Standard Bank

Africa markets watch Africa ● October 2008

Recent developments
Botswana Implications of the collapse in commodity prices – Reuters/Jefferies Commodity Price Index
Since the Reuters/Jefferies commodity price index peaked 500
at the end of June 2008 at 462.72, it has dropped (by 42% 450
to 268.32 at the end of October) to levels last seen in 400
DRC
2005. Most notably, the international oil price has dropped 350
by almost US$100 per barrel to date, since it peaked at
300
US$147 earlier this year. This has significant implications
Ghana 250
for oil-driven economies like those of Angola and Nigeria
that depend heavily on oil revenues to build up their 200
international reserves, finance their fiscal spending, and 150
Kenya invest in their oft-neglected non-oil sectors. Given the 2002 2003 2004 2005 2006 2007 2008
continent‟s 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
Malawi
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, Zambia‟s
trade balance went into negative territory in the third quarter of 2008 because of the poor copper price. As such,
Mauritius Zambia‟s 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
Mozambique
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
Namibia 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 region‟s 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
Nigeria 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
Tanzania 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 administration‟s ability to face and deal with the ghost of its past is instrumental in the overall stability in the
country. Two major issues all the peace agreements have not been able to address are: first, the future of the
Uganda 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 government‟s failure to address the issue of the decentralisation of the
Zambia 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).

Jan Duvenage, Anita Last, Yvonne Mhango & Victor Munyama

 Standard
Standard Bank Bank Group Economics
Group Economics

Botswana
Inflation continues to climb, but may have peaked.
Botswana‟s 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 bank‟s 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 Botswana‟s (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 BoB‟s 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 Interest rates - %

18 18
17
15
16
12 15
14
9 13
6 12
11
3 10
0 2002 2003 2004 2005 2006 2007 2008 2009
2002 2003 2004 2005 2006 2007 2008 Prime rate Bank rate
3m BoBC Bank rate f'cast
Source: Bank of Botswana Source: Bank of Botswana
High inflation rate drives weaker pula. Botswana has a Diamond production still robust. The diamond sector
crawling band exchange rate system, which was introduced in continues to dominate the economy, despite efforts to
2005. The central bank set the trading band at ±0.5% around diversify the country‟s export and production base. The
central parity. The band rules out a large and unexpected weaker pula in recent weeks will help push export earnings
adjustment in the exchange rate. Botswana‟s relatively high higher. However, although diamond resources could be
inflation rate implies that the pula should weaken proportionately depleted by 2029, production volume is expected to increase
in line with expected inflation differentials with its main trading until 2015 and then decline, according to research. Unless the
partners. Despite the crawling band system, the pula weakened economy is more diversified, livings standards could drop as
sharply in October against the US dollar and traded at an export earnings decline. Botswana produced 31.8 million
average of BWP7.71/USD compared to BWP6.82/USD in carats in 2005, up from 20 million in 2000. Export earnings
September. We expect the pula to trade at an average of were USD3 359.2 million in 2007. In the third quarter 2008
BWP6.81/USD this year and BWP8.21/USD in 2009. exports were USD1 055.6 million compared to USD1 073.1
million in the same quarter last year.

Exchange rates Diamond exports - USD million per quarter

BWP/USD BWP/ZAR
8.0 1.0 1,200

7.0 0.9 1,000

6.0 0.8 800

5.0 0.7 600

4.0 0.6 400

3.0 0.5 200

2002 2003 2004 2005 2006 2007 2008 2009 0

2002 2003 2004 2005 2006 2007 2008
BWP/USD (lh) BWP/ZAR
Source: Bank of Botswana Source: Bank of Botswana

Page 2
 Standard Bank
Standard Bank Group
Group Economics
Economics

Botswana – picture gallery

Real GDP growth - % Sectoral contribution to GDP (2004/05) - %
Agriculture Other Construction
10 8.4 2.1% 14.3% 4.6%
Manufacturin
g
3.6%
8 6.4 6.6
5.3
5.3 5.7 4.6
6 4.7 4.7 Trade &
hotels
3.4 10.4%
4

0 Mining
Banking, Government
00 01 02 03 04 05 06 07 08f 09f 38.0% 16.5%
insurance
10.5%
Source: IMF WEO October 2008 Source: IMF
Foreign exchange reserves Trade balance
US$ mn months Pula million
11,000 50 35,000
30,000
9,000 40 25,000
20,000
7,000 30
15,000
5,000 20 10,000
5,000
3,000 10 0
2004 2005 2006 2007 2008 2002 2003 2004 2005 2006 2007p
Forex reserves Import cover Exports Imports Merchandise trade balance
Source: Bank of Botswana Source: Bank of Botswana

Government budget balance - % of GDP Diamond prices (Antwerp) - US$ index, 1982 = 100

10 180
8
170
6
4 160
2 150
0
140
-2
-4 130
-6 120
02/03 03/04r 04/05r 05/06p 06/07b 2001 2002 2003 2004 2005 2006 2007 2008
Source: IMF Source: Band of Botswana

Weights of consumer price index (CPI) constituents Botswana Stock Exchange indicators

Pula billion '000 month-end

40 12
22%
31%
30 9

19%
8% 20 6
11% 9% 10 3

0 0
Food Transport 2002 2003 2004 2005 2006 2007 2008
Alcohol & tobacco Housing Market cap. (lh) Domestic index (rh)
Clothing Other

Source: Bank of Botswana Source: Bloomberg, Bank of Botswana

Page 3
 Standard
Standard Bank Bank Group Economics
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 on
inflation 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 Interest rates - %

30 55
25 50
45
20
40
15 35
10 30
5 25
20
0
2006 2007 2008
2005 2006 2007 2008 Discount rate Prime lending rate
Source: Banque Centrale du Congo 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 Money supply – % y/y

600 70
60
550 50
40
500
30
20
450
10
0
400
2005 2006 2007 2008 2002 2003 2004 2005 2006 2007 2008f

Source: Bloomberg Source: IMF

Page 4
 Standard Bank
Standard Bank Group
Group Economics
Economics

DRC – picture gallery

Real GDP growth - % Sectoral contribution to GDP - %
6% 1%
12
6%
8.8 40%
6.6 7.9 6.3
8 22%
5.8 5.6

4 3.0 7% 13%

5%
0
Agriculture Mining
-2.0 Construction Manufacturing
-4 Wholesale & retail trade Transport & Comm.
2001 2002 2003 2004 2005 2006 2007 2008f Trade & commerce Other

Source:IMF Source: IMF

Foreign exchange reserves Trade account – US$ million

US$ mn months
300 8 4000
250 6 2000
200
5
150 0
3
100
-2000
50 2
0 0 -4000
2000 2001 2002 2003 2004 2005 2006 2007 2008f 2000 2001 2002 2003 2004 2005 2006 2007e2008f
Gross official reserves Import cover (RHS) Imports Exports Trade balance
Source: IMF
Source: IMF

Government finances - % of GDP Copper price – US$/ton

2 10000

0 8000
-2
6000
-4
-6 4000
-8
2000
-10
2003 2004 2005 2006 2007 2008f 0
Overall balance (excl. grant)
Overall balance (incl. grant) 2003 2004 2005 2006 2007 2008

Source: IMF Source: Bloomberg

External debt – as % of GDP FDI inflows – US$ million

USD millions 800
12,000 300
10,000 250 600
8,000 200
400
6,000 150
4,000 100 200
2,000 50
0
0 0
2003 2004 2005 2006 2007e 2008f -200
External public debt % of GDP (RHS) 2000 2001 2002 2003 2004 2005 2006 2007e

Source: IMF Source: IMF

Page 5
 Standard
Standard Bank Bank Group Economics
Group Economics

Ghana
Inflation declines for three consecutive months. The Bank of Ghana keeps the policy rate at 17%. The
harvest season, which started in August, has provided relief Monetary Policy Committee (MPC) hiked the policy rate
from food inflation, and headline inflation declined to 17.9% by 100 basis points to 17% in July in response to
y/y in September from 18.1% y/y in August and 18.3% y/y in accelerating inflation. The central bank policy rate (prime
July. Food, which represents around 45% of the CPI basket rate) was raised from 13.5% to 14.25% in March and
of goods, rose from 7.5% y/y in August 2007 to 17.7% in again in May by 175 basis points to 16%. Following the
June 2008. This was due to the restriction of local food MPC‟s rate decision in July, average commercial bank
supply in the north of the country because of drought in the lending rates were similarly revised upwards within a
first part of 2007, followed by flooding in September coupled range of 22% to 41%. (The commercial bank rates
with the upward trend in global food prices at a time of high continue to show high spreads between deposit and
transport costs. Over the same period, non-food inflation lending rates and are also well above the Bank of
rose from 10.9% y/y to 18.9% y/y, driven by changes in Ghana‟s prime rate.) Owing to a declining inflation trend
utility prices and transport costs. The moderation in we do not expect an interest rate hike but we do expect
international crude oil prices and the improved domestic food monetary policy to remain tight in the presence of
supply on the back of the ongoing harvest season should inflationary pressures stemming from pre-election
continue to support a marginal declining trend. spending and high utility prices.
Inflation - % y/y Interest rates - %
25 35
30
20
25
20
15
15
10
10
5
2004 2005 2006 2007 2008
5
2004 2005 2006 2007 2008 Prime 91-day t-bill Lending

Source: Bank of Ghana Source: Bank of Ghana

The cedi continues to depreciate. The cedi lost some
ground 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 the
AU summit, and the continued energy crisis. In addition to
this, lower cocoa production, as a result of extreme rainfall,
led to a 33.8% decline in earnings from exports of cocoa
beans and products. Despite strong international prices for
gold and cocoa, the national currency continued to
depreciate in 2008 – a trend that was fuelled by a large and
burgeoning current account deficit stemming from capital
goods and oil imports. The cedi largely stabilised in August,
September and October and traded at between
GHc1.1543/US$ and GHc1.1660/US$. We expect marginal
depreciation to continue, especially in a pre-election context.
Favourable cocoa harvest expected. Ghana‟s Cocoa
Board (Cocobod) expects favourable output for the
2007/08 season as a result of improving weather
conditions. Purchases declared by private buyers
reached 566 340 tonnes in the first 25 weeks of the
2007/08 season, which represents an increase of 10.2%
over the same period in 2007. Consequently, Cocobod
increased its initial estimate of 600 000 tonnes at the
start of the season to 634 000 tonnes (8% increase).
Last year, the country declared total production of
614 469 tonnes, down from a record 740 457 tonnes in
2006. The average price of cocoa bean exports
(US$1 942.2 per tonne at the end of 2007) increased by
7.7% to US$2 091.8 per tonne in the first quarter of this
year. Cumulative cocoa purchases through the end of
September 2008 amounted to 758 908.

Exchange rates Cocoa prices – US$/metric tonne

1.18 1.60 3500
1.14
1.50 3000
1.10
1.06 2500
1.40
1.02
0.98 1.30 2000
0.94
1500
0.90 1.20
2007 2008
1000
USD (rhs) EUR (lhs) 2004 2005 2006 2007 2008

Source: Bloomberg Source: IMF

Page 6
 Standard Bank
Standard Bank Group
Group Economics
Economics

Ghana – picture gallery

Real GDP growth - % Sectoral contribution to GDP - %
7
6
5
4
3
2
1
Trade, hotel & restaurant Services
0 Agriculture Cocoa production & marketing
2000 2001 2002 2003 2004 2005 2006 2007 2008 Mining & quarrying Manufacturing
Construction Other
Source: Bank of Ghana Source: Bank of Ghana
Foreign exchange reserves - US$ million Trade account - US$ million
3000 10000
8000
2500 6000
2000 4000
2000
1500 0
-2000
1000 -4000
-6000
500
2001 2002 2003 2004 2005 2006 2007
0
2004 2005 2006 2007 2008 Imports Exports Trade Balance

Source: Bank of Ghana Source: Bank of Ghana

Government budget balance - % of GDP Gold Price - US$/oz

0
1000
-2 900
800
-4
700
-6
600
-8 500
400
-10 2004 2005 2006 2007 2008
2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: IMF Source: Reuters

Weights of consumer price index (CPI) constituents Ghana Stock Exchange index
12000
7%
10% 9% 6%
5% 10000

8000
52% 4%
4% 6000
3%

4000
Food & Bev. Clothing & Footwear
Utilities Furnishings
2000
Trans. & Comm. Enter.
Health Alcohol & Tobacco 2004 2005 2006 2007 2008
Misc.
Source: Bank of Ghana Source: Bloomberg

Page 7
 Standard
Standard Bank Bank Group Economics
Group Economics

Kenya
Stubbornly 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 likely 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 Interest rates - %

35 15
30
13
25
20 11
15
10 9
5
7
0
2004 2005 2006 2007 2008 5
Overall 2005 2006 2007 2008
Underlying (excl. food) 91-day TB rate Average lending rate
Underlying (excl. food, energy & transport)
Central Bank Rate Weighted average repo
Sources: National Bureau of Statistics, Central Bank of Kenya Source: Central Bank of Kenya

The Kenyan shilling continues to flounder. The shilling
depreciated 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 has
subdued 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 year‟s 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 Money supply growth - % y/y

30
110 16
24
100 14
18
90 12
12
80 10

70 8 6

60 6 0
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
KES/USD KES/EUR KES/ZAR (rhs) Broad money (M3) Reserve money

Sources: Bloomberg, Standard Bank Group est. Source: Central Bank of Kenya

Page 8
 Standard Bank
Standard Bank Group
Group Economics
Economics

Kenya – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)
8 Community,
Electricity &
Real estate, social & Agriculture,
7 water
renting & 3% personal forestry &
6 bus. serv. services fishing
6% 4% 30%
5 Government
4 14%
7 Manufacturin
3 5.8 6.4 g
5.3 Transport,
11%
2 4.2 storage &
commun. Wholesale &
1 2.3 12% retail trade
Hotels &
0 Financial restaurants 11%
Construction
3% services 2%
2004 2005 2006 2007 2008p 2009f 4%

Source: Kenya National Bureau of Statistics, Standard Bank est Source: National Bureau of Statistics

Foreign exchange reserves – import cover Trade account – US$ million

US$ millions months
3600 4.5 2700 0
2400
3000 -300
4.0 2100
2400 1800
1500 -600
1800 3.5 1200 -900
1200 900
3.0 600 -1200
600 300
0 -1500
0 2.5
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
Gross foreign reserves Import cover Exports Imports Trade deficit
Source: Central Bank of Kenya Source: Central Bank of Kenya
Government deficit - % of GDP Tea, Mombasa, Kenya, Auction Price, US cents per kilogram
1.0
350
0.5
0.0
-0.5 300
-1.0
-1.5 250
-2.0
-2.5
200
-3.0
-3.5
-4.0 150
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2004 2005 2006 2007 2008

Source: Central Bank of Kenya Source: IMF

Weights of consumer price index (CPI) constituents Stock market indicators

2% 2% 3% Kshs billions
4% 6000 1400
6%
1200
9% 5500
50% 1000
5000 800
6% 12% 600
4500
6% 400
4000
200
Food and drink Housing
Recreation and education Household goods and services 3500 0
Clothing and footwear Transport and communication 2006 2007 2008
Fuel and power Medical goods and services Market Capitalisation (rhs)
Personal goods and services Alcohol and tobacco NSE 20 Share Index (1966=100)
Source: Kenya National Bureau of Statistics Source: Central Bank of Kenya

Page 9
 Standard
Standard Bank Bank Group Economics
Group Economics

Malawi
Inflation accelerated to 9.3% y/y in September. Inflation
followed global trends, accelerating from 8.7% y/y in July,
mainly due to fuel and maize price increases. In spite of high
oil prices, inflation recorded the lowest rates in decades in
2007 and averaged just below 8%. However, oil prices that
kept reaching new highs as well as a marginal seasonal
increase in food inflation towards the end of last year saw
overall inflation starting to increase moderately from a
historical low of 7.1% y/y in September 2007 to 8.2% y/y in
March 2008. Although inflation eased in April and May due
to the seasonal decline in food costs, the upward trend
continued in June. High oil prices and increased government
spending ahead of the 2009 election as well as money
supply growth pose further upside risks to overall inflation.
Monetary Policy Committee keeps the policy rate
flat. In view of the current inflationary pressures
stemming from high international oil prices as well as
accelerating money supply growth, the Monetary Policy
Committee maintained its monetary stance at its
meeting, and kept the bank rate at 15% and the liquidity
reserve requirement at 15.5%. Despite the government‟s
intention to encourage private-sector-led development of
the economy, we expect monetary policy to remain tight
in order to contain inflation expectations. However,
should inflation drop to the estimated levels of below 7%
presented in the 2008/09 budget, we expect interest
rates to be brought down to around 12%, as projected in
the 2008/09 budget, in the second quarter of 2009.

Inflation - % y/y Interest rates - %

20 45
16
35
12

8 25

4 15
0
2004 2005 2006 2007 2008 5
Overall Inflation Non-food inflation 2004 2005 2006 2007 2008
Food inflation Prime-avg Bank rate 91-day t-bill
Source: National Statistics Office Source: Reserve Bank of Malawi

Kwacha stability ensured through RBM intervention. The
authorities attach importance to exchange rate stability as an
intermediate measure in maintaining macroeconomic
stability. The kwacha remained relatively stable against the
US dollar in the first three quarters of 2008 and averaged
MWK140.35/US$, MWK140.63/US$ and MWK140.69/US$
respectively. In October, the kwacha was slightly weaker at
MWK140.82/US$. The economy is into the seasonal lean
period following the end of the tobacco auctions. The
pressure on foreign reserves from fertilisers and oil imports
will remain a concern for some time, although the kwacha is
expected to receive some support from donor funds and the
authorities. The RBM is expected to continue intervening in
the foreign exchange market and we therefore expect the
kwacha to trade within a narrow band of MWK140/US$ and
MWK142/US$.
Tobacco auction floors more than doubled sales.
The tobacco auction floors had processed about
143 million kilograms valued at US$348 million as at the
end of July 2008. In value terms, the quantity is almost
double that posted for the whole season last year
(US$185 million). As at 22 August, 168.7 kilograms of
the green gold had been sold, earning US$412.3 million
– an average price of 244 US cents per kilogram. Out of
the total sold, burley contributed 145.9 million kilograms
(86.5%) whereas flue-cured contributed 20.9 million
kilograms (12.3%). All foreign currency payments for
tobacco sold in Malawi are now made through the
central bank and not through commercial banks as in the
past. The onset of uranium exports next year will be an
additional source of support for the local currency.

Exchange rates Tobacco export price – UScts/kg

260 24 350

220 22
300
180 20
250
140 18

100 16 200

60 14
150
2004 2005 2006 2007 2008
2004 2005 2006 2007
USD EUR ZAR (rhs)
Source: Bloomberg Source: Tobacco Control Commission

Page 10
 Standard Bank
Standard Bank Group
Group Economics
Economics

Malawi – picture gallery

Real GDP Growth - % Sectoral contribution to GDP - %
10
8
6
4
2
0
-2
Agriculture Mining and quarrying
-4 Manufacturing Utilities
-6 Construction Distribution
Transport and Comm Finance & Insurance
2001 2002 2003 2004 2005 2006 2007 2008 2009
Private social services Government services

Source: IMF Source: OECD 2007

Foreign exchange reserves – import cover Trade Balance - US$ million

US$ million Months 1500
250 3.5
1000
200 3.0 500

150 2.5 0
-500
100 2.0
-1000
50 1.5 2001 2002 2003 2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
Foreign reserves Import cover Imports Exports Trade Balance

Source: Reserve Bank of Malawi Source: Central Statistics Office

Government finance - % Tobacco exports – million Kg

0 140
-2
120
-4
-6 100
-8 80
-10
-12
60
-14 40
-16 20
02/03 03/04 04/05 05/06 06/07 07/08e 08/09f 0
Including grants Excluding grants 2001 2002 2003 2004 2005 2006 2007

Source: IMF Source: Reserve Bank of Malawi

Weights of consumer price index (CPI) constituents Malawi Stock Exchange index
5% 4% 6000
6%
6%
5000
9%
4000
58%
12%
3000

2000

1000
Food Housing
Clothing & footwear Misc. 0
Beverage & tobacco Transport 2006 2007 2008
Household operation
Source: Central Statistics Office Source: MSE

Page 11
 Standard
Standard Bank Bank Group Economics
Group Economics

Mauritius
Continued pressure on inflation from high food and oil
prices. Headline inflation has been on a declining trend
since July last year but remained relatively high at around
9%, largely as a result of the pass-through effects of high
food and energy prices. The appreciation of the rupee in the
first four months of this year dampened the impact of
mounting import prices, and inflation came marginally down
to 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 in
August and 9.8% y/y in September. Once again the main
pressure came from food and fuel. With oil prices showing a
softening bias and food prices expected to plateau, external
pressures are easing, although domestic pressures such as
strong demand are expected to remain. Our expectation is
that overall inflation will slightly exceed the 8.6% average
projected in the 2008/09 budget.
Inflation - % y/y
14
Bank of Mauritius cuts the repo rate to 7.75%.
Against the backdrop of a reduction in policy interest
rates by the US Federal Reserve and the Bank of
England as well as potential downside risk to economic
growth stemming from decelerating growth in major
trading partners, the BoM cut the repo rate by 25 basis
points to 9% in February, lowered it further to 8.5% in
March and in May by 50 basis points to 8%. In view of
growing demand-side pressures on inflation and no
slowdown in food and fuel prices, the BoM increased the
repo rate on 21 July to 8.25%. On 31 October the BoM
considered the resilience of the domestic economy in the
light of the exceptional circumstances characterising the
domestic and global economic and financial situation
and decided by consensus to reduce the repo rate by 50
basis points to 7.75%.
Interest rates - %
14

12 12
10
10
8
8
6
6 4
4 2
2004 2005 2006 2007 2008
2
2004 2005 2006 2007 2008 Prime rate Bank rate
Lombard Rate Repo Rate
Source: Central Statistics Office Source: Bank of Mauritius

Rupee depreciated further in October to MUR30.04/US$.
Supported by FDI inflows, record tourism earnings and the
depreciation of the US dollar on currency markets, the rupee
appreciated by 9% in the first quarter of this year to a four-
year high of MUR25.5/US$. In April this trend was reversed
when the rupee averaged MUR26/US$, MUR26.5/US$ in
May and MUR27.2/US$ in June. This was mainly on account
of continued deterioration of the current account as import
prices, particularly food and fuel, pushed up the import
balance. The extent and duration of the global downturn will
play a large part in export demand as Mauritius is closely
linked to international financial markets and the majority of
its export demand (more than 50%) comes from Europe and
the US. The current account will therefore remain under
pressure. FDI and tourism receipts should lend some
support to the rupee.
Tourist arrivals increased by 5.5% in the first half of
2008. Tourist arrivals increased to 455 758 compared to
432 113 for the same period in 2007. Gross tourism
receipts for the first six months amounted to
Rs22 170 million, an increase of 12.2% compared to
Rs19 752 million for the same period in 2007. The sector
continues to play a large role in terms of attracting FDI
and is one of the main drivers of the country‟s economic
recovery. Given the construction timeframe of current
hotel projects, the sector should receive a substantial
increase in capacity through 2008 and 2009. Despite
this, the sector may experience even negative growth in
revenues through 2008, because of the dismal
performance through the second half of the year, as the
effects of the global financial crisis start hitting
consumer‟s disposable income.

Exchange rates Tourism receipts – Rs million

45 5.5 60000

40 5.0 50000

35 4.5 40000

30 4.0 30000

25 3.5 20000

20 3.0 10000
2004 2005 2006 2007 2008
0
MUR/USD MUR/Euro MUR/ZAR (rhs)
2001 2002 2003 2004 2005 2006 2007 2008

Source: Bloomberg Source: Central Statistics Office

Page 12
 Standard Bank
Standard Bank Group
Group Economics
Economics

Mauritius – picture gallery

Real GDP Growth - % Sectoral contribution to GDP - %
12

10

2 Sugar Non-sugar agriculture

Export-oriented industry
0 Wholesale & Retail trade
Transport, storage & communication
2000 2001 2002 2003 2004 2005 2006 2007 2008
Others (incl. gov)
Construction
Hotels & Restau-rants
Financial Inter-mediation

Source: Central Statistics Office Source: IMF (2006)

Foreign exchange reserves – import cover Trade Balance – US$ million

2500 50 3000
2000 40 2500
2000
1500 30 1500
1000 20 1000
500
500 10 0
0 0 -500
-1000
2004 2005 2006 2007 2008
2000 2001 2002 2003 2004 2005 2006 2007
Foreign Reserves Weeks of import cover Imports Exports Trade balance

Source: Central Statistical Office Source: Central Statistical Office

Government finance - % of GDP Tourist arrivals - number

0 1200
-1 1000
-2
800
-3
600
-4
-5 400

-6 200
-7 0
00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: IMF Source: Central Statistics Office

Weights of consumer price index (CPI) constituents Stock Exchange of Mauritius index
8% 9% 10% 2200
4%
16% 2000
9%
1800
13%
22% 4% 1600
5%
1400
1200
Clothing, footwear Housing, water, electricity 1000
Health Transport 800
Communication Furnishings, household 600
Recreation, culture Education 2005 2006 2007 2008
Restaurants, hotels Miscellaneous goods, services
Source: Central Statistical Office Source: Bloomberg

Page 13
 Standard
Standard Bank Bank Group Economics
Group Economics

Mozambique
Inflation slowed to 10.3% y/y in October, from 10.7% in Higher short-term interest rates signal tightening in
September. This deceleration was due to a slowdown in food policy to curb monetary expansion. The yield on the 91-
inflation to 15.2% y/y, from 16.1%. However, this softening of food day Treasury bill rose again in September to 13.95%, from
inflation was not due to falling prices, but rather a low base effect. 13.89% in August. This increase reflected the tightening of
Hereafter, food inflation is expected to accelerate in the short monetary policy, to ensure base money met its end-quarter
term as the lean season has begun. Price pressures from fuel ceiling targets. The lending rate, which increased to 18.61%
prices have moderated, on account of the sharp drop in the in August, fell to 18.36% in September, thus resuming its
international oil price. As such, the rent, fuel and utilities‟ price long-term downward trend. Conversely, the policy rate, the
index remained unchanged in October, and that of transport standing lending facility, remained unchanged at 14.5%,
increased by a modest 0.1% m/m. In the short term, price mostly likely because the real policy rate has not been
pressures will stem from food prices; however, a high base effect compromised by a concomitant surge in inflation. Monetary
in the tail end of 2008 is likely to subdue annualised food inflation. policy is expected to remain firm in the short term, on
Thus, a modest decrease in inflation is projected over the short account of the approaching festive season, and thereafter to
term and a return to single-digit inflation in the first quarter of ease as inflation decelerates in 2009.
2009.
Inflation - % y/y Interest rates - %
25 30
20 25
15 20
10 15
5 10
0 5
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
Overall Food Non-food
Prime Standing lending facility 91 day t-bill
Source: Instituto de Nacional Estatistica 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
bank‟s 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 metical‟s 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 is
projected to recover against the euro and rand.
Exchange rates
40
36
32
28
24
20
Base money stock breaches target ceiling in
September. Although base money contracted by 0.8% y/y
in August, its subsequent 2% 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 2008‟s 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 supply
will be elevated as an inflation risk in 2009.
Money supply - % y/y
4.8
35
4.4 30
4.0 25
3.6 20
3.2 15
2.8 10

16 2.4 5
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008

MZN/USD MZN/EUR MZN/ZAR (rhs) M2 Base money

Source: Bloomberg Source: Banco de Mocambique

Page 14
 Standard Bank
Standard Bank Group
Group Economics
Economics

Mozambique – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)
Real estate Education, Agriculture,
10 4% animal
activities &
business production,
Community hunting & Fishing,
8 services, 2%
9% services, forestry,
Financial 7% 24%
6 activities, Extractive
6% industries,
8.4 8.7
4 7.5 7.7 1%
7.0 7.0 Transports,
storage & Manufacturi
2 communica ng, 15%
tions, 10% Commerce,
0 11% Electricity
Hotels and Constructio and water,
2004 2005 2006 2007 2008p 2009f restaurants n, 4% 6%
, 2%

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

Gross foreign reserves & import cover Trade account – US$ million
US$ millions months
2000 10 900
750
1600
8 600
1200 450
6 300
800 150
4 0
400
-150
0 2 -300
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
Foreign reserves Import cover
Exports Imports Deficit
Source: Instituto de Nacional Estatistica Source: Banco de Mocambique

Government deficit - % of GDP Aluminium price – US dollars per metric tonne

0 3500
-1
3100
-2
-3 2700

-4 2300
-5
1900
-6
-7 1500
2003 2004 2005 2006 2007 2008p 2004 2005 2006 2007 2008

Source: IMF CR. No.08/220 Source: IMF

Weights of consumer price index (CPI) constituents Capital account – US$ millions

13% 5% 1500
10% 1000
5% 500
52%
0
1% 3% -500
3%
2% -1000
2% 2% 2% -1500
Food & non-alcoholic drinks Dwellings,water,elec., gas & fuels -2000
Transport Mobile dwellings, hhold equip. & main.
-2500
Clothes & footwear Health
Leisure, recreation & culture Communications 2006 2007 2008p 2009p 2010p
Alcohol & tobacco Restaurants & hotels
Miscellaneous Education
Foreign borrowing Amortisation Direct investment

Source: Instituto de Nacional Estatistica Source: IMF

Page 15
 Standard
Standard Bank Bank Group Economics
Group Economics

Namibia
Inflation levelling off. Namibia‟s 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. Namibia‟s
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 Namibia‟s policy independence as there are no
restrictions on capital flows within the area. Namibia‟s 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) Interest rates - %

20 20

16 16
12
12
8
4 8
0
4
-4
2002 2003 2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
Prime rate Bank rate 91-day TB
CPI Food
Source: Bank of Namibia Source: Bank of Namibia
The Namibian dollar relatively stable, but vulnerable. The Money supply. Broad money supply (M2) rose by an average
Namibia dollar (NAD) is pegged at par to the South African of 20.8% in 2006 and 19.6% in 2007. This year M2 rose from
rand (ZAR) under the CMA agreement. The rand is legal N$27 030 million in the first quarter to N$28 004 million in the
tender in Namibia, but not vice versa. The sudden appreciation second quarter on 2008, an increase of 3.5% q/q. Net foreign
of the US dollar against most developed and emerging market assets rose by 4.5% q/q; and domestic claims fell by 1.5% q/q;
currencies has driven the rand/Namibian dollar substantially whereas other items declined by 6.4% q/q. Domestic claims to
weaker. The NAD/ZAR is expected to trade at an average of the private sector (consisting of individual households and
NAD9.80/USD in the fourth quarter of 2008; and private non-financial businesses), other financial corporations
NAD8.22/USD for the whole of 2008. Next year the forecasts and parastatals rose by 1.9% q/q. Credit growth to businesses
are: NAD8.80/USD in the first quarter; NAD8.50/USD in the was marginally lower. However, credit growth to individuals
second quarter and NAD8.25/USD in the third quarter. The was higher as personal loans rose driven by individuals facing
average for 2009 is NAD8.4/USD. The expected 12-month the rising cost of living.
trading range is NAD8.00-12.00/USD.

Exchange rate: NAD/USD Money supply (M2) – y/y % change

40
12
35
30
10
25
20
8
15
10
6
5
4 0
00 01 02 03 04 05 06 07 08 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Source: Bloomberg Source: Bank of Namibia

Page 16
 Standard Bank
Standard Bank Group
Group Economics
Economics

Namibia – picture gallery

Real GDP growth - % Sectoral contribution to GDP - %
Mining & Other Manufacturin
8 quarrying
6.7 15.1% g
6.6 8.3% 12.6%
6
4.7
3.5 4.2
3.9 3.6 3.9 Fishing
4 3.5 4.2%
2.4
Agriculture & Other
2 forestry services
5.7% 35.5%
Government
0 services
18.6%
00 01 02 03 04 05 06 07 08f 09f
Source: IMF WEO April 2008 Source: Bank of Namibia

Foreign exchange reserves Trade balance – N$ billion

US$ mn Months
1,600 8 25
20
1,200 6
15
800 4 10
5
400 2
0
0 0 -5
2004 2005 2006 2007 2008 2002 2003 2004 Central
Source: 2005 Bureau
2006p of 2007p
Statistics

Reserves (lh) Import cover (rh) Exports Imports Trade balance

Source: Bank of Namibia, Bloomberg Source: Bank of Namibia

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

N$ billion %
4 2.5 5.5%

2 2.0 5.0%

0 1.5 4.5%
-2 1.0 4.0%
-4 0.5 3.5%
-6 0.0 3.0%
-8 00 01 02 03 04 05 06 07
03/04 04/05 05/06e 06/07 07/08p 08/09p Fishing on board (lh) % of GDP (rh)
Source: IMF
Source: Bank of Namibia

Weights of consumer price index (CPI) constituents Namibia Stock Exchange index (monthly, overall)
21%
29% 1,100
1,000
7% 900
800
700
600
7%
500
21% 400
15%
Food & non-alc. bev. Housing, w ater, electricity 300
Transport Education 200
Misc. goods & services Other
2002 2003 2004 2005 2006 2007 2008
Source: Bank of Namibia Source: Bloomberg

Page 17
 Standard
Standard Bank Bank Group Economics
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 to
ease 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.
Inflation - % y/y
50
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% in
September, 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.
Interest rates - %
20

40 16
30 12
20
8
10
4
0
0
-10
2005 2006 2007 2008
2005 2006 2007 2008
Policy rate Prime 91-day TB
CPI inflation Food Non-food

Source: National Bureau of Statistics 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 from
the 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 experienced
throughout 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 Broad money supply (M2) – % y/y

135 120
100
130
80
125 60
40
120 20
0
115 -20
2006 2007 2008 2003 2004 2005 2006 2007 2008
Naira/US$ Budget exchange rate (Naira/US$)

Source: Bloomberg & Federal Ministry of Finance Source: Central Bank of Nigeria

Page 18
 Standard Bank
Standard Bank Group
Group Economics
Economics

Nigeria – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)

12 Manufacturi Telecommu
10.3 10.6 Wholesale ng, 4.0
9.4 & retail nication, 2.3 Agriculture,
10 8.6
trade, 16.2 42.2
8 6.2 6.4
5.4
6
4
2
Finance &
0
insurance, Building &
2003 2004 2005 2006 2007 2008f 2009f 3.9 construction Oil & gas,
, 1.7 19.4

Source: NBS Source: NBS

Foreign exchange reserves – US$ million Trade account – US$ million

70000 100
80
60000
60
50000 40
40000 20
30000 0
20000 -20
-40
10000
-60
0
2004 2005 2006 2007 2008f
2003 2004 2005 2006 2007 2008
Exports Imports Trade surplus

Source: Bloomberg Source: IMF

Government surplus - % of GDP Oil production and prices

30 million bpd US$/barrel
3.5 160
20 3.0 140
2.5 120
10 2.0 100
1.5 80
0 1.0 60
0.5 40
-10 - 20
2003 2004 2005 2006 2007 2008f 2005 2006 2007 2008
Overall balance (cash basis) Revenue Expenditure Total production
Bonny Light spot price (RHS)
Source: IMF Source: International Energy Agency

Weights of consumer price index (CPI) constituents Nigerian stock exchange – All share index

18% 70000
4%
4% 60000
64% 3% 50000
2%
40000
5%
30000

Food & non-alcoholic bev. Hse water, elec, gas & other fuel 20000
Transport Furn & hshld equip maint
Clothing & footwear Alcohol, tobacco & kola 10000
Other 2003 2004 2005 2006 2007 2008

Source: NBS Source: Bloomberg

Page 19
 Standard
Standard Bank Bank Group Economics
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 index –CPI
– basket) increased from 11.1% y/y in August to 13.4% y/y in
September 2008. We expect food price increases to slow down
during 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.
Inflation - % y/y
15
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. The
overall 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%.
Interest rates - %
25

20
12
15
9
10
6
5
3
0
0 2005 2006 2007 2008
2005 2006 2007 2008 Central Bank Rate
Comm.Bank Lending Rate
Overall Non-food Food Treasury Bills
Source: National Bureau of Statistics Source: Bank of Tanzania

The shilling exchange rate remains relatively stable. Export
performance continues to determine fluctuations in the exchange
rate 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 money
supply 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 Extended broad money supply (M3) - % y/y

TZS per USD Millions of US$ 40
1350 240
1300 200
35
1250 160
30
1200 120
1150 80 25
1100 40
20
1050 0
2005 2006 2007 2008 15
Volume of transactions (US$ millions) RHS 2005 2006 2007 2008
Exchange rate (TZS per USD)
Source: Bank of Tanzania Source: Bank of Tanzania

Page 20
 Standard Bank
Standard Bank Group
Group Economics
Economics

Tanzania – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)
5.4% 6.9%
10 9.2%
17.5% 5.4%
7.2 7.8 7.8 8.1
8 6.9 7.4 7.1 5.8%
6.7
6 44.7% 1.5%
3.8%
4 4.1%

2 Agriculture Trade, Hotels & Restaurants

Financial & Business Services Manufacturing
0 Public Admin. Transport & Comm.
Construction Electricity and water supply
2002 2003 2004 2005 2006 2007 2008f 2009f
Mining and quarrying Owner occupied dwellings

Source: National Bureau of Statistics Source: National Bureau of Statistics

Foreign exchange reserves, import cover Trade account – US$ million

US$ millions months 4000

3000 8
2000
2500 7
0
2000 6
1500 5 -2000
1000 4 -4000
500 3
-6000
0 2
2000 2001 2002 2003 2004 2005 2006 2007e
2000 2001 2002 2003 2004 2005 2006 2007e
Gross reserves Import cover (rhs) Exports Imports Trade deficit

Source: Bank of Tanzania Source: Bank of Tanzania

Government deficit – % of GDP Services receipts – year ending July (US$ millions)
0 1200
-1 1000
-2
800
-3
600
-4
400
-5
-6 200

-7 0
2000 2001 2002 2003 2004 2005 2006 2007 2008f Transportation Travel (Tourism) Other Services

Source: Bank of Tanzania & IMF 2004 2005 2006 2007 2008
Source: Bank of Tanzania
Weights in consumer price index (CPI) constituents Capital account - US$ million
6.9% 6.4%
1.4% 6000
55.9% 8.5% 5000

9.7% 2.1% 4000

2.1%
2.6% 3000
2.1%
0.8% 2000
1.5%
Food Drinks and Tobacco 1000
Clothing and Footwear Rents
Fuel, Power and Water Furniture & Household Equipment
Household Operations&Maintenance Personal Care & Health
0
Recreation & Entertainment Transportation
Education Miscellaneous Goods and Services
2000 2001 2002 2003 2004 2005 2006 2007e

Source: National Bureau of Statistics Source: Bank of Tanzania

Page 21
 Standard
Standard Bank Bank Group Economics
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 a
fraction 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 in
October, 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 Interest rates - %

18 25
15 20
12 15
9 10
6
5
3
0
0
2004 2005 2006 2007 2008
2005 2006 2007 2008 91 Day TB (yield)
Weighted average lending
Overall Core (excl. food, fuel, electricity and utilities) Rediscount
Source: Uganda Bureau of Statistics 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 shilling‟s 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 currency‟s
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 authority‟s 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 Money supply growth – y/y %

50
2700 360
2500 300 40
2300 240
30
2100 180
20
1900 120
1700 60 10
1500 0
0
2004 2005 2006 2007 2008
2004 2005 2006 2007 2008
UGX/USD UGX/EUR UGX/ZAR (rhs)
M3 (Broad money) Base money
Sources: Bloomberg, Standard Bank Group est. Source: Bank of Uganda

Page 22
 Standard Bank
Standard Bank Group
Group Economics
Economics

Uganda – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)
10 Community Agriculture
Transport &
services 30%
communica
24%
8 tion
10%

6
9.4 8.9 9.1 9.2
4 8.6 Mining and
Hotels &
6.6 quarrying
Restaurant
s 1%
2 Constructio
3% n Electricity Manufacturi
Wholesale 11% and water ng
0 & Retail 1% 9%
2004 2005 2006 2007e 2008p 2009f Trade
11%
Source: Uganda Bureau of Statistics, IMF, Standard Bank est.
Source: Uganda Bureau of Statistics

Foreign exchange reserves – import cover Trade account – US$ million

US$ million months 400 -60
3000 7.5
350 -80
2500 7.0 300 -100
2000 6.5 250
-120
1500 6.0 200
-140
150
1000 5.5 -160
100
500 5.0 50 -180
0 4.5 0 -200
2004 2005 2006 2007 2008 2006 2007 2008
Forex reserves Import cover (rhs) Exports Imports Trade balance (rhs)

Sources: Bank of Uganda, Bloomberg Source: Bank of Uganda

Government budget deficit - % of GDP Coffee prices – US cents per pound
1
200
0
160

-1 120

80
-2
40
-3
0
2004 2005 2006 2007 2008
-4
2005/06 2006/07 2007/08 2008/09p Robusta price (rhs) Arabica price (rhs)

Source: IMF CR No. 08/236 Source: Bloomberg

Weights of consumer price index (CPI) constituents Stock market indicators

Ushs billions
16.8% 1,200 7,000
14.7%
27.2% 1,050 6,100
12.8%
900 5,200
4.5% 14.8% 750 4,300
Food 4.7% 600 3,400
Beverages and tobacco 4.4% 450 2,500
Clothing and footwear
Rent, fuel and utilities 300 1,600
Household and personal goods 2005 2006 2007 2008
Transport and communication Market Capitalisation (rhs)
Education
USE ALSI (Share index)
Source: Bank of Uganda
Source: Uganda Stock Exchange

Page 23
 Standard
Standard Bank Bank Group Economics
Group Economics

Zambia
Inflation continued its ten-month climb in October to A higher interest rate environment. Short-term interest rates
15.2% y/y. Inflation in October was largely driven by food, and have increased in recent months largely on account of a
transport and communication prices. Food inflation accelerated decline in appetite for local government debt related to the
to 17.6% y/y in October, from 16.2% y/y in September, while sharp increase in investors‟ aversion to emerging market risk.
transport and communication price inflation surged to 19.2% The drop in the copper price has also reduced the appeal of
y/y, from 11.5% y/y over the same period. Food inflationary Zambian debt. As such, the yield on the 91-day Treasury bill
pressures are expected to persist in the short term, as the lean increased to 13% in the first week of October, from 12.5% in
season has just begun. Expenditure related to the recent September. Accelerating inflation and reservations about the
presidential elections is also likely to have created short-term country‟s new leadership also added to the upward pressure
price pressures. The sharp fall in the international oil price is on interest rates. Similarly, the average lending rate increased
expected to substantially dampen price pressures from fuel, to 26.7%, from 25.7% over this period. This high interest rate
utilities and transport. And, as the green harvest begins to environment is expected to persist until the global financial
enter markets at the end of the first quarter of 2009, inflation is markets stabilise.
expected to ease.
Inflation - % y/y Interest rates - %

25 50
20 40
15 30
10
20
5
10
0
-5 0

2004 2005 2006 2007 2008 2004 2005 2006 2007 2008

Overall Food Non-food Average lending rate BoZ rate 91-Day TB

Source: National Bureau of Statistics Source: Bank of Zambia

Kwacha at its weakest value against the US dollar in 18 Broad money (M3) growth drops to a two-year low in
months. Heightened risk aversion spurred the dramatic sell-off August. M3 growth slowed to 19.5% y/y in August, from 29.2%
of emerging market assets in October and led to a sharp y/y in July, largely on account of a significant decline in foreign
depreciation of emerging market currencies, including the currency deposits. The growth rate of foreign currency
kwacha. The kwacha lost 15.4% of its value against the US deposits, which constitute between 26% and 30% of M3,
dollar and 6.4% against the euro, to average ZMK4 088.1/USD slowed sharply to 0.8% y/y in August, from 9.2% y/y in the
and ZMK5 415/EUR in October. The reversion of the trade previous month. This deceleration reflects acute emerging
balance to negative territory in the third quarter of 2008, largely market risk aversion, in light of the global financial crisis, and
because of the halving of the copper price in less than six uncertainty surrounding policy continuity following the death of
months, subdued foreign exchange inflows and thus added to President Mwanawasa. Reserve money growth was also
the weakening pressure on the kwacha. The slowdown in subdued in September at 4.3% y/y, compared to 11.1% y/y in
China‟s growth momentum suggests that the demand for August, owing to a decline in growth of statutory reserves on
copper has softened and thus Zambia‟s export earnings will foreign exchange deposits.
moderate, implying a weaker kwacha in the short term.
Wwwwwweeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee

Exchange rates Money supply growth – % y/y

6600 900 50
6000 750 40
5400 600 30
4800 450 20
4200 300
10
3600 150
0
3000 0
2004 2005 2006 2007 2008 -10
2004 2005 2006 2007 2008
ZMK/USD ZMK/EUR ZMK/ZAR (rhs) Broad money (M3) Reserve money
.
Sources: Bloomberg, Standard Bank Group est. Source: Bank of Zambia

Page 24
 Standard Bank
Standard Bank Group
Group Economics
Economics

Zambia – picture gallery

Real GDP growth - % Sectoral contribution to GDP (%)
7 Financial Communit Agriculture
Real y, Social & , Forestry
Institutions Estate &
6 & Personal & Fishing
Business Services 13%
Insurance services
5 7% 8% Mining &
9%
Quarrying
4 8%
Transport,
3 6.2 5.7 6.1 6.2 Storage & Manufactur
5.4 5.2 ing
Communic
2 ations 11%
9%
1 Electricity,
Restaurant
Wholesale Gas &
0 s, Bars & Constructi
& Retail Water
Hotels on
trade 3%
2004 2005 2006 2007e 2008f 2009f 3%
18% 11%
Source: IMF, Standard Bank est.
Source: Central Statistical Office
Foreign reserves & import cover Trade account – US$ million
1500 4.0
1600
1200 3.5
1200
900 3.0
800
600 2.5
400
300 2.0
0
0 1.5
2004 2005 2006 2007 2008 -400
2005 2006 2007 2008
Forex reserves (US$ millions)
months of import cover Imports Exports Trade balance
Sources: Bloomberg, Bank of Zambia Source: Central Statistics Office
Government budget balance - % of GDP Copper price – US dollars per tonne
20
9000
16
7500
12
6000
8
4500
4
3000
0
1500
-4 0
2005 2006 2007 2008p 2009f 2004 2005 2006 2007 2008
Sources: IMF CR No.08/187 Source: Bloomberg

Weights of consumer price index (CPI) constituents, % Stock market indicators

4.9 4.1 ZMK billions
4000 22000
0.8 9.6 3500 20000
8.2 3000 18000
8.5 57.1 2500 16000
6.8 2000 14000
1500 12000
1000 10000
500 8000
0 6000
Food & beverage Clothing & footwear
Rent, fuel, lighting Furniture & household goods 2005 2006 2007 2008
Medical care Transport & communication LuSE All Share Index (Jan 1997=100)
Recreation & education Other goods & services
Market Capitalisation (rhs)
Sources: Central Statistical Office, Standard Bank Group est. Source: Lusaka Stock Exchange

Page 25
 Standard Bank Group Economics
Standard Bank Group Economics

Group Economics
Goolam Ballim – Group Economist
+27-11-636-2910
Goolam.Ballim@standardbank.co.za

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
Johan.botha@standardbank.co.za Shireen.darmalingam@standardbank.co.za Jeremy.Stevens@standardbank.co.za Danelee.vanDyk@standardbank.co.za

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
Jan.duvenage@standardbank.co.za Anita.last@standardbank.co.za Yvonne.Mhango@standardbank.co.za Victor.Munyama@standardbank.co.za
Botswana Angola Kenya DRC
Lesotho Ghana Mozambique Nigeria
Namibia Malawi Uganda Tanzania
Swaziland Mauritius Zambia Zimbabwe

All current research is available on the Standard Bank Group Economics home page. In order to receive Group Economics’ research
via email, all clients (new and existing) are required to register and select publications on the website. Click on
http://ws9.standardbank.co.za/sbrp/LatestResearch.do, select Register and enter your email address. A username and password will
then be emailed to you.

Analyst certification
The authors certify that: 1) all recommendations and views detailed in this document reflect his/her personal opinion of the financial instrument or market class discussed;
and 2) no part of his/her compensation was, is, nor will be, directly (nor indirectly) related to opinion(s) or recommendation(s) expressed in this document
Disclaimer
This document does not constitute an offer, or the solicitation of an offer for the sale or purchase of any investment or security. This is a commercial communication. If you
are in any doubt about the contents of this document or the investment to which this document relates you should consult a person who specialises in advising on the
acquisition of such securities. Whilst every care has been taken in preparing this document, no representation, warranty or undertaking (express or implied) is given and
no responsibility or liability is accepted by the Standard Bank Group Limited, its subsidiaries, holding companies or affiliates as to the accuracy or completeness of the
information contained herein. All opinions and estimates contained in this report may be changed after publication at any time without notice. Members of the Standard
Bank Group Limited, their directors, officers and employees may have a long or short position in currencies or securities mentioned in this report or related investments,
and may add to, dispose of or effect transactions in such currencies, securities or investments for their own account and may perform or seek to perform advisory or
banking services in relation thereto. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. This document is not
intended for the use of private customers. This document must not be acted on or relied on by persons who are private customers. Any investment or investment activity
to which this document relates is only available to persons other than private customers and will be engaged in only with such persons. In European Union countries this
document has been issued to persons who are investment professionals (or equivalent) in their home jurisdictions. Neither this document nor any copy of it nor any
statement herein may be taken or transmitted into the United States or distributed, directly or indirectly, in the United States or to any U.S. person except where those U.S.
persons are, or are believed to be, qualified institutions acting in their capacity as holders of fiduciary accounts for the benefit or account of non U.S. persons; The
distribution of this document and the offering, sale and delivery of securities in certain jurisdictions may be restricted by law. Persons into whose possession this
document comes are required by the Standard Bank Group Limited to inform themselves about and to observe any such restrictions. You are to rely on your own
independent appraisal of and investigations into (a) the condition, creditworthiness, affairs, status and nature of any issuer or obligor referred to and (b) all other matters
and things contemplated by this document. This document has been sent to you for your information and may not be reproduced or redistributed to any other person. By
accepting this document, you agree to be bound by the foregoing limitations. Unauthorised use or disclosure of this document is strictly prohibited. Copyright 2004
Standard Bank Group. All rights reserved.

Page 26