of copper, which is often used as a bellwether for the health of the global economy, has more

    than halved since it peaked at US$8 900 per tonne in July. Zambia, and to a lesser extent the Democratic

    Republic of Congo, has been significantly affected by the lower price. For the first time in ten quarters, Zambias

    trade balance went into negative territory in the third quarter of 2008 because of the poor copper price. As such,

    Zambias current account deficit is expected to deteriorate, its international reserves are on a downward path,

    fiscal revenue is being squeezed, and mining-related foreign direct investment is likely to slow. The prices of

    agricultural raw materials, and food and beverage commodities have not been left unscathed: their price indices

    decreased by 25% and 18% respectively between July and October 2008. For major agricultural raw material

    producers, such as the West African countries that depend on cotton for foreign exchange earnings, this is

    significant. Similarly, exporters of beverage commodities, including cocoa in Ghana, tea in Kenya and coffee in

    Uganda, have also had their export earnings shaved as a result of the fall in price of their main export

    commodities. On the upside, lower food prices are favourable for major food-importing countries and the cut in the

    fuel price will significantly lower the regions transaction costs, particularly those of landlocked countries.

    Nevertheless, these gains are modest relative to the massive drop in earnings that several countries in the region

    have experienced. The year 2009 will be one of weaker external sectors, contracting fiscal spaces, and a

    slowdown in the remarkable growth momentum that was experienced earlier this decade.

    DRC Despite all the peace accords signed (morbid 1999 Lusaka agreement, Pretoria accord in 2002, and 2008

    peace deal), peace and stability in the DRC continue to be overshadowed by violence in the North and South Kivu

    areas. As discussed in our January 2008 report (Blueprint: Finally, a peace deal but major challenges ahead), the

    current administrations ability to face and deal with the ghost of its past is instrumental in the overall stability in thecountry. Two major issues all the peace agreements have not been able to address are: first, the future of the

    Banyamulenge (Congolese ethnic Tutsis), who, apart from tracing their origins to Rwanda, have had domicile in the

    DRC since before independence, and, second, the presence of the rebel forces, which are remnants of army forces

    from neighbouring states. The current governments failure to address the issue of the decentralisation of the

    political system has aggravated the problem. There is still a dire need to offer provincial administrations more

    responsibility for local decision making. Overall, even the presence of a 17 000 strong UN peacekeeping force will

    not be enough to oversee any DRC peace agreement that does not include the neighbouring states (Rwanda,

    Burundi, Uganda and Angola).

    Botswana

    DRC

    Ghana

    Kenya

    Malawi

    Mauritius

    Mozambique

    Namibia

    Nigeria

    Tanzania

    Uganda

    Zambia

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    Page 2

    Standard Bank Group EconomicsStandard Bank Group Economics

    BotswanaInflation continues to climb, but may have peaked .

    Botswanas consumer price index averaged 7.1% in 2007. This

    year inflation has continued its upward trend, from single digits

    to 15.1% y/y in August. In September inflation eased to 14% y/y.

    Overall inflation continues to breach the central banks upper

    limit of the medium-term target of 3-6%. Food and non-alcoholic

    beverages have been the main drivers of the inflation rate, rising

    by over 18% y/y every month since January and by 20.4% y/y in

    September, the highest for many years. Transport inflation

    peaked at 37.4% y/y in July but eased to 27.8% y/y in

    September. Inflation is largely imported from South Africa,

    where inflation as started to ease. We expect inflation to have

    peaked and to average about 12.5% this year.

    Policy rate left unchanged at 15.5% in October. The Bank

    of Botswanas (BoB) Monetary Policy Committee (MPC) kept

    the bank rate, the policy rate, unchanged at its meeting on 21

    October. The MPC last raised the bank rate by 50 bps to

    15.5% in June. The committee noted that inflation is likely to

    ease into 2009. Monetary policy, however, remains restrictive

    to contain second round effects and pressures from

    consumption taxes and administered prices. The real policy

    rate was low at 1.5% in September. Monetary policy is more

    influenced by the BoBs medium-term inflation forecast and

    less by credit growth. Rates are expected to remain at these

    levels, but a global slowdown could imply a more

    accommodative policy stance.

    Inflation - % y/y

    Source: Bank of Botswana

    Interest rates - %

    Source: Bank of Botswana

    High inflation rate drives weaker pula. Botswana has a

    crawling band exchange rate system, which was introduced in

    2005. The central bank set the trading band at 0.5% around

    central parity. The band rules out a large and unexpected

    adjustment in the exchange rate. Botswanas relatively high

    inflation rate implies that the pula should weaken proportionately

    in line with expected inflation differentials with its main trading

    partners. Despite the crawling band system, the pula weakened

    sharply in October against the US dollar and traded at an

    average of BWP7.71/USD compared to BWP6.82/USD in

    September. We expect the pula to trade at an average of

    BWP6.81/USD this year and BWP8.21/USD in 2009.

    Diamond production still robust. The diamond sector

    continues to dominate the economy, despite efforts to

    diversify the countrys export and production base. The

    weaker pula in recent weeks will help push export earnings

    higher. However, although diamond resources could be

    depleted by 2029, production volume is expected to increase

    until 2015 and then decline, according to research. Unless the

    economy is more diversified, livings standards could drop as

    export earnings decline. Botswana produced 31.8 million

    carats in 2005, up from 20 million in 2000. Export earnings

    were USD3 359.2 million in 2007. In the third quarter 2008

    exports were USD1 055.6 million compared to USD1 073.1

    million in the same quarter last year.

    Exchange rates

    Source: Bank of Botswana

    Diamond exports - USD million per quarter

    Source: Bank of Botswana

    0

    3

    6

    9

    12

    15

    18

    2002 2003 2004 2005 2006 2007 2008

    10111213141516

    1718

    2002 2003 2004 2005 2006 2007 2008 2009

    Prime rate Bank rate3m BoBC Bank rate f'cast

    0.5

    0.6

    0.7

    0.8

    0.9

    1.0

    3.0

    4.0

    5.0

    6.0

    7.0

    8.0

    2002 2003 2004 2005 2006 2007 2008 2009

    BWP/ZARBWP/USD

    BWP/USD (lh) BWP/ZAR

    0

    200

    400

    600

    800

    1,000

    1,200

    2002 2003 2004 2005 2006 2007 2008

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    Standard Bank Group EconomicsStandard Bank Group Economics

    Botswana picture galleryReal GDP growth - %

    Source: IMF WEO October 2008

    Sectoral contribution to GDP (2004/05) - %

    Source: IMF

    Foreign exchange reserves

    Source: Bank of Botswana

    Trade balance

    Source: Bank of Botswana

    Government budget balance - % of GDP

    Source: IMF

    Diamond prices (Antwerp) - US$ index, 1982 = 100

    Source: Band of Botswana

    Weights of consumer price index (CPI) constituents

    Source: Bank of Botswana

    Botswana Stock Exchange indicators

    Source: Bloomberg, Bank of Botswana

    8.4

    4.75.3

    6.4 6.6

    4.7

    3.4

    5.75.3

    4.6

    0

    2

    4

    6

    8

    10

    00 01 02 03 04 05 06 07 08f 09fMining38.0%

    Agriculture2.1%

    Other14.3%

    Construction4.6%

    Manufacturing

    3.6%

    Trade &hotels10.4%

    Government16.5%

    Banking,insurance

    10.5%

    10

    20

    30

    40

    50

    3,000

    5,000

    7,000

    9,000

    11,000

    2004 2005 2006 2007 2008

    Forex reserves Import cover

    US$ mn months

    0

    5,000

    10,000

    15,000

    20,00025,000

    30,000

    35,000

    2002 2003 2004 2005 2006 2007p

    Pula millio n

    Exports Imports Merchandise trade balance

    -6

    -4

    -2

    0

    2

    4

    6

    8

    10

    02/03 03/04r 04/05r 05/06p 06/07b

    120

    130

    140

    150

    160

    170

    180

    2001 2002 2003 2004 2005 2006 2007 2008

    22%

    19%

    9%11%

    8%

    31%

    Food Transport

    Alcohol & tobacco Housing

    Clothing Other

    0

    3

    6

    9

    12

    0

    10

    20

    30

    40

    2002 2003 2004 2005 2006 2007 2008

    Market cap. (lh) Domestic index (rh)

    Pula billion '000 month-end

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    Standard Bank Group EconomicsStandard Bank Group Economics

    DRC

    Significant upside risks to inflation. The gains made on

    keeping inflation under double digits continue to fade. Consumer

    inflation increased from 18.2% y/y in June to 21.1% y/y in

    September 2008. The currency stability that has helped subdue

    imported inflation, especially from high food and energy imports,

    seems to be waning. This should exert upward pressures oninflation in the medium term. The deteriorating security

    environment should also impact negatively on the distribution of

    consumer items from one part of the country to the other.

    Despite improved agricultural production, the recent resumption

    of conflicts in the eastern DRC is already contributing

    significantly to the upward surge in inflation. Government revised

    its 2008 inflation target from 12% to 23.5%.

    Monetary policy remains tight. The worsening inflation

    outlook should necessitate that the central bank tightens

    monetary policy in the short to medium term. Short-term

    lending rates remain at 30%, having been increased from

    24% in July 2008. We expect the central bank to raise rates

    in an attempt to curb surging money supply growth.However, interest rates as an instrument of monetary policy

    are not very effective. Thus, the central bank should

    continue to, directly, manage monetary policy by controlling

    base money through the sale of foreign exchange. This also

    helps the monetary authority to manage excess liquidity

    generated by large inflows of foreign aid and revenue from

    commodity exports.

    Inflation - % y/y

    0

    5

    10

    15

    2025

    30

    2005 2006 2007 2008

    Source: Banque Centrale du Congo

    Interest rates - %

    20

    25

    30

    35

    40

    45

    50

    55

    2006 2007 2008Discount rate Prime lending rate

    Source: IMF, Banque Centrale du Congo

    The franc exchange rate to depreciate. The resumption of

    unrest in the eastern DRC jeopardises any attempt of the country

    to return to the International Monetary Fund (IMF) Poverty

    Reduction and Growth Facility (PRGF) programme. This should

    lead to a significant reduction of the donor inflows into the

    country. Thus, we expect the exchange rate to depreciate in the

    medium term. The slowdown in the global demand for

    commodities should also reduce commodity export earnings that

    have facilitated a stable exchange rate since 2007. The exchange

    rate depreciated from an average of CDF554.68 per US dollar in

    September to an average of CDF561.64 per US dollar in October

    2008.

    Surging money supply. Owing to limited ability to control

    liquidity through other monetary policy instruments, such as

    interest rates, the central bank (Banque Centrale du Congo

    BCC) continues to control base money growth in an

    attempt to curb inflationary pressures from large inflows of

    foreign funds. In recent months, money supply has surged,

    thereby suggesting currency depreciation in the medium

    term. This development has also worsened the inflation

    outlook. We expect the BCC to continue controlling base

    money through the sale of foreign exchange to alleviate

    inflation pressures from the rapid increase in money supply.

    Exchange rates CDF/USD

    400

    450

    500

    550

    600

    2005 2006 2007 2008

    Source: Bloomberg

    Money supply % y/y

    0

    10

    20

    30

    40

    50

    60

    70

    2002 2003 2004 2005 2006 2007 2008f

    Source: IMF

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    Standard Bank Group EconomicsStandard Bank Group Economics

    DRC picture gallery

    Real GDP growth - %

    3.0

    5.8

    7.9

    5.6

    8.8

    -2.0

    6.6 6.3

    -4

    0

    4

    8

    12

    2001 2002 2003 2004 2005 2006 2007 2008f

    Source:IMF

    Sectoral contribution to GDP - %

    Source: IMF

    Foreign exchange reserves

    Source: IMF

    Trade account US$ million

    Source: IMF

    Government finances - % of GDP

    -10

    -8

    -6

    -4

    -2

    0

    2

    2003 2004 2005 2006 2007 2008fOverall balance (excl. grant)Overall balance (incl. grant)

    Source: IMF

    Copper price US$/ton

    Source: Bloomberg

    External debt as % of GDP

    0

    50

    100

    150

    200

    250

    300

    0

    2,000

    4,000

    6,000

    8,000

    10,000

    12,000

    2003 2004 2005 2006 2007e 2008f

    External public debt % of GDP (RHS)

    USD millio ns

    Source: IMF

    FDI inflows US$ million

    -200

    0

    200

    400

    600

    800

    2000 2001 2002 2003 2004 2005 2006 2007e

    Source: IMF

    40%

    13%7%

    5%

    22%

    6%

    6%

    1%

    Agriculture Mining

    Construction Manufacturing

    Wholesale & retai l trade Transport & Comm.

    Trade & commerce Other

    0

    2

    3

    5

    6

    8

    0

    50

    100

    150

    200250

    300

    2000 2001 2002 2003 2004 2005 2006 2007 2008f

    Gross official reserves Import cover (RHS)

    US$ mn months

    -4000

    -2000

    0

    2000

    4000

    2000 2001 2002 2003 2004 2005 2006 2007e2008f

    Imports Exports Trade balance

    0

    2000

    4000

    6000

    8000

    10000

    2003 2004 2005 2006 2007 2008

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    Standard Bank Group EconomicsStandard Bank Group Economics

    Ghana

    Inflation declines for three consecutive months. Theharvest season, which started in August, has provided relieffrom food inflation, and headline inflation declined to 17.9%y/y in September from 18.1% y/y in August and 18.3% y/y inJuly. Food, which represents around 45% of the CPI basketof goods, rose from 7.5% y/y in August 2007 to 17.7% in

    June 2008. This was due to the restriction of local foodsupply in the north of the country because of drought in thefirst part of 2007, followed by flooding in September coupledwith the upward trend in global food prices at a time of hightransport costs. Over the same period, non-food inflationrose from 10.9% y/y to 18.9% y/y, driven by changes inutility prices and transport costs. The moderation ininternational crude oil prices and the improved domestic foodsupply on the back of the ongoing harvest season shouldcontinue to su ort a mar inal declinin trend.

    Bank of Ghana keeps the policy rate at 17%. TheMonetary Policy Committee (MPC) hiked the policy rateby 100 basis points to 17% in July in response toaccelerating inflation. The central bank policy rate (primerate) was raised from 13.5% to 14.25% in March andagain in May by 175 basis points to 16%. Following the

    MPCs rate decision in July, average commercial banklending rates were similarly revised upwards within arange of 22% to 41%. (The commercial bank ratescontinue to show high spreads between deposit andlending rates and are also well above the Bank ofGhanas prime rate.) Owing to a declining inflation trendwe do not expect an interest rate hike but we do expectmonetary policy to remain tight in the presence ofinflationary pressures stemming from pre-elections endin and hi h utilit rices.

    Inflation - % y/y

    Source: Bank of Ghana

    Interest rates - %

    Source: Bank of Ghana

    The cedi continues to depreciate. The cedi lost someground during 2007 and depreciated by 5%, 7% and 17.5%

    against the US dollar, pound sterling and euro respectively.Demand pressures were exerted mainly from the golden jubilee anniversary celebration, preparations for hosting theAU summit, and the continued energy crisis. In addition tothis, lower cocoa production, as a result of extreme rainfall,led to a 33.8% decline in earnings from exports of cocoabeans and products. Despite strong international prices forgold and cocoa, the national currency continued todepreciate in 2008 a trend that was fuelled by a large andburgeoning current account deficit stemming from capitalgoods and oil imports. The cedi largely stabilised in August,September and October and traded at betweenGHc1.1543/US$ and GHc1.1660/US$. We expect marginaldepreciation to continue, especially in a pre -election context.

    Favourable cocoa harvest expected. Ghanas CocoaBoard (Cocobod) expects favourable output for the

    2007/08 season as a result of improving weatherconditions. Purchases declared by private buyersreached 566 340 tonnes in the first 25 weeks of the2007/08 season, which represents an increase of 10.2%over the same period in 2007. Consequently, Cocobodincreased its initial estimate of 600 000 tonnes at thestart of the season to 634 000 tonnes (8% increase).Last year, the country declared total production of614 469 tonnes, down from a record 740 457 tonnes in2006. The average price of cocoa bean exports(US$1 942.2 per tonne at the end of 2007) increased by7.7% to US$2 091.8 per tonne in the first quarter of thisyear. Cumulative cocoa purchases through the end ofSeptember 2008 amounted to 758 908.

    Exchange rates

    Source: Bloomberg

    Cocoa prices US$/metric tonne

    Source: IMF

    5

    10

    15

    20

    25

    2004 2005 2006 2007 2008

    5

    10

    15

    20

    25

    30

    35

    2004 2005 2006 2007 2008

    Prime 91-day t-bill Lending

    1.20

    1.30

    1.40

    1.50

    1.60

    0.90

    0.94

    0.98

    1.02

    1.06

    1.10

    1.14

    1.18

    2007 2008

    USD (rhs) EUR (lhs)

    1000

    1500

    2000

    2500

    3000

    3500

    2004 2005 2006 2007 2008

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    Standard Bank Group EconomicsStandard Bank Group Economics

    Ghana picture gallery

    Real GDP growth - %

    Source: Bank of Ghana

    Sectoral contribution to GDP - %

    Source: Bank of Ghana

    Foreign exchange reserves - US$ million

    Source: Bank of Ghana

    Trade account - US$ million

    Source: Bank of Ghana

    Government budget balance - % of GDP

    Source: IMF

    Gold Price - US$/oz

    Source: Reuters

    Weights of consumer price index (CPI) constituents

    Source: Bank of Ghana

    Ghana Stock Exchange index

    Source: Bloomberg

    0

    1

    2

    34

    5

    6

    7

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    Trade, hotel & restaurant Services

    Agriculture Cocoa production & marketing

    Mining & quarrying Manufacturing

    Construction Other

    0

    500

    1000

    1500

    2000

    2500

    3000

    2004 2005 2006 2007 2008

    -6000-4000-2000

    020004000

    60008000

    10000

    2001 2002 2003 2004 2005 2006 2007

    Imports Exports Trade Balance

    -10

    -8

    -6

    -4

    -2

    0

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    400

    500

    600

    700

    800

    900

    1000

    2004 2005 2006 2007 2008

    52%

    10% 9%

    7%

    6%

    5%

    4%

    4%3%

    Food & Bev. Clothing & FootwearUtilities FurnishingsTrans. & Comm. Enter.Health Alcohol & Tobacco

    Misc.

    2000

    4000

    6000

    8000

    10000

    12000

    2004 2005 2006 2007 2008

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    Page 8

    Standard Bank Group EconomicsStandard Bank Group Economics

    KenyaStubbornly high food prices keep inflation persistently high.

    Inflation edged up to 28.4% y/y in October, from 28.2% y/y in

    September, on the back of high food prices and an increase in the

    price of household goods and services. Conversely, non-food

    inflation eased to 13.0% y/y, from 13.3% y/y. This softening in

    non-food inflation was largely due to a 1.4% m/m fall in the price

    of fuel and power, which is l ikely a consequence of the sharp drop

    in the international oil price. Although the current long rains

    season maize harvest has improved grain supply, it has had

    limited effect on prices because of food insecurity, particularly in

    the north-east region of Kenya. This explains the downwardly

    sticky food prices. However, the markedly lower international oil

    price is favourable for the inflation outlook, which we expect to

    improve in 2009. Inflation is projected to slip to below 20% by

    mid-2009.

    Sell-off of short-term government securities pushes up

    yields. The yield on the 91-day Treasury bill rate rose to

    8.52% in mid-November, from 8.12% at the end of October

    and 7.7% at end-September. This increase is on the back of

    a decline in appetite for government securities from foreign

    portfolio investors due to the heightened risk environment

    related to the global financial crisis. The policy rate, the

    central bank rate, remained unchanged at 9%, as the

    monetary authority maintained its firm policy stance in light

    of soaring inflation. The decrease in the average lending

    rate in August to 13.66%, from 13.91% in July, is partly

    attributed to increasing competition among banks. Only

    once international financial markets begin to stabilise will

    short-term rates cease climbing.

    Inflation - % y/y

    Sources: National Bureau of Statistics, Central Bank of Kenya

    Interest rates - %

    Source: Central Bank of Kenya

    The Kenyan shilling continues to flounder. The shillingdepreciated by a whopping 7% against the US dollar in October,

    compared to the previous month, to average KES76.64/USD.

    The loss in value of the shilling against the greenback was

    largely due to a 7.6% appreciation of the US dollar. Acute risk

    aversion implied that investors sought safe haven assets,

    including US Treasury securities. Also in October, the shilling

    strengthened by a massive 12.1% against the rand to

    KES7.81/ZAR, as capital flight weighed heavily on the South

    African economy. Conversely, the shilling depreciated by a

    modest 1.2% against the euro, to KES/EUR101.93. In the short

    term the shilling will be volatile and undervalued, however, once

    the cumulative effects of the various rescue packages kick in,the shilling should stabilise.

    Liquidity position stabilises. The global credit crunch hassubdued foreign portfolio inflows, thus contributing to the

    deceleration of growth in net foreign assets, which in turn

    has placed a damper on money supply growth. Latest

    figures reveal that net foreign assets growth slowed to 6.9%

    y/y in July, from 10.5% y/y in June, and, as such, broad

    money (M3) growth eased to to an estimated 17.1% y/y in

    August, from this years high of 28.5% y/y in April, at the

    height of the Safaricom initial public offering. The refunds

    made to foreign over-subscribers of the IPO added to the

    deceleration of net foreign assets growth. In line with M3,

    reserve money growth also moderated to 19.0% y/y in July,

    from 19.3% y/y in June. Monetary expansion is expected to

    be subdued in early 2009.

    Exchange rates

    Sources: Bloomberg, Standard Bank Group est.

    Money supply growth - % y/y

    Source: Central Bank of Kenya

    0

    5

    10

    15

    20

    25

    30

    35

    2004 2005 2006 2007 2008

    OverallUnderlying (excl. food)Underlying (excl. food, energy & transport)

    5

    7

    9

    11

    13

    15

    2005 2006 2007 2008

    91-day TB rate Average lending rate

    Central Bank Rate Weighted average repo

    6

    8

    10

    12

    14

    16

    60

    70

    80

    90

    100

    110

    2004 2005 2006 2007 2008

    KES/USD KES/EUR KES/ZAR (rhs)

    0

    6

    12

    18

    24

    30

    2004 2005 2006 2007 2008

    Broad money (M3) Reserve money

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    Page 9

    Standard Bank Group EconomicsStandard Bank Group Economics

    Kenya picture galleryReal GDP growth - %

    Source: Kenya National Bureau of Statistics, Standard Bank est

    Sectoral contribution to GDP (%)

    Source: National Bureau of Statistics

    Foreign exchange reserves import cover

    Source: Central Bank of Kenya

    Trade account US$ million

    Source: Central Bank of Kenya

    Government deficit - % of GDP

    Source: Central Bank of Kenya

    Tea, Mombasa, Kenya, Auction Price, US cents per kilogram

    Source: IMF

    Weights of consumer price index (CPI) constituents

    Source: Kenya National Bureau of Statistics

    Stock market indicators

    Source: Central Bank of Kenya

    5.3 5.86.4 7

    2.3

    4.2

    0

    1

    2

    3

    4

    5

    6

    7

    8

    2004 2005 2006 2007 2008p 2009f

    Agriculture,forestry &

    fishing30%

    Manufacturing

    11%

    Wholesale &retail trade

    11%Hotels &

    restaurants2%

    Financialservices

    4%

    Construction3%

    Transport,storage &commun.

    12%

    Government

    14%

    Real estate,renting &bus. serv.

    6%

    Electricity &water3%

    Community,social &personalservices

    4%

    2.5

    3.0

    3.5

    4.0

    4.5

    0

    600

    1200

    1800

    2400

    3000

    3600

    2004 2005 2006 2007 2008

    Gross foreign reserves Import cover

    US$ millions months

    -1500

    -1200

    -900

    -600

    -300

    0

    0300600900

    120015001800210024002700

    2004 2005 2006 2007 2008

    Exports Imports Trade deficit

    -4.0

    -3.5

    -3.0

    -2.5

    -2.0

    -1.5

    -1.0

    -0.5

    0.00.5

    1.0

    2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

    150

    200

    250

    300

    350

    2004 2005 2006 2007 2008

    50%

    12%

    6%

    6%

    9%

    6%4%

    2% 2% 3%

    Food and drink Housing

    Recreation and education Household goods and services

    Clothing and footwear Transport and communication

    Fuel and power Medical goods and services

    Personal goods and services Alcohol and tobacco

    0

    200

    400

    600

    800

    1000

    1200

    1400

    3500

    4000

    4500

    5000

    5500

    6000

    2006 2007 2008

    Market Capitalisation (rhs)

    NSE 20 Share Index (1966=100)

    Kshs billions

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    Page 10

    Standard Bank Group EconomicsStandard Bank Group Economics

    MalawiInflation accelerated to 9.3% y/y in September. Inflationfollowed global trends, accelerating from 8.7% y/y in July,mainly due to fuel and maize price increases. In spite of highoil prices, inflation recorded the lowest rates in decades in2007 and averaged just below 8%. However, oil prices thatkept reaching new highs as well as a marginal seasonalincrease in food inflation towards the end of last year sawoverall inflation starting to increase moderately from ahistorical low of 7.1% y/y in September 2007 to 8.2% y/y inMarch 2008. Although inflation eased in April and May dueto the seasonal decline in food costs, the upward trendcontinued in June. High oil prices and increased governmentspending ahead of the 2009 election as well as moneysupply growth pose further upside risks to overall inflation.

    Monetary Policy Committee keeps the policy rateflat. In view of the current inflationary pressuresstemming from high international oil prices as well asaccelerating money supply growth, the Monetary PolicyCommittee maintained its monetary stance at itsmeeting, and kept the bank rate at 15% and the liquidityreserve requirement at 15.5%. Despite the governmentsintention to encourage private-sector-led development ofthe economy, we expect monetary policy to remain tightin order to contain inflation expectations. However,should inflation drop to the estimated levels of below 7%presented in the 2008/09 budget, we expect interestrates to be brought down to around 12%, as projected inthe 2008/09 budget, in the second quarter of 2009.

    Inflation - % y/y

    Source: National Statistics Office

    Interest rates - %

    Source: Reserve Bank of Malawi

    Kwacha stability ensured through RBM intervention. Theauthorities attach importance to exchange rate stability as anintermediate measure in maintaining macroeconomicstability. The kwacha remained relatively stable against theUS dollar in the first three quarters of 2008 and averagedMWK140.35/US$, MWK140.63/US$ and MWK140.69/US$respectively. In October, the kwacha was slightly weaker atMWK140.82/US$. The economy is into the seasonal leanperiod following the end of the tobacco auctions. Thepressure on foreign reserves from fertilisers and oil importswill remain a concern for some time, although the kwacha isexpected to receive some support from donor funds and theauthorities. The RBM is expected to continue intervening inthe foreign exchange market and we therefore expect thekwacha to trade within a narrow band of MWK140/US$ andMWK142/US$.

    Tobacco auction floors more than doubled sales.The tobacco auction floors had processed about143 million kilograms valued at US$348 million as at theend of July 2008. In value terms, the quantity is almostdouble that posted for the whole season last year(US$185 million). As at 22 August, 168.7 kilograms ofthe green gold had been sold, earning US$412.3 million an average price of 244 US cents per kilogram. Out ofthe total sold, burley contributed 145.9 million kilograms(86.5%) whereas flue-cured contributed 20.9 millionkilograms (12.3%). All foreign currency payments fortobacco sold in Malawi are now made through thecentral bank and not through commercial banks as in thepast. The onset of uranium exports next year will be anadditional source of support for the local currency.

    Exchange rates

    Source: Bloomberg

    Tobacco export price

    UScts/kg

    Source: Tobacco Control Commission

    0

    4

    8

    12

    16

    20

    2004 2005 2006 2007 2008

    Overall Inflation Non-food inflation

    Food inflation

    5

    15

    25

    35

    45

    2004 2005 2006 2007 2008

    Prime-avg Bank rate 91-day t-bill

    14

    16

    18

    20

    22

    24

    60

    100

    140

    180

    220

    260

    2004 2005 2006 2007 2008

    USD EUR ZAR (rhs)

    150

    200

    250

    300

    350

    2004 2005 2006 2007

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    Page 11

    Standard Bank Group EconomicsStandard Bank Group Economics

    Malawi picture galleryReal GDP Growth - %

    Source: IMF

    Sectoral contribution to GDP - %

    Source: OECD 2007

    Foreign exchange reserves import cover

    Source: Reserve Bank of Malawi

    Trade Balance - US$ million

    Source: Central Statistics Office

    Government finance - %

    Source: IMF

    Tobacco exports million Kg

    Source: Reserve Bank of Malawi

    Weights of consumer price index (CPI) constituents

    Source: Central Statistics Office

    Malawi Stock Exchange index

    Source: MSE

    -6

    -4

    -2

    02

    4

    6

    8

    10

    2001 2002 2003 2004 2005 2006 2007 2008 2009

    Agriculture Mining and quarryingManufacturing UtilitiesConstruction DistributionTransport and Comm Finance & InsurancePrivate social services Government services

    1.5

    2.0

    2.5

    3.0

    3.5

    50

    100

    150

    200

    250

    2004 2005 2006 2007 2008

    Foreign reserves Import cover

    US$ million Months

    -1000

    -500

    0

    500

    1000

    1500

    2001 2002 2003 2004 2005 2006 2007 2008

    Imports Exports Trade Balance

    -16-14-12-10

    -8-6-4-2

    0

    02/03 03/04 04/05 05/06 06/07 07/08e 08/09f

    Including grants Excluding grants

    0

    20

    40

    60

    80

    100

    120

    140

    2001 2002 2003 2004 2005 2006 2007

    58%12%

    9%

    6%

    6%5% 4%

    Food Housing

    Clothing & footwear Misc.

    Beverage & tobacco Transport

    Household operation

    0

    1000

    2000

    3000

    4000

    5000

    6000

    2006 2007 2008

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    Page 12

    Standard Bank Group EconomicsStandard Bank Group Economics

    MauritiusContinued pressure on inflation from high food and oilprices. Headline inflation has been on a declining trendsince July last year but remained relatively high at around9%, largely as a result of the pass-through effects of highfood and energy prices. The appreciation of the rupee in thefirst four months of this year dampened the impact ofmounting import prices, and inflation came marginally downto 8.8% y/y in May. After remaining level during June,inflation accelerated to 9.1% y/y in July and to 9.5% y/y inAugust and 9.8% y/y in September. Once again the mainpressure came from food and fuel. With oil prices showing asoftening bias and food prices expected to plateau, externalpressures are easing, although domestic pressures such asstrong demand are expected to remain. Our expectation isthat overall inflation will slightly exceed the 8.6% averageprojected in the 2008/09 budget.

    Bank of Mauritius cuts the repo rate to 7.75%.Against the backdrop of a reduction in policy interestrates by the US Federal Reserve and the Bank ofEngland as well as potential downside risk to economicgrowth stemming from decelerating growth in majortrading partners, the BoM cut the repo rate by 25 basispoints to 9% in February, lowered it further to 8.5% inMarch and in May by 50 basis points to 8%. In view ofgrowing demand-side pressures on inflation and noslowdown in food and fuel prices, the BoM increased therepo rate on 21 July to 8.25%. On 31 October the BoMconsidered the resilience of the domestic economy in thelight of the exceptional circumstances characterising thedomestic and global economic and financial situationand decided by consensus to reduce the repo rate by 50basis points to 7.75%.

    Inflation - % y/y

    Source: Central Statistics Office

    Interest rates - %

    Source: Bank of Mauritius

    Rupee depreciated further in October to MUR30.04/US$.Supported by FDI inflows, record tourism earnings and thedepreciation of the US dollar on currency markets, the rupeeappreciated by 9% in the first quarter of this year to a four-year high of MUR25.5/US$. In April this trend was reversedwhen the rupee averaged MUR26/US$, MUR26.5/US$ inMay and MUR27.2/US$ in June. This was mainly on accountof continued deterioration of the current account as importprices, particularly food and fuel, pushed up the importbalance. The extent and duration of the global downturn willplay a large part in export demand as Mauritius is closelylinked to international financial markets and the majority ofits export demand (more than 50%) comes from Europe andthe US. The current account will therefore remain underpressure. FDI and tourism receipts should lend somesu ort to the ru ee.

    Tourist arrivals increased by 5.5% in the first half of2008.Tourist arrivals increasedto 455 758 compared to432 113 for the same period in 2007. Gross tourismreceipts for the first six months amounted toRs22 170 million, an increase of 12.2% compared toRs19 752 million for the same period in 2007. The sectorcontinues to play a large role in terms of attracting FDIand is one of the main drivers of the countrys economicrecovery. Given the construction timeframe of currenthotel projects, the sector should receive a substantialincrease in capacity through 2008 and 2009. Despitethis, the sector may experience even negative growth inrevenues through 2008, because of the dismalperformance through the second half of the year, as theeffects of the global financial crisis start hittingconsumers dis osable income.

    Exchange rates

    Source: Bloomberg

    Tourism receipts

    Rs million

    Source: Central Statistics Office

    2

    4

    6

    8

    10

    12

    14

    2004 2005 2006 2007 2008

    2

    4

    6

    810

    12

    14

    2004 2005 2006 2007 2008

    Prime rate Bank rateLombard Rate Repo Rate

    3.0

    3.5

    4.0

    4.5

    5.0

    5.5

    20

    25

    30

    35

    40

    45

    2004 2005 2006 2007 2008

    MUR/USD MUR/Euro MUR/ZAR (rhs)0

    10000

    20000

    30000

    40000

    50000

    60000

    2001 2002 2003 2004 2005 2006 2007 2008

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    Standard Bank Group EconomicsStandard Bank Group Economics

    Mauritius picture galleryReal GDP Growth - %

    Source: Central Statistics Office

    Sectoral contribution to GDP - %

    Source: IMF (2006)

    Foreign exchange reserves import cover

    Source: Central Statistical Office

    Trade Balance US$ million

    Source: Central Statistical Office

    Government finance - % of GDP

    Source: IMF

    Tourist arrivals - number

    Source: Central Statistics Office

    Weights of consumer price index (CPI) constituents

    Source: Central Statistical Office

    Stock Exchange of Mauritius index

    Source: Bloomberg

    0

    2

    4

    6

    8

    10

    12

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    Sugar Non-sugar agriculture

    Export-oriented industry Construction

    Wholesale & Retail trade Hotels & Restau-rants

    Transport, storage & communication Financial Inter-mediation

    Others (incl. gov)

    0

    10

    20

    30

    40

    50

    0

    500

    1000

    1500

    2000

    2500

    2004 2005 2006 2007 2008

    Foreign Reserves Weeks of import cover

    -1000

    -500

    0

    500

    10001500

    2000

    2500

    3000

    2000 2001 2002 2003 2004 2005 2006 2007

    Imports Exports Trade balance

    -7

    -6

    -5

    -4

    -3

    -2

    -1

    0

    00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/090

    200

    400

    600

    800

    1000

    1200

    2000 2001 2002 2003 2004 2005 2006 2007 2008

    10%16%

    4%22%5%

    13%

    9%

    4%8% 9%

    Clothing, footwear Housing, water, electricity

    Health Transport

    Communication Furnishings, household

    Recreation, culture Education

    Restaurants, hotels Miscellaneous goods, services

    600

    800

    1000

    1200

    1400

    1600

    1800

    2000

    2200

    2005 2006 2007 2008

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    Page 14

    Standard Bank Group EconomicsStandard Bank Group Economics

    Mozambique

    Inflation slowed to 10.3% y/y in October, from 10.7% in

    September. This deceleration was due to a slowdown in food

    inflation to 15.2% y/y, from 16.1%. However, this softening of food

    inflation was not due to falling prices, but rather a low base effect.

    Hereafter, food inflation is expected to accelerate in the short

    term as the lean season has begun. Price pressures from fuelprices have moderated, on account of the sharp drop in the

    international oil price. As such, the rent, fuel and utilities price

    index remained unchanged in October, and that of transport

    increased by a modest 0.1% m/m. In the short term, price

    pressures will stem from food prices; however, a high base effect

    in the tail end of 2008 is likely to subdue annualised food inflation.

    Thus, a modest decrease in inflation is projected over the short

    term and a return to single-digit inflation in the first quarter of

    2009.

    Higher short-term interest rates signal tightening in

    policy to curb monetary expansion. The yield on the 91-

    day Treasury bill rose again in September to 13.95%, from

    13.89% in August. This increase reflected the tightening of

    monetary policy, to ensure base money met its end-quarter

    ceiling targets. The lending rate, which increased to 18.61%in August, fell to 18.36% in September, thus resuming its

    long-term downward trend. Conversely, the policy rate, the

    standing lending facility, remained unchanged at 14.5%,

    mostly likely because the real policy rate has not been

    compromised by a concomitant surge in inflation. Monetary

    policy is expected to remain firm in the short term, on

    account of the approaching festive season, and thereafter to

    ease as inflation decelerates in 2009.

    Inflation - % y/y

    Source: Instituto de Nacional Estatistica

    Interest rates - %

    Source: Banco de Mocambique

    Metical holds firms against hard currencies. The metical

    depreciated by a modest 0.6% against the US dollar in October,

    compared to September, to MZN24.20/USD. Evidently, the

    central bank is managing the value of the local currency against

    the US dollar to ensure that it does not veer off the central

    banks seemingly preferred exchange rate for 2008 of

    MZN24.00/USD. As fundamentals and external events in recent

    months suggest a weaker metical, the fact that the local currency

    has not depreciated against most hard currencies implies that

    the central bank is using foreign reserves to prop up the metical.

    The meticals appreciation of 17.3% and 7% against the rand

    and euro respectively, to MZN2.47/ZAR and MZN32.14/EUR,

    was amplified by the depreciation of the rand and euro in

    October. As global financial markets stabilise, the metical isprojected to recover against the euro and rand.

    Base money stock breaches target ceiling in

    September. Although base money contracted by 0.8% y/y

    in August, its subsequent2% m/m expansion in September

    to MZN17 495 million led it to exceed the target, for the end

    of the third quarter of 2008, of MZN17 347 million. On an

    annualised basis, base money growth continued to slow, as

    it has done since June, to 13.1% y/y in September, from

    15.2% y/y in August. Money supply (M2) growth also

    softened in September to 23% y/y, from 2008s high of

    26.2% y/y in July. The approaching festive season is

    expected to spur an acceleration in money supply growth in

    the last quarter of 2008, and, thereafter, monetary

    expansion is expected to moderate. As fuel price pressures

    have eased, other than food prices, excess money supplywill be elevated as an inflation risk in 2009.

    Exchange rates

    Source: Bloomberg

    Money supply - % y/y

    Source: Banco de Mocambique

    0

    5

    10

    15

    20

    25

    2004 2005 2006 2007 2008

    Overall Food Non-food

    5

    10

    15

    20

    25

    30

    2004 2005 2006 2007 2008

    Prime Standing lending facility 91 day t-bill

    2.4

    2.8

    3.2

    3.6

    4.0

    4.4

    4.8

    16

    20

    24

    28

    32

    36

    40

    2004 2005 2006 2007 2008

    MZN/USD MZN/EUR MZN/ZAR (rhs)

    5

    10

    15

    20

    25

    30

    35

    2004 2005 2006 2007 2008M2 Base money

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    Page 15

    Standard Bank Group EconomicsStandard Bank Group Economics

    Mozambique picture gallery

    Real GDP growth - %

    Source:IMF, Instituto de Nacional Estatistica,Standard Bank est.

    Sectoral contribution to GDP (%)

    Source: Instituto de Nacional Estatistica

    Gross foreign reserves & import cover

    Source: Instituto de Nacional Estatistica

    Trade account US$ million

    Source: Banco de Mocambique

    Government deficit - % of GDP

    Source: IMF CR. No.08/220

    Aluminium price US dollars per metric tonne

    Source: IMF

    Weights of consumer price index (CPI) constituents

    Source: Instituto de Nacional Estatistica

    Capital account

    US$ millions

    Source: IMF

    7.58.4 8.7

    7.0 7.07.7

    0

    2

    4

    6

    8

    10

    2004 2005 2006 2007 2008p 2009f

    Agriculture,animal

    production,hunting &forestry,

    24%

    Fishing,2%

    Extractiveindustries,

    1%

    Manufacturing, 15%

    Electricityand water,

    6%

    Construction, 4%

    Commerce,11%

    Hotels andrestaurants

    , 2%

    Transports,storage &

    communications, 10%

    Financial

    activities,6%

    Real estateactivities &businessservices,

    9%

    Communityservices,

    7%

    Education,4%

    2

    4

    6

    8

    10

    0

    400

    800

    1200

    1600

    2000

    2004 2005 2006 2007 2008

    Foreign reserves Import cover

    US$ millions months

    -300

    -150

    0

    150

    300

    450

    600

    750

    900

    2004 2005 2006 2007 2008

    Exports Imports Deficit

    -7

    -6

    -5

    -4

    -3

    -2

    -10

    2003 2004 2005 2006 2007 2008p

    1500

    1900

    2300

    2700

    3100

    3500

    2004 2005 2006 2007 2008

    52%

    13%10%

    5%

    5%

    3%3%

    2%2%2%2%

    1%

    Food & non-alcoholi c drinks Dwellings,water,elec., gas & fuels

    Transport Mobile dwellings, hhold equip. & main.

    Clothes & footwear Health

    Leisure, recreation & culture Communications

    Alcohol & tobacco Restaurants & hotels

    Miscellaneous Education

    -2500

    -2000

    -1500

    -1000

    -500

    0

    500

    1000

    1500

    2006 2007 2008p 2009p 2010p

    Foreign borrowing Amortisation Direct investment

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    Page 16

    Standard Bank Group EconomicsStandard Bank Group Economics

    NamibiaInflation levelling off. Namibias inflation is largely imported

    from South Africa through close trade links. Inflation has risen

    steeply since a low of 0.9% y/y in May 2005 to 12% y/y in

    August and September this year. Inflation is mainly driven by

    high food prices and transport prices. Food inflation reached a

    high of 18.8% y/y in July and September, the highest for

    several years; in 2004 and 2005 there were short bouts of

    food deflation. Transport prices rose by 18.1% y/y in August,

    but fell to 15.4% y/y in September. Food and transport

    inflation may have peaked as prices are trending lower in

    South Africa and elsewhere on the back of the much lower

    crude oil price. We expect inflation to average 10.2% this

    year.

    Monetary policy rate remains unchanged. Namibias

    monetary policy focuses mainly on securing the 1:1 peg to the

    rand by holding sufficient foreign exchange reserves under the

    Common Monetary Area (CMA) agreement. The CMA also

    limits Namibias policy independence as there are no

    restrictions on capital flows within the area. Namibias policy

    rate, the bank rate, is 10.5%, which implies a negative real

    policy rate of 1.5%. The last MPC meeting was on 16 October,

    but no statement was released. The next meeting will be on 18

    December. We expect interest rates to remain unchanged this

    year, but lower rates may start to materialise from the second

    quarter of next year onwards as inflation is expected to start

    falling.

    Inflation (% y/y)

    Source: Bank of Namibia

    Interest rates - %

    Source: Bank of Namibia

    The Namibian dollar relatively stable, but vulnerable. The

    Namibia dollar (NAD) is pegged at par to the South African

    rand (ZAR) under the CMA agreement. The rand is legal

    tender in Namibia, but not vice versa. The sudden appreciation

    of the US dollar against most developed and emerging market

    currencies has driven the rand/Namibian dollar substantially

    weaker. The NAD/ZAR is expected to trade at an average of

    NAD9.80/USD in the fourth quarter of 2008; and

    NAD8.22/USD for the whole of 2008. Next year the forecasts

    are: NAD8.80/USD in the first quarter; NAD8.50/USD in the

    second quarter and NAD8.25/USD in the third quarter. The

    average for 2009 is NAD8.4/USD. The expected 12-month

    trading range is NAD8.00-12.00/USD.

    Money supply. Broad money supply (M2) rose by an average

    of 20.8% in 2006 and 19.6% in 2007. This year M2 rose from

    N$27 030 million in the first quarter to N$28 004 million in the

    second quarter on 2008, an increase of 3.5% q/q. Net foreign

    assets rose by 4.5% q/q; and domestic claims fell by 1.5% q/q;

    whereas other items declined by 6.4% q/q. Domestic claims to

    the private sector (consisting of individual households and

    private non-financial businesses), other financial corporations

    and parastatals rose by 1.9% q/q. Credit growth to businesses

    was marginally lower. However, credit growth to individuals

    was higher as personal loans rose driven by individuals facing

    the rising cost of living.

    Exchange rate: NAD/USD

    Source: Bloomberg

    Money supply (M2)

    y/y % change

    Source: Bank of Namibia

    -4

    0

    4

    8

    12

    16

    20

    2004 2005 2006 2007 2008

    CPI Food

    4

    8

    12

    16

    20

    2002 2003 2004 2005 2006 2007 2008

    Prime rate Bank rate 91-d ay TB

    4

    6

    8

    10

    12

    00 01 02 03 04 05 06 07 08

    0

    5

    10

    15

    20

    25

    30

    35

    40

    Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

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    Standard Bank Group EconomicsStandard Bank Group Economics

    Namibia picture galleryReal GDP growth - %

    Source: IMF WEO April 2008

    Sectoral contribution to GDP - %

    Source: Bank of Namibia

    Foreign exchange reserves

    Source: Bank of Namibia, Bloomberg

    Trade balance N$ billion

    Source: Bank of Namibia

    Government budget balance (incl. grants) - % of GDP

    Source: IMF

    Fishing industry output

    Source: Bank of Namibia

    Weights of consumer price index (CPI) constituents

    Source: Bank of Namibia

    Namibia Stock Exchange index (monthly, overall)

    Source: Bloomberg

    3.5

    2.4

    6.7

    3.5

    6.6

    4.7

    3.93.6

    3.9

    4.2

    0

    2

    4

    6

    8

    00 01 02 03 04 05 06 07 08f 09f

    Agriculture &forestry

    5.7%

    Fishing4.2%

    Mining &quarrying

    8.3%

    Other15.1%

    Manufacturing

    12.6%

    Otherservices

    35.5%Government

    services

    18.6%

    0

    2

    4

    6

    8

    0

    400

    800

    1,200

    1,600

    2004 2005 2006 2007 2008

    MonthsUS$ mn

    Reserves (lh) Import cover (rh)

    -5

    0

    5

    10

    15

    20

    25

    2002 2003 2004 2005 2006p 2007p

    Exports Imports Trade balance

    -8

    -6

    -4

    -2

    0

    24

    03/04 04/05 05/06e 06/07 07/08p 08/09p

    3.0%

    3.5%

    4.0%

    4.5%

    5.0%

    5.5%

    0.0

    0.5

    1.0

    1.5

    2.0

    2.5

    00 01 02 03 04 05 06 07

    Fishing on board (lh) % of GDP (rh)

    N$ billion %

    29%

    21%15%

    7%

    7%

    21%

    Food & non-alc. bev. Housing, w ater, electricityTransport EducationMisc. goods & services Other

    200

    300

    400500

    600700

    800900

    1,0001,100

    2002 2003 2004 2005 2006 2007 2008

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    Page 18

    Standard Bank Group EconomicsStandard Bank Group Economics

    Nigeria

    Inflation remains elevated. Headline inflation remained in

    double digits, increasing from 12.4% y/y in August to 13% y/y in

    September 2008, driven by surging energy prices. Energy prices

    (which constitute about 18.1% of the consumer price index

    CPI basket) increased from 4.1% y/y in August to 7.5% y/y in

    September 2008. Increased agricultural production continues toease food supply problems, thereby reducing food prices. Food

    prices (accounting for about 64% of the CPI basket) declined

    from an average of 18.8% in August to 17.2% y/y in September

    2008. However, core inflation (headline inflation, excluding food)

    increased from an average of 3.9% y/y in August to 6.9% y/y in

    September 2008. We forecast inflation to average 10.7% in

    2008.

    Monetary policy to loosen into 2009. The central bank

    continues to focus its efforts on liquidity management to

    avert the long-term inflationary pressures from fiscal

    expansion and high inflows of oil revenue rather than fight

    the short-term inflationary impact of rising food prices. From

    the lowering of the monetary policy rate (MPR) to 9.75% inSeptember, the 91-day Treasury bill (T-bill) rate declined

    marginally to average 9.08% in September from an average

    of 9.13% in August 2008. In the short term, the fiscal

    contraction following the reduction in the 2009 budget oil

    price to USD45/bbl from USD59/bbl in 2008 might lead to a

    significant spending cut, thereby reducing inflation.

    However, decreased fiscal revenue might force government

    to issue bonds, thereby driving yields up.

    Inflation - % y/y

    Source: National Bureau of Statistics

    Interest rates - %

    0

    4

    8

    12

    16

    20

    2005 2006 2007 2008

    Policy rate Prime 91-day TB

    Source: Central Bank of Nigeria

    Naira exchange rate to weaken. A stable and strong naira/USD

    remains the central policy of the central bank as is evident fromthe narrow range within which the currency continues to fluctuate.

    However, with the significant decline in oil prices, which should

    lead to fiscal contraction going into 2009, we expect some

    depreciation of the naira exchange rate to maintain the current

    revenue stream at the USD45 per barrel oil price set in the 2009

    budget. That is, about 80% of government revenue is dollar

    denominated. However, a too weak budget exchange rate might

    make it impossible to fight the double-digit inflation, as the

    country relies heavily on imports. Thus, going into 2009, a naira

    exchange rate of around NGN126/USD should support a

    relatively healthy fiscal space while enabling the monetary

    authority to fight inflation.

    Declining money supply. Following the banking sector

    reforms and positive business environment experiencedthroughout 2006/2007, broad money supply surged as a

    result of increased credit lending. Private sector credit

    extension (PSCE) declined from 103.7% y/y in April to

    77.4% y/y in September 2008. This led to a slowdown in

    broad money growth from 97.1% y/y to 57.9% y/y over the

    same period. We expect the downward trend to continue

    owing to the envisaged fiscal contraction that might squeeze

    the government fiscal space, in this way leading to a

    reduction in oil savings in the Excess Crude Account. We

    also expect a significant reduction in net foreign assets of

    the banking system. This should help slow down the growth

    in broad money supply.

    Exchange rates

    115

    120

    125

    130

    135

    2006 2007 2008Naira/US$ Budget exchange rate (Naira/US$)

    Source: Bloomberg & Federal Ministry of Finance

    Broad money supply (M2) % y/y

    -20

    0

    20

    40

    60

    80

    100

    120

    2003 2004 2005 2006 2007 2008

    Source: Central Bank of Nigeria

    -10

    0

    10

    20

    3040

    50

    2005 2006 2007 2008

    CPI inflation Food Non-food

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    Page 19

    Standard Bank Group EconomicsStandard Bank Group Economics

    Nigeria picture gallery

    Real GDP growth - %

    Source: NBS

    Sectoral contribution to GDP (%)

    Source: NBS

    Foreign exchange reserves US$ million

    Source: Bloomberg

    Trade account US$ million

    Source: IMF

    Government surplus - % of GDP

    Source: IMF

    Oil production and prices

    Source: International Energy Agency

    Weights of consumer price index (CPI) constituents

    Source: NBS

    Nigerian stock exchange

    All share index

    Source: Bloomberg

    10.3 10.6

    5.4

    6.2 6.4

    9.48.6

    0

    2

    4

    6

    8

    10

    12

    2003 2004 2005 2006 2007 2008f 2009f

    Agriculture,42.2

    Oil & gas,19.4

    Building &construction

    , 1.7

    Finance &insurance,

    3.9

    Wholesale& retail

    trade, 16.2

    Manufacturing, 4.0

    Telecommunication, 2.3

    0

    10000

    20000

    30000

    40000

    50000

    60000

    70000

    2003 2004 2005 2006 2007 2008

    -60

    -40

    -20

    0

    20

    4060

    80

    100

    2004 2005 2006 2007 2008f

    Exports Imports Trade surplus

    -10

    0

    10

    20

    30

    2003 2004 2005 2006 2007 2008f

    Overall balance (cash basis) Revenue Expenditure

    20

    40

    60

    80

    100

    120

    140

    160

    -

    0.5

    1.0

    1.5

    2.0

    2.5

    3.0

    3.5

    2005 2006 2007 2008

    US$/barrelmillion bpd

    Total productionBonny Light spot price (RHS)

    64%

    18% 4%

    4%

    3%

    2%

    5%

    Food & non-alcohol ic bev. Hse water, elec, gas & other fuel

    Transport Furn & hshld equip maint

    Clothing & footwear Alcohol, tobacco & kola

    Other

    10000

    20000

    30000

    40000

    50000

    60000

    70000

    2003 2004 2005 2006 2007 2008

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    Page 20

    Standard Bank Group EconomicsStandard Bank Group Economics

    Tanzania

    Inflation in double digits. Headline inflation increased from

    9.8% y/y in August to 11.6% y/y in September 2008, mostly

    driven by high energy and food prices. The food component

    (which constitutes about 55.9% of the consumer price indexCPI

    basket) increased from 11.1% y/y in August to 13.4% y/y in

    September 2008. We expect food price increases to slow downduring this harvest period. Energy prices (which constitute about

    8.5% of the CPI basket) increased from 12.7% y/y in August to

    15% y/y in September as the country continues to import its full

    quota of oil. Second-round effects of high energy prices are still

    evident, as transport costs remained elevated at 9.7% y/y in

    September 2008. Thus, we expect softer oil prices and increased

    food supply to bring some relief in the medium term. We forecast

    inflation to average 9.5% in 2008.

    Upside risk to interest rates. The developments in

    Treasury bill (T-bill) yields continue to provide an anchor for

    market-determined interest rates. The increasing trend in the

    yields for all maturities continues and is expected to remain

    elevated in the short term. The 91-day T-bill rate increased

    from 8.62% in August to 10.36% in September 2008. Theoverall weighted average T-bill rate also increased, from

    9.47% in August to 10.17% in September 2008. As inflation

    ventures into double-digit territory, we expect nominal

    lending rates to increase in the short term. This should,

    however, help maintain stable real interest rates. Overall, the

    risks to interest rates are on the upside. Our revised end-

    year T-bill forecast is 11.4%.

    Inflation - % y/y

    0

    3

    6

    9

    12

    15

    2005 2006 2007 2008

    Overall Non-food Food

    Source: National Bureau of Statistics

    Interest rates - %

    0

    5

    10

    15

    20

    25

    2005 2006 2007 2008Central Bank RateComm.Bank Lending RateTreasury Bills

    Source: Bank of Tanzania

    The shilling exchange rate remains relatively stable. Export

    performance continues to determine fluctuations in the exchangerate as the economy is heavily dependent on the agriculture and

    commodity sectors. Increased demand for tourism services and

    continued inflow of donor aid should continue to support a strong

    currency. The slowdown in the world commodity demand might

    dampen mining exports, thereby leading to slight depreciation of

    the currency. However, strong performance in tourism and

    tourism services has provided an anchor for currency stability,

    and is expected to continue in the medium term. Having

    appreciated from an average of TZS1 160.33 per US dollar in

    August to an average of TZS1 159.16 per US dollar in

    September, the shilling depreciated to TZS1 230.13 in October

    2008 following the bleak inflation outlook.

    Slowdown in money supply growth. Tight monetary policy

    and a strong currency have facilitated a slowdown in moneysupply growth. In fulfilling its primary mission of price

    stability, the Bank of Tanzania (BOT) aims to control

    inflation by influencing the growth of broad money through

    targeting reserve money. Announcing the June 2008

    monetary policy statement (MPS), the BOT specified a target

    of reducing money supply growth (both M2 and M3) to 18%

    each by end June 2009. Extended broad money (M3)

    declined from 27.1% y/y in March to 20% y/y in July, while

    M2 declined from 33.6% y/y to 25.3% y/y over the same

    period. We expect monetary policy to remain tight to contain

    inflationary pressures from large donor inflows.

    Exchange rates

    0

    40

    80

    120

    160

    200

    240

    1050

    1100

    1150

    1200

    1250

    1300

    1350

    2005 2006 2007 2008

    Volume o f trans actions (US$ millions) RHSExchange rate (TZS per USD)

    TZS per USD Millions of US$

    Source: Bank of Tanzania

    Extended broad money supply (M3) - % y/y

    15

    20

    25

    30

    35

    40

    2005 2006 2007 2008

    Source: Bank of Tanzania

  • 8/14/2019 Africa Markets Watch - October 2008

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    Page 21

    Standard Bank Group EconomicsStandard Bank Group Economics

    Tanzania picture gallery

    Real GDP growth - %

    Source: National Bureau of Statistics

    Sectoral contribution to GDP (%)

    Source: National Bureau of Statistics

    Foreign exchange reserves, import cover

    Source: Bank of Tanzania

    Trade account US$ million

    Source: Bank of Tanzania

    Government deficit % of GDP

    Source: Bank of Tanzania & IMF

    Services receipts year ending July (US$ millions)

    Weights in consumer price index (CPI) constituents

    Source: National Bureau of Statistics

    Capital account - US$ million

    Source: Bank of Tanzania

    7.2 6.97.8 7.4

    6.77.1 7.8

    8.1

    0

    2

    4

    6

    8

    10

    2002 2003 2004 2005 2006 2007 2008f 2009f

    44.7%

    17.5%

    5.4%9.2%

    6.9%

    5.4%

    5.8%

    1.5%3.8%

    4.1%

    Agriculture Trade, Hotels & Restaurants

    Financial & Business Services Manufacturing

    Public Admin. Transport & Comm.

    Construction Electricity and water supply

    Mining and quarrying Owner occupied dwellings

    2

    3

    4

    5

    67

    8

    0

    500

    1000

    1500

    20002500

    3000

    2000 2001 2002 2003 2004 2005 2006 2007e

    months

    Gross reserves Import cover (rhs)

    US$ millions

    -6000

    -4000

    -2000

    0

    2000

    4000

    2000 2001 2002 2003 2004 2005 2006 2007e

    Exports Imports Trade deficit

    -7

    -6

    -5

    -4

    -3

    -2

    -1

    0

    2000 2001 2002 2003 2004 2005 2006 2007 2008f

    0

    200

    400

    600

    800

    1000

    1200

    Transportation Travel (Tourism) Other Services

    2004 2005 2006 2007 2008

    55.9%

    6.9% 6.4% 1.4%

    8.5%

    2.1%2.1%

    2.1%

    0.8%

    9.7%

    2.6%

    1.5%Food Drinks and TobaccoClothing and Footwear RentsFuel, Power and Water Furniture & Household EquipmentHousehold Operations&Maintenance Personal Care & HealthRecreation & Entertainment TransportationEducation Miscellaneous Goods and Services

    0

    1000

    2000

    3000

    4000

    5000

    6000

    2000 2001 2002 2003 2004 2005 2006 2007e

  • 8/14/2019 Africa Markets Watch - October 2008

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    Page 22

    Standard Bank Group EconomicsStandard Bank Group Economics

    Uganda

    Inflation consolidated its slowdown in October. Inflation

    slowed to 14.5% y/y in October, from 15.2% y/y in September

    and 15.8% y/y in August. In the short term, overall inflation is

    projected to ease on the back of softening non-food inflation.

    Lower fuel and transport prices are expected to subdue non-

    food inflation. The sharp drop in the international oil price to afraction of its peak in 2008 has dampened inflationary

    pressures. However, food insecurity in the region is expected

    to put upward pressure on food prices. As the weighty item in

    the consumer price index (food) has a price that is downwardly

    sticky, the softening of inflation is expected to be moderate. As

    such, single-digit inflation is only projected to return in the

    second quarter of 2009.

    Global financial crisis curbs foreign appetite for Treasury

    bills. The yield on the 91-day Treasury bill jumped to 10.4% at

    the end of October, from 8.6% at the end of September, on the

    back of a surge in investors risk aversion for emerging

    markets, as global financial conditions deteriorated. The policy

    rate, the rediscount rate, is also likely to have climbed inOctober, from 15.2% in September. In recent days, there have

    been tentative signs that the cumulative interventions by

    developed world Treasuries and central banks are beginning to

    take effect, thus easing risk aversion, which may explain the

    moderation of the 91-day Treasury bill rate to 9.2% in early

    November. As conditions stabilise short-term interest rates are

    projected to moderate.

    Inflation - % y/y

    Source: Uganda Bureau of Statistics

    Interest rates - %

    Source: Bank of Uganda

    The shilling weakens significantly. Uganda was not

    untouched by the massive sell-off of emerging market assets

    during the volatile month of October for global financial

    markets. Investors sought safe haven assets, including US

    Treasury securities, which boosted the value of the US dollar in

    October, and thus explains the Uganda shillings 9.7%

    depreciation against it to a monthly average rate of

    UGX1 805.3/USD. The shilling depreciated by a relatively

    modest 1.3% against the euro, to UGX2 394.7/EUR. However,

    the Ugandan currency appreciated by 9.9% against the rand to

    UGX184.03/ZAR, largely on account of the latter currencys

    excessive weakness due to massive capital flight. As

    conditions improve in international financial markets, the

    shilling is projected to recover modestly before stabilising.

    The rate of monetary expansion slows. The global financial

    crisis has heightened risk aversion, particularly of emerging

    market assets, and has as a result slowed capital inflows into

    Uganda. Liquidity has thus moderated as is evident from the

    slowdown of base money growth to 17.3% y/y in September,

    from 21.7% y/y in August. Similarly, broad money growth

    decelerated in August to 25.4% y/y, from 28.3% y/y in July.

    The softening of monetary expansion reduces the challenges

    of sterilising large foreign exchange inflows and as a result

    improves the authoritys chances of containing base money

    below the ceiling target. Slower monetary expansion will also

    reduce the upside inflationary risk that stems from too much

    money chasing too few goods.

    Exchange rates

    Sources: Bloomberg, Standard Bank Group est.

    Money supply growth y/y %

    Source: Bank of Uganda

    0

    3

    6

    9

    12

    15

    18

    2005 2006 2007 2008

    Overall Core (excl. food, fuel, electricity and utilities)

    0

    5

    10

    15

    20

    25

    2004 2005 2006 2007 200891 Day TB (yield)Weighted average lendingRediscount

    0

    60

    120

    180

    240

    300

    360

    1500

    1700

    1900

    2100

    2300

    2500

    2700

    2004 2005 2006 2007 2008

    UGX/USD UGX/EUR UGX/ZAR (rhs)

    0

    10

    20

    30

    40

    50

    2004 2005 2006 2007 2008M3 (Broad money) Base money

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    Page 23

    Standard Bank Group EconomicsStandard Bank Group Economics

    Uganda picture gallery

    Real GDP growth - %

    Source: Uganda Bureau of Statistics, IMF, Standard Bank est.

    Sectoral contribution to GDP (%)

    Source: Uganda Bureau of Statistics

    Foreign exchange reserves import cover

    Sources: Bank of Uganda, Bloomberg

    Trade account US$ million

    Source: Bank of Uganda

    Government budget deficit - % of GDP

    Source: IMF CR No. 08/236

    Coffee prices US cents per pound

    Source: Bloomberg

    Weights of consumer price index (CPI) constituents

    Source: Bank of Uganda

    Stock market indicators

    Source: Uganda Stock Exchange

    6.6

    8.69.4 8.9 9.1 9.2

    0

    2

    4

    6

    8

    10

    2004 2005 2006 2007e 2008p 2009f

    Agriculture30%

    Mining andquarrying

    1%

    Manufacturing9%

    Electricityand water

    1%

    Construction

    11%Wholesale& RetailTrade11%

    Hotels &Restaurant

    s3%

    Transport &communica

    tion10%

    Communityservices

    24%

    4.5

    5.0

    5.5

    6.0

    6.5

    7.0

    7.5

    0

    500

    1000

    1500

    2000

    2500

    3000

    2004 2005 2006 2007 2008

    Forex reserves Import cover (rhs)

    US$ million months

    -200

    -180

    -160

    -140

    -120-100

    -80

    -60

    0

    50

    100

    150

    200

    250300

    350

    400

    2006 2007 2008

    Exports Imports Trade balance (rhs)

    -4

    -3

    -2

    -1

    0

    1

    2005/06 2006/07 2007/08 2008/09p

    0

    40

    80

    120

    160

    200

    2004 2005 2006 2007 2008

    Robusta price (rhs) Arabica price (rhs)

    27.2%

    4.7%

    4.4%

    14.8%4.5%

    12.8%

    14.7%16.8%

    Food

    Beverages and tobacco

    Clothing and footwear

    Rent, fuel and utilities

    Household and personal goods

    Transport and communication

    Education

    1,600

    2,500

    3,400

    4,300

    5,200

    6,100

    7,000

    300

    450

    600

    750

    900

    1,050

    1,200

    2005 2006 2007 2008Market Capitalisation (rhs)

    USE ALSI (Share index)

    Ushs billions

  • 8/14/2019 Africa Markets Watch - October 2008

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    Page 24

    Standard Bank Group EconomicsStandard Bank Group Economics

    Zambia

    Inflation continued its ten-month climb in October to

    15.2% y/y. Inflation in October was largely driven by food, and

    transport and communication prices. Food inflation accelerated

    to 17.6% y/y in October, from 16.2% y/y in September, while

    transport and communication price inflation surged to 19.2%

    y/y, from 11.5% y/y over the same period. Food inflationarypressures are expected to persist in the short term, as the lean

    season has just begun. Expenditure related to the recent

    presidential elections is also likely to have created short-term

    price pressures. The sharp fall in the international oil price is

    expected to substantially dampen price pressures from fuel,

    utilities and transport. And, as the green harvest begins to

    enter markets at the end of the first quarter of 2009, inflation is

    expected to ease.

    A higher interest rate environment. Short-term interest rates

    have increased in recent months largely on account of a

    decline in appetite for local government debt related to the

    sharp increase in investors aversion to emerging market risk.

    The drop in the copper price has also reduced the appeal of

    Zambian debt. As such, the yield on the 91-day Treasury billincreased to 13% in the first week of October, from 12.5% in

    September. Accelerating inflation and reservations about the

    countrys new leadership also added to the upward pressure

    on interest rates. Similarly, the average lending rate increased

    to 26.7%, from 25.7% over this period. This high interest rate

    environment is expected to persist until the global financial

    markets stabilise.

    Inflation - % y/y

    Source: National Bureau of Statistics

    Interest rates - %

    Source: Bank of Zambia

    Kwacha at its weakest value against the US dollar in 18

    months. Heightened risk aversion spurred the dramatic sell-offof emerging market assets in October and led to a sharp

    depreciation of emerging market currencies, including the

    kwacha. The kwacha lost 15.4% of its value against the US

    dollar and 6.4% against the euro, to average ZMK4 088.1/USD

    and ZMK5 415/EUR in October. The reversion of the trade

    balance to negative territory in the third quarter of 2008, largely

    because of the halving of the copper price in less than six

    months, subdued foreign exchange inflows and thus added to

    the weakening pressure on the kwacha. The slowdown in

    Chinas growth momentum suggests that the demand for

    copper has softened and thus Zambias export earnings will

    moderate, im l in a weaker kwacha in the short term.

    Broad money (M3) growth drops to a two-year low in

    August. M3 growth slowed to 19.5% y/y in August, from 29.2%y/y in July, largely on account of a significant decline in foreign

    currency deposits. The growth rate of foreign currency

    deposits, which constitute between 26% and 30% of M3,

    slowed sharply to 0.8% y/y in August, from 9.2% y/y in the

    previous month. This deceleration reflects acute emerging

    market risk aversion, in light of the global financial crisis, and

    uncertainty surrounding policy continuity following the death of

    President Mwanawasa. Reserve money growth was also

    subdued in September at 4.3% y/y, compared to 11.1% y/y in

    August, owing to a decline in growth of statutory reserves on

    foreign exchange deposits.

    Wwwwwweeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee

    Exchange rates

    Sources: Bloomberg, Standard Bank Group est.

    Money supply growth % y/y

    Source: Bank of Zambia

    -5

    0

    5

    10

    15

    20

    25

    2004 2005 2006 2007 2008

    Overall Food Non-food

    0

    10

    20

    30

    40

    50

    2004 2005 2006 2007 2008

    Average lending rate BoZ rate 91-Day TB

    0

    150

    300

    450

    600

    750

    900

    3000

    3600

    4200

    4800

    5400

    6000

    6600

    2004 2005 2006 2007 2008

    ZMK/USD ZMK/EUR ZMK/ZAR (rhs)

    -10

    0

    10

    20

    30

    40

    50

    2004 2005 2006 2007 2008

    Broad money (M3) Reserve money.

  • 8/14/2019 Africa Markets Watch - October 2008

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    Page 25

    Standard Bank Group EconomicsStandard Bank Group Economics

    Zambia picture gallery

    Real GDP growth - %

    Source: IMF, Standard Bank est.

    Sectoral contribution to GDP (%)

    Source: Central Statistical Office

    Foreign reserves & import cover

    Sources: Bloomberg, Bank of Zambia

    Trade account US$ million

    Source: Central Statistics Office

    Government budget balance - % of GDP

    Sources: IMF CR No.08/187

    Copper price US dollars per tonne

    Source: Bloomberg

    Weights of consumer price index (CPI) constituents, %

    Sources: Central Statistical Office, Standard Bank Group est.

    Stock market indicators

    Source: Lusaka Stock Exchange

    5.4 5.26.2

    5.7 6.16.2

    0

    1

    2

    34

    5

    6

    7

    2004 2005 2006 2007e 2008f 2009f

    Agriculture, Forestry& Fishing

    13%

    Mining &Quarrying

    8%

    Manufacturing

    11%

    Electricity,Gas &Water

    3%

    Construction

    11%

    Wholesale& Retail

    trade18%

    Restaurants, Bars &

    Hotels3%

    Transport,Storage &Communic

    ations9%

    FinancialInstitutions

    &Insurance

    7%

    RealEstate &Businessservices

    9%

    Community, Social &PersonalServices

    8%

    1.5

    2.0

    2.5

    3.0

    3.5

    4.0

    0

    300

    600

    900

    1200

    1500

    2004 2005 2006 2007 2008

    Forex reserves (US$ millions)months of import cover

    -400

    0

    400

    800

    1200

    1600

    2005 2006 2007 2008

    Imports Exports Trade balance

    -4

    0

    4

    8

    12

    16

    20

    2005 2006 2007 2008p 2009f0

    1500

    3000

    4500

    6000

    7500

    9000

    2004 2005 2006 2007 2008

    57.1

    6.8

    8.5

    8.2

    0.8 9.6

    4.9 4.1

    Food & beverage Clothing & footwearRent, fuel, lighting Furniture & household goodsMedical care Transport & communicationRecreation & education Other goods & services

    6000

    8000

    10000

    12000

    14000

    16000

    18000

    20000

    22000

    0

    500

    1000

    1500

    2000

    2500

    3000

    3500

    4000

    2005 2006 2007 2008

    LuSE All Share Index (Jan 1997=100)

    Market Capitalisation (rhs)

    ZMK billions

  • 8/14/2019 Africa Markets Watch - October 2008

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    Standard Bank Group Economics

    Standard Bank Group Economics

    Group EconomicsGoolam Ballim Group [email protected]

    South Africa

    Johan Botha Shireen Darmalingam Jeremy Stevens Danelee van Dyk

    +27-11-636-2463 +27-11-636-2905 +27-11-631-7855 +27-11-636-6242

    [email protected] [email protected] [email protected] [email protected]

    Rest of Africa

    Jan Duvenage Anita Last Yvonne Mhango Victor Munyama

    +27-11-636-4557 +27-11-631-5990 +27-11-631-2190 +27 11-631-1279

    [email protected] [email protected] [email protected] [email protected]

    BotswanaLesothoNamibia

    Swaziland

    AngolaGhanaMalawi

    Mauritius

    KenyaMozambiqueUganda

    Zambia

    DRCNigeriaTanzania

    Zimbabwe

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