Weekly Economic Overview and

Commentary for the period 1ST May

7th May, 2017 Compiled By: Prince Muraguri
Kanyingi
Email:
Contents
LOCAL NEWS.............................................................................................................. 3

CMA eyes FinTech innovators in new policy guide...................................................3

EY ranks Kenya Africas 2nd best for investments...................................................4

Kenya's foreign exchange reserves at record high last week..................................6

Treasury to float 182-day bill after suspended sale.................................................8

How pension funds can help relieve Kenyas debt burden....................................10

Home prices stabilise on lower demand................................................................12

Political cover demand low ahead of polls.............................................................13

REGIONAL NEWS...................................................................................................... 15

Fuel shortage adds to Burundis woes...................................................................15

Why price of refined sugar has surged across East Africa.....................................18

Bloc puts off ratification of tripartite trade deal....................................................21

INTERNATIONAL NEWS............................................................................................. 23

Economic growth may be barely there, but the Fed is still likely hiking anyway. . .23

Chinas tightening measures to continue but risks remain if markets pushed too
hard....................................................................................................................... 25

U.S. Economy Grew 0.7% in First Quarter, Slowest in Three Years........................26

Demand for cryptocurrencies soars in Japan.........................................................29

Charts show eurozone recovery is strengthening..................................................30

Euro area unemployment below 10 percent..........................................................33

Five countries sit on 90 percent of cash injected by ECB: study............................34

Eurozone economy growing faster than UK, US....................................................35

LOCAL NEWS

CMA eyes FinTech innovators in new policy guide

The Capital Markets Authority (CMA) will formulate a policy on innovations in the
financial technology (FinTech) as part of deepening technology use in the markets.
CMA chief executive Paul Muthaura on Wednesday said with Kenya being a global
pace-setter in FinTech innovations, it (CMA) will in the next quarter issue a
consultative paper on the policy and guiding framework to support and nurture
innovations. This will be done under a regulatory sandbox model for market
stakeholders.
We are seeing a lot of global markets looking into Kenya to learn the lessons on
how they can effectively leverage on mobile money and how to use the platform to
raise capital for government debts, he said.
Already, the authority has engaged other regulators and players in the FinTech
space to benchmark on their strategy and approach.
The ultimate aim is to support FinTech and foster innovation and participate in
capital markets, said Mr Muthaura during the launch of CMA first quarter markets
soundness report in Nairobi. He said this follows successful introduction of the
mobile phone-based bond, M-Akiba, during the quarter after two years of testing.
The initial offer meant to run until April 10 that hit Sh150 million encountered a few
teething problems. The Treasury is to issue additional Sh4.85 billion June.
M-Akiba is aimed at easing access to government debt for all ordinary Kenyans,
through an affordable minimum subscription of Sh3,000.
The sale rides on the mobile-phone penetration rate of 88 per cent.
Explanation: Regulatory sandbox model
A regulatory sandbox model is one in which businesses are allowed to test
innovative products, services, business models and delivery mechanisms in a live
environment (Financial Conduct Authority).
With regard to FinTech, it allows FinTech experimentation so that promising
innovations can be tested in the market within a well-defined space and duration.
The sandbox contains safeguards to contain the consequences of failure and
maintain the overall safety and soundness of the financial system.
***
EY ranks Kenya Africas 2nd best for investments
Consultancy EY (formerly Ernst & Young) has named Kenya as the second most
attractive investment destination in Africa after Morocco in 2017 despite last years
poor performance, where FDI dropped by 57.9 per cent.
EYs Africa Attractiveness Index 2017 (AAI 2017) showed Kenya scored highly in the
long-term outlook in governance and human development (16 out of 20), economic
diversification (10 out of 20), infrastructure and logistics (16 out of 20) and
improved business environment rating that stood at 10 out of 20.
Kenya, which is East Africas anchor economy (and SSAs fourth largest), saw
investment flag in 2016 after a bumper year in 2015. FDI projects were down 57.9
per cent, while capital investment declined by 55.5 per cent. But on a longer-term
perspective, FDI flows into Kenya has tended to ebb and flow year-on-year, it said.
The report blames Kenyas poor show in 2016 to ongoing uncertainty over Britains
planned exit from the European Union, which saw UK companies reduce investment
in Kenya.
Kenya had a strong 2015, mainly driven by a surge in projects from the UK. These
understandably slowed in 2016, as the UK copes with uncertainty following the vote
to leave the EU. Our confidence in Kenyas investment prospects remains firm,
underscored by the countrys strong ranking as the second-most attractive FDI
destination in 2017, it says.
The report adds that multinationals keen on reaching the thriving 180 million
people-rich East African Market are seeking to establish regional hubs in Kenya to
take advantage of the free trade area that allows free movement of goods, people
and capital across East Africa.
However, EY urged Kenya to go slow on public debt, which it says is worrying and
threatens its current account.
But it gave a bright long-term outlook on inflation though Kenyans are currently
going through tough times.
The report observed that Kenyas newly built infrastructure notably tarmacking of
roads and the soon to be opened 472-kilometre long Mombasa-Nairobi Standard
Gauge Railway was a recipe for increased industrial activity and trade.
Excerpt from the EYs Africa Attractiveness Index 2017
Economic Overview
Low growth was largely driven by external factors, particularly oil prices, which
meant two of the largest three economies in Sub-Saharan African (SSA), i.e. Nigeria
and Angola, had to accept lower receipts for their exports. As a result, both economies
fell into recession, with Nigeria hit particularly hard, as the nation dealt not only with
reduced terms of trade, but with lower production levels as a result of domestic insurgency.
South Africas growth in 2016 was only marginally positive (0.3%), while Angolas growth for
the year is likely to be flat. All three of these economies are expected to grow more strongly
in 2017, although each one is dependent on a combination of global commodity price
recovery and structural economic reform. At the other end of the spectrum, Cote dIvoire
remains one of the fastest growing countries globally, although once again, highly
dependent on commodity (cocoa) prices, and its ability to manage internal conflict. Staying
in West Africa, Ghanas prospects are also looking increasingly promising, with a newly
elected administration promising to manage the public purse more prudently. East Africa
remains the most buoyant of all, with the four key economies (Kenya, Ethiopia, Tanzania and
Uganda) all poised for growth of 6% and above for the decade.
For most of the sub-continent, inflation has peaked and is declining, allowing the space for
central banks to ease interest rates. This in itself will add stimulus to economic growth, and
should interest rates at the very least remain stable, consumer disposable income will
support even stronger growth through 2017. However, there are a number of risks that need
to be managed. Countries with high and rising twin fiscal and trade deficits remain at risk of
currency devaluation. This becomes all the more evident where national debt levels are
either rising too rapidly or are already at high levels. Mozambique is the most notable
example, although this has not impacted its growth outlook. Commodity prices are also key
to growth assumptions. Oil prices have fallen back to US$50 after trading at US$55 in the
first two months of 2017. Price moves will depend on OPECs ability to get member countries
to agree to production levels. China remains critical to commodity prices more broadly, as its
recent slowdown in economic growth rate has already illustrated. Given these unknowns,
policy certainty and economic reform are critical to stimulating growth and reducing the
impact of exogenous influences. Africa remains on track to be a US$3t economy. To achieve
that will require accelerating diversification initiatives thereby boosting resilience to external
shocks.
 ***

Kenya's foreign exchange reserves at record high last week

The Central Bank of Kenya held $8.309 billion in foreign exchange reserves at the
end of last week, a record high for a weekly close, data showed.
The bank said in its weekly bulletin, seen by Reuters on Wednesday that the
reserves were enough to cover about five-and-half months worth of imports.
Below is a chart showing Kenyas forex reserves, obtained from the CBK weekly
bulletin:

There was no immediate explanation for the high reserves, which are legally
required to be at a minimum of four months worth of imports.
The bank has struggled to build up reserves in the past, due to low exports that are
far outstripped by imports of items like petrol.
Kenya, which goes to the polls in August, also has a stand-by credit with the IMF of
$1.5 billion, which it can tap in case of unforeseen shocks.
Analysis: Importance of foreign exchange reserves (Adapted from
quora.com)
Increases the confidence in the monetary and exchange rate policies of the
government.
During any crisis, foreign exchange reserves come to the rescue of any country to
absorb the distress related to such crisis.
Enhances the capacity of the central bank of the country to intervene in the foreign
exchange market and control any adverse movement and stabilize the foreign
exchange rates to provide a more favorable economic environment for the progress
of the country.
Adds to the comfort of market participants that domestic currency is backed by
external assets and hence it also helps the equity markets of the country, because
due to strong reserves many people from foreign countries are willing to invest in
the country having strong foreign exchange reserves.

Research: Macroeconomic Impacts of Foreign Exchange Reserve

Accumulation: Theory and International Evidence by Shin-ichi Fukuda and
Yoshifumi Kon
Abstract
Recently, a dramatic accumulation in foreign exchange reserves has been widely
observed in developing countries. This paper explores the possible long-run impacts
of this trend on macroeconomic variables in developing countries. We analyze a
simple open economy model where increased foreign exchange reserves reduce the
costs of liquidity risk. Given the amount of foreign exchange reserves, utility-
maximizing representative agents decide consumption, capital stock, and labor
input, as well as the amounts of liquid and illiquid external debt. The equilibrium
values of these variables depend on the amount of foreign exchange reserves. A
rise in foreign exchange reserves increases both liquid and total debt, while
shortening debt maturity. To the extent that interest rates of foreign exchange
reserves are low, an increase in foreign reserves also leads to a permanent decline
in consumption. However, when the tradable sector is capital intensive, the increase
may enhance investment and economic growth. We provide empirical support for
our theoretical analysis using panel data from the Penn World Table. The cross-
country evidence shows that an increase in foreign exchange reserves raises
external debt outstanding and shortens debt maturity. The results also imply that
increased foreign exchange reserves may lead to a decline in consumption, but can
also enhance investment and economic growth. The positive impact on economic
growth, however, disappears when we control the impact through investment.

More on this research paper can be found on:

https://www.adb.org/sites/default/files/publication/156052/adbi-wp197.pdf
***

Treasury to float 182-day bill after suspended sale

Central Bank of Kenya (CBK) has announced that the 182-day Treasury bill will be
back on offer this week after the State agent took the uncharacteristic move of
suspending sale.
The six-month paper has not been auctioned in the last eight weeks, as the Treasury
tried to spread maturity concentration risk across the three-month and one-year
papers.
Please note the 182-day Treasury bill will be on offer valued date May 8, 2017, the
CBK said in a notice.
The CBK had opted not to issue the heavily oversubscribed 182-day T-bill in early
March, to avoid heavy maturities in six months by pushing investors to bid on the
91-day and 364-day papers.
At the time, the CBK had absorbed Sh87.10 billion against the Sh30 billion the paper
offered in the previous five auctions. During the period, the Treasury had only raised
Sh25.2 billion in the 364-day paper and Sh12.9 billion in the 91-day, out of the
targeted Sh30 billion and Sh20 billion respectively.
This meant that the CBK had been left facing the prospect of having debt maturities
pile up in six months time, instead of the usual even spread between the three
papers commonly referred to as concentration risk in the money market.
Cytonn Investments analysts in a weekly note said yields on T-bills were relatively
unchanged in April, with the 91-day increasing to 8.8 per cent from 8.7 per cent
while the 364-day paper remained unchanged at 10.9 per cent.
The CBK has remained disciplined in stabilising interest rates in the auction market
by rejecting bids priced above the market price, with the overall bids acceptance
rate in April declining marginally to 79.2 per cent, compared to 82.1 per cent in
March, said Cytonn.
How pension funds can help relieve Kenyas debt burden
Kenyas heavy debt burden could be managed without hurting ongoing execution of
the mega infrastructure projects if the government taps into the multi-billion shilling
pension funds.
That was the verdict of the pension industry leaders meeting in Nairobi last week,
under the auspices of an African Development Bank-backed think-tank, Making
Finance Work for Africa (MFW4A).
African governments, they said, must rethink their sources of development funds
and opt for those that best serve the interests of their countries in the long term.
By keeping a consistent inflow of foreign funds for development purposes, we are
impoverishing Africa because those funds attract high interest rates, are prone to
foreign currency swings and are pegged to stringent conditions, said MFW4A co-
coordinator David Ashiagbor. He said local investors were better positioned to
understand risks and hence offer affordable and favourable risk cover.
Think about mobile money in Kenya and what it has done for Kenyans. Its multi-
billion shilling annual profits and financial inclusion. Could we have had such a
success if foreigners were behind its various uses? Only Kenyans understand what is
best for them and their country, he said.
Mr Ashiagbor said the Kenyan government, for instance, should device an
infrastructure bond platform for channelling the Sh900 billion pension funds towards
national development through the capital markets.
A road project worth Sh3 billion to Sh10 billion can comfortably be funded by
pension funds once they are guaranteed attractive returns. We need governments
to hold meetings with financial experts as well as development finance institutions
to create infrastructure bond products that encourage pension funds to invest
locally, he said.
MFW4A, which has been in existence for the past three years, collects and analyses
data before sharing it with AfDB member states to inform investment choices.
It also focuses on projects that improve financial inclusion among the population as
well as create sustainable products for extending credit to small and medium
enterprises.
Retirement Benefits Authority (RBA) acting chief executive Nzomo Mutuku said
Kenya had amended its laws to allow the launch of a pilot infrastructure bond that
will see local pension funds finance the construction of the Nairobi-Nakuru-Mau
Summit Highway.
Mr Mutuku said pension schemes had positively received the law that introduced
alternative investment channels.
Mr Ashiagbor said that development finance institutions (DFIs) that normally
bankroll infrastructure projects in Africa were keen to partner with local pension
funds to finance mega projects, share the earnings and build confidence among the
schemes that infrastructure bonds are worth investing in.
This is our strategy for unlocking local funds since many pension funds and
wealthy individuals fear losing money loaned to the government for development.
We need joint ventures that manage toll stations that collect money from motorists
using roads built by pension funds, he said.
Mr Ashiagbor said cross-border projects on water, energy and road projects should
also be considered since some pension schemes were too small to afford billion-
dollar long-term investments on their own.
The MFW4A coordinator said an investment product launched in the capital markets
could help excite interest among the wealthy and pension funds to invest internally
and discourage foreign investments.
No foreign funds have ever developed a country. But internal funds will ensure all
profits remain here and are re-invested here. Having more local participants at the
bourse will also create interest among foreign investors that the local economy is
vibrant and attractive, he said.
Mr Ashiagbor said that with African countries having many investment
opportunities, pension funds would be better placed to offer financial solutions to
many problems afflicting their respective countries while earning handsome returns
from their investments.
Our task is to found a sustainable avenue for channelling the funds and the gains
via products that are market-driven and their expected gains publicly known.
Foreign pension schemes are forwarding their funds to African projects at a hefty
fee which could be enjoyed by local pension fund scheme, he said.
Home prices stabilise on lower demand
The price of residential houses stabilised as demand softened during the first
quarter of the year.
Kenya Bankers Association (KBA) Housing Price Index released Thursday showed
that the average house price increased marginally by 1.10 per cent during the first
three months of the year compared to the 1.58 per cent rise during Q4 of 2016.
Whereas this supports the observation that house prices are broadly stable, it is
increasingly becoming evident that prices are softening. The house prices
evolution since the third quarter of 2016 represents a downward trend, being a
reversal of the rising trend that prevailed from the preceding three quarters starting
from the fourth quarter of 2015, said the KBA housing index.
The index showed that supply and demand dynamics have equally influenced the
general house prices trend, the key driver of the softening seen during the Q1 of
2017 and the preceding two quarters leaning more towards market demand
conditions.
Demand has somewhat been suppressed principally because of reduced lending by
commercial banks following the enactment of interest capping law in the last
quarter of 2016, the index stated.
Apartments accounted for 75.72 per cent of the total number of units sold in Q1 of
2017.
Excerpt from the KBA Housing Price index of May 2017
House prices rose by 1.10 percent during the last quarter of 2016 (See
during the first quarter of 2017 figure below).
compared to the 1.58 percent rise
 the preceding three quarters starting
from the fourth quarter of 2015.
Whereas the supply and demand
dynamics have had an equal
influenced the general house prices
trend, the key driver of the softening
seen during the first quarter of 2017
Whereas this supports the
and the preceding two quarters lean
observation that house prices are
more towards market demand
broadly stable, it is increasingly
conditions. Demand has somewhat
becoming evident that prices are
been suppressed principally because
softening.
of reduced lending by commercial
The house prices evolution since the
banks following the enactment of
third quarter of 2016 represents a
interest capping law in the last quarter
downward trend
of 2016.
***
in the rate of growth, being a reversal
of the rising trend that prevailed from
Political cover demand low ahead of polls
Demand for political risk insurance by Kenya firms has remained subdued ahead of
the August 8 general election as majority investors exude confidence the polls will
largely be peaceful.
The African Trade Insurance Agency (ATI) on Thursday said it had witnessed fewer
enquires for political risk cover than in previous elections.
We have noticed that compared to the last election (2013) we have not seen many
inquiries on (political risk) policies because people have felt that this election is
much safer than 2007, said George Otieno ATIs chief executive officer.
ATI was founded in 2001 by African States to cover the trade and investment risks
of companies doing business in the continent.
It provides political risk, surety bonds, trade credit insurance and political violence,
terrorism and sabotage cover.
As of 2016, ATI supported $25 billion (Sh2.5 trillion) worth of trade and investments
into member countries in sectors such as agribusiness, energy, exports, housing,
infrastructure manufacturing, mining and telecommunications.
In 2016, ATI insured close to $4 billion (Sh405 billion) worth of trade and
investments.
Up to 1,300 people died in weeks of riots and post-election violence that rocked
Kenya after the disputed 2007 Presidential elections.
Mr Otieno, while maintaining ATI does not foresee political violence, said it had,
however, urged existing clients with political risk covers to maintain them.
He spoke when the multilateral insurer released its financial results for the year
ending December 2016.
Academic Analysis: Political risk insurance explained
While developing markets can present a great opportunity for business growth, they
also present greater risks than developed markets. Political turbulence can cause
assets to decline severely in value, or to be destroyed or confiscated and lose value
altogether. Without political risk insurance, businesses would be especially reluctant
to operate in developing countries with above average levels of political instability
that threaten their assets and their ability to operate smoothly.
Types of companies that might purchase political risk insurance
include multinational corporations, exporters, banks, and infrastructure developers.
Policies are customized to each clients needs. They can cover one or multiple
countries and can have lengthy terms and multimillion-dollar coverage amounts.
The ability to lock in an insurance policy for many yearsup to 15 years, for
example, with one major issueris a key feature of political risk insurance. Many
business opportunities require years to carry out, and political conditions can
change dramatically in a short time. If a business knows that it will be insured
against political risks for years regardless of what happens, it can confidently
proceed with activities that might otherwise be too risky to pursue.
Political risk insurance can protect physical assets, stock investments, purchase
contracts and international loans. For example, if a multinational corporation had a
contract to provide drones to a foreign government, and after the corporation had
manufactured and shipped all the drones, the government became insolvent and
was unable to pay the balance owed, political risk insurance could cover the loss.
Similarly, if a new government came into power and changed import regulations in
a way that meant the drone shipment could no longer enter the country, political
risk insurance could cover the drone companys loss.
Another example could be an automobile manufacturer that set up a plant in a
developing country and suffers a risk of losing its plant following a coup in the
country. If after the coup, the national government declares its ownership of all
formerly private factories, political risk insurance could compensate the auto
manufacturer for the loss of its plant.
***
REGIONAL NEWS

Fuel shortage adds to Burundis woes

As Burundi marks two years of political crisis, the economy has been wobbling and
now a two-week fuel shortage is threatening to worsen the situation.
Daniel Mpitabakana, director in charge of petroleum in Burundis Ministry of Energy
and Mines, attributed the crisis to a technical problem at the Burundi Revenue
Authority.
Another source said that fuel importers have run short of foreign currency to buy
fuel, hence the shortage.
Burundis economy has taken a beating since President Pierre Nkurunziza ran for a
controversial third term in 2015. The European Union and the US suspended direct
aid to Bujumbura, which accounts for almost half of the countrys annual budget.
According to the World Bank figures, inflation for the first quarter of this year is at a
8.7 per cent ceiling, compared to 5.5 per cent in 2016. Economists forecast it to
soar to double digits this year.

The GDP contracted by 0.6 per cent in 2016, an improvement from the 3.9 per cent
contraction in 2015. The GDP was last recorded in 2015 at $3.097 billion with
recorded growth of -0.6 per cent in 2016. The 2017 forecast is not more than 1.5
per cent.
According to the World Bank poverty is expected to rise by 83 per cent in 2018-19.
As 90 per cent of the population heavily relies on agriculture, the prolonged dry
spell has negatively impacted the production of food.
Burundi has, since last year, ceased to export food to neighbouring countries,
specifically to Rwanda, citing growing food insecurity in the country.
Virtual cash splits Kenya regulators
To introduce virtual currency or not is the big debate among Kenyas market
regulators and players.
Whereas the Central Bank of Kenya (CBK) has warned against use of Bitcoin and
such, the Capital Markets Authority (CMA) appears to have a liberal view on their
possible use.
A local company says there is no need for fear given that introduction of the now
popular credit cards also came with warnings from a number of countries ditto
mobile money.
In December 2015, the banking regulator issued a stern warning on the dangers of
Bitcoin, a digital currency, joining its peers around the world ratcheting up warnings
against the use of virtual currency saying the risks far outweigh any possible
benefits.
The regulator said at the time, that it should not be held liable for any losses
incurred by consumers using digital currencies to settle transactions, as it is not a
legal tender in the country.
Virtual currencies are traded in exchange platforms that tend to be unregulated all
over the world. Consumers may, therefore, lose their money without having any
legal redress in the event these exchanges collapse or close business, the CBK
warned in the notice.
The CMA on the other hand seems to be more open-minded on the future of digital
currencies in Kenya.
The authoritys chief executive officer Paul Muthaura stated on April 11 that the
regulator will give Financial technology firms (Fintech) an opportunity to interrogate
and learn more about the regulatory environment as well as give the regulators an
opportunity to work closely with players to understand their unique challenges.
Conducive environment
The CMA, he said, has finalised the development of consultative policy paper for
establishment of a Regulatory Sandbox that will allow the regulator to support
Fintech innovations.
He said a soon to be held forum will provide input into a paper, which will further
provide the basis for a regulatory framework for financial technology laboratories in
Kenya.
The ultimate objective of the authority is to provide Fintechs in the capital markets
such as; finance smartphone apps; equity crowdfunding and peer-to-peer lending
platforms; robo-advice for investment; blockchain technology; big data; crypto-
currency and other finance focused technology products, with a conducive
environment where they can test their innovations in a relaxed regulatory
environment before taking them to the market, said Mr Muthaura.
Mr Muthauras written remarks were made on his behalf by Mr Luke Ombara, CMA
regulatory policy and strategy director, during the listing of the M-Akiba bond, the
worlds first mobile phone traded government security, in Nairobi last month.
Mr Muthaura said the Kenyan Government had set the tone by bringing on board
the first true, transformative and innovative Fintech, M-Akiba adding that already
the CMA is reviewing a number of crowdfunding platform applications.
To take Fintech oversight to the next level and in line with the commitments in the
Master Plan, the authority has positioned the Kenyan capital markets space to
leverage on opportunities that digital finance provides, he said.
According to Ms Elizabeth Rossiello, CEO, BitPesa a digital currency payments
platform in Kenya, time is ripe for regulators to give room for use of such currencies.
Ms Rossiello said resistance by the CBK is similar to other consumer notices posted
in the US, Europe and Asia about Bitcoin a few years ago.
There was a lot of fear about credit cards when they were first introduced to the
market. There was even more fear when mobile money came out. What was this
technology? How could it be safe? , she pointed out.
Market capitalisation
According to her, however, the future of digital currencies is bright.
Internationally, all of the largest financial institutions have Bitcoin and blockchain
programmes, investments and even patent applications. Visa Europe commented
that working with bitcoin is no longer a choice anymore, proving that the
technology has moved from the fringes towards the mainstream of financial
innovation. Bank of America filed applications for 10 different patents using Bitcoin
and blockchain technology, she said.
Digital currencies such as Bitcoin are issued and usually controlled by its
developers, and are used by members with virtual communities.
The sectors market capitalisation has surged more than 60 per cent so far this
year, and nearly 260 per cent over the past 12 months, to nearly Ksh3.09 trillion
($30 billion), according to Coinmarket.com.
Blockchain is a public online ledger of transactions that first became well known as
the software underpinning Bitcoin.

Why price of refined sugar has surged across East Africa

The price of sugar has steadily risen across East Africa, leaving producers and
consumers with a sour taste in the mouth.
In Uganda, it has risen from $0.98 to settle between $1.21 and $1.41 per
kilogramme over the past year, with producers blaming the high cost of producing
sugarcane for the increase.
Mwine Jim Kabeho, chairman of Uganda Sugar Manufacturers Association, in a letter
to the Ministry of Trade, Industry and Co-operatives, said that the average cane
price has almost doubled, from $23.8 per tonne in April 2016 to $44.8 per currently.
The wholesale prices have continued to rise, so we are forced to increase the retail
prices, said Abdul Lwanga, a wholesale sugar trader in downtown Kampala.
The USMA said the adjustment was due to the higher production costs and to
sustain the value chain. However, some traders have taken advantage of the
changes, with some raising their margins from $0.6 per 50kg to $5.6 per bag.
Cost per unit
The industry also notes other challenges as being shortage of cane. Sugar
production is below half of the installed capacity, thereby increasing the cost per
unit; this will automatically be reflected in sugar prices, the association said.
Harvest of immature cane is another factor that the industry attributes to failure to
implement a zoning policy.
The USMA has constantly drawn the attention of the ministry to this, small mills
have continued to be established in close proximity to old mills without investing in
out-grower schemes. They instead offer incentives to farmers to lure them away
from the established factories, leading to harvest of immature cane. Inflation,
speculation and high taxes are cited as the other causes.
The association was responding to a note from the ministry that demanded an
explanation for the price increase.
Trade and Industry Minister Amelia Kyambadde has long been locked in a battle with
the sugar manufactures over price and production figures. While established
manufacturers want exclusion zones to protect their outgrowers, the government
has looked on and in some cases encouraged the opening of new factories, some of
which do not even grow their own cane.
Competition
On one hand, the government thinks competition will benefit cane farmers, while on
the other established producers think that the unregulated sprouting of millers will
hurt the industry generally.
Uganda produces an average 500,000 metric tonnes of sugar annually but Kenneth
Barungi, a senior manager with Kakira Sugar, the countrys leading manufacturer,
says the past two years have been difficult.
Production has dropped by about 86,000 tonnes. Mr Barungi blames the crisis on
poor regulation, We have proposed to government that the regulations should
require a 25-kilometre radius between one factory and another.
The government had previously proposed a nuclear estate of at least 500 hectares
but manufacturers say this would be insufficient.
But Uganda is not alone.
In Kenya, the price of sugar has risen to Ksh300 ($3), up from Ksh200 ($2) for a two-
kilogramme packet in less than a year, following a sharp drop in cane production.
The Kenya Sugar Directorate now projects that there will be a deficit of two million
tonnes in cane production this year, a signal that prices could surge further with the
recent drought and fall army worm adversely affecting output.
Held by millers
Cane production fell from 126,362 tonnes in 2015 to 105,000 tonnes last year while
sugar stocks held by millers have dwindled from 7,000 tonnes to 5,000 tonnes in
the past month, forcing retailers to restrict purchases per customer.
Kenya is a sugar deficit country and imports 300,000 tonnes to cover shortfalls that
are partly blamed on inefficiency at state-owned millers.
Sugar prices in Tanzania have been stable for a year with a kilogramme of sugar
selling at between Tsh2,400 ($1.0) and Tsh2,500. However, the price is more than a
third above the official indicative price of Tsh1,800 ($0.90) announced by the Sugar
Board in April.
Sugar prices surged to Tsh3,000 per kilogramme towards the end of 2015 on the
back of hoarding by traders after the government banned imports to protect the
countrys four millers [Mtibwa Sugar and Kilombero Sugar Limited in Morogoro; TPC
Moshi in Kilimanjaro and Kagera Sugar].
The factories have a production capacity of 320,000 tonnes against an annual
demand of 420,000 tonnes. The deficit is filled by imports from South Africa, Brazil
and Kenya and a permit system overseen by President John Magufuli himself.
In Rwanda, some respite
The retail price of sugar in Rwanda has eased by Rwf200 ($.02) per kilogramme in
the past two months, but is expected to drop further. Reason is that Uganda and
Tanzania have put strict controls on exports as they seek to plug internal deficits.
The commodity is now coming in from South America and China. Sugar prices
jumped from Rwf750 ($0.9) in September 2016 to Rwf1,200 ($1.4) in January this
year, before dropping slightly to Rwf1,000 ($1.2) recently.
Initially, importers turned to Zambia and Malawi, but those countries now face a
cane shortage.
Rwandas production has remained far below domestic demand of about 80,000
tonnes per annum, with the sole operational sugar maker, Kabuye Sugar Works,
producing only 14,000 tonnes, or 20 per cent of the local sugar consumption. Last
years announced entry of an investor, Mauritius ACS Ltd, buoyed hopes that the
country could save over Rwf20 billion spent on sugar imports annually.
Government plans to acquire 8,000 ha of land to lease to the investor for cane
plantation. Additional cane would be from outgrower farmers.
Bloc puts off ratification of tripartite trade deal
The East African Community has postponed ratification of the Tripartite Free Trade
Area (TFTA) from March to December this year, after failing to agree on the
contentious rules of origin and tariffs.
The Comesa-EAC-SADC Council of Ministers had given the five-member bloc up to
March 31 to ratify the treaty and pave the way for Phase 1 of negotiations to be
conducted by June 17 on how an expanded free market of over 600 million people
would be implemented.
Negotiations on rules of origin, tariff offers and trade remedies form Phase 1 of the
agreement while Phase II covers trade in services and other trade-related matters.
The EAC is negotiating the TFTA as a bloc while Comesa and SADC are pushing for
individual countries agenda.
The Tripartite Ministers during the Nairobi meeting had agreed to complete the
entire process by July this year while the EAC had agreed to ratify it by March. Given
that there is still work to be done on rules of origin and tariff offers that are still
outstanding, the EAC agreed to extend the deadline to December 2017, said Dr
Chris Kiptoo, Principal Secretary in Kenyas State Department of Trade.
The other regional economic communities have not pronounced [their stand] on a
new deadline but it is clear that it will go beyond June 2017, added Mr Kiptoo.
Implementation of the deal is expected to start once 14 out of the 26 member
states ratify the agreement.
But according to Dr Kiptoo, none of the member states have ratified the agreement
and only 18 of the 26 have signed the agreement.
Insight: Tripartite Free Trade Area
The Tripartite Free Trade Area (TFTA) is a proposed African free trade
agreement between the Common Market for Eastern and Southern
Africa (COMESA), Southern African Development Community (SADC) and East
African Community (EAC).
On June 10, 2015 the deal was signed in Egypt by the countries shown below
(pending ratification by national parliaments).
On 15 June 2015 at the 25th African Union Summit in Johannesburg, South Africa,
negotiations were launched to create an African Continental Free Trade Area (CFTA)
by 2017 with, it was hoped, all 54 African Union states as members of the free trade
area.
***
The Council of Ministers had extended the negotiations period by one year to give
all countries time to sign the TFTA by April 2017 and move faster to ratify the
agreement to allow it to come into force.
The TFTA was officially launched by the Heads of State and Government of COMESA,
EAC and SADC in Egypt on June 10, 2015 and the Tripartite Summit gave the
member states 12 months from the launch to conclude outstanding matters on
rules of origin, trade remedies and tariff offers.
Under the agreement, the members of the three trading blocs agreed to ignore
sensitive products and subject them to duty and quota restrictions in order to
ensure fair competition.
Among the products earlier listed for protection until 2017 were sugar, maize,
cement, wheat, rice, textiles, milk and cream, beverages and secondhand clothes.
INTERNATIONAL NEWS

Economic growth may be barely there, but the Fed is still likely hiking
anyway
First quarter growth slipped to the weakest quarterly pace in three years, but
inflation and wages picked up, signaling the Fed will press ahead with interest rate
hikes.
Growth in gross domestic product was reported at a seasonally adjusted 0.7
percent, below the 1.2 percent in the Thomson Reuters consensus forecast. It was
also below the CNBC/Moody's Analytics Rapid Update tracking rate, updated
Thursday to just 0.8 percent, the same as first quarter last year.
But the rate of inflation, measured by the personal consumption expenditures price
index, rose at a rate of 2.4 percent, the biggest jump since 2011.
Peter Boockvar, chief market analyst with Lindsey Group, points out that the
employment cost index, another early indicator for inflation, also rose 0.8 percent
quarter over quarter, 0.2 point more than expected.
"This brings the [year-over-year] gain to 2.4 percent which is the best in two years.
Specifically, private sector wages and salaries were up by 2.6 percent [year over
year] which matches a two-year high. Bottom line, the ever elusive evidence of
rising wages might finally be peaking its head above water," Bookvar wrote in a
note to clients.
There were some troubling signs in the GDP report but economists are so far writing
them off as temporary and expect a bounce back in the second quarter. The report
does follow a string of weaker-than-expected reports, including CPI, jobs and retail
sales.
"The Q1 conundrum strikes again. It's not a good number. The swing factor tends to
be net exports, and inventories once again were mixed, but detracted from growth
overall. Consumer spending was a lot weaker," said Ward McCarthy, chief financial
economist at Jefferies.
The report shows the impact of a sharp cutback in purchases of autos and durable
goods. Consumer spending rose just 0.3 percent, the weakest since 2009, but it
follows several strong quarters.
"We've been here before on Q1. Looking at the detail of consumer spending, it's not
going to be repeated in Q2. It's primarily durables. ... You had fourth quarter
consumer durable spending up 11.4 percent. In Q1, it was down 2.5 percent,"
McCarthy said.
First quarter growth has a track record of being weak, and economists say the
government is working to straighten out the quirks that have plagued its
calculations for at least two decades. There were also some specific factors at play,
such as very warm weather in January and February but winter storms in March.
"The inflation numbers accelerated, but they still remain moderate. It supports the
contention that the Fed is attaining its objective on the inflation side," said
McCarthy. The Fed has targeted 2 percent inflation. McCarthy said the report
suggest the Fed should continue on its rate hiking path. It has forecast two more
rate hikes this year, though it is not expected to raise rates when it meets next
week.
The concern would be if growth remained sluggish, but the Fed were forced to move
ahead with rate hikes because of rising inflation. Economists, however, see an
improvement in the second quarter, with some forecasting growth at 3 percent or
higher.
Stocks opened higher Friday but slipped into slightly negative territory. Treasurys
were weaker, and yields, which move inversely to prices, were higher.
In a positive sign, business spending picked up on long-term projects. Nonresidential
fixed investment grew at 9.4 percent, the largest gain since 2013.
Chinas tightening measures to continue but risks remain if markets
pushed too hard
Chinas financial authorities expect to continue their supervisory tightening in a
gradual and phased manner, but the full impact on markets will depend how strictly
the new rules are interpreted and enforced, said analysts.
Strict enforcement of all the recent rules could lead to a sharp and disorderly
unwinding of the interbank positions and some shadow bank investments, leading
to serious liquidity concerns in the market, said Wang Tao, an economist at UBS.
Chinas financial authorities have tightened supervision and regulations in recent
weeks, with the China Banking Regulatory Commission (CBRC) leading the latest
wave of measures and announcements.
Banks liquidity and credit risk management, wealth-management products (WMPs)
and links with non-bank financial institutions (NBFIs) are key areas facing more
scrutiny, Wang said.
In the near term, if tightening by various authorities is not managed well it could
lead to a rise in credit events (such as defaults or bankruptcies), excessive liquidity
tightening, faster-than-intended slowdown in credit growth, and greater market
volatility, UBS warned.
U.S. Economy Grew 0.7% in First Quarter, Slowest in Three Years
The U.S. economy expanded at the slowest pace in three years as weak auto sales
and lower home-heating bills dragged down consumer spending, offsetting a pickup
in investment led by housing and oil drilling.
Gross domestic product, the value of all goods and services produced, rose at a 0.7
percent annualized rate after advancing 2.1 percent in the prior quarter, Commerce
Department data showed Friday in Washington. The median forecast of economists
surveyed by Bloomberg called for a 1 percent gain. Consumer spending, the biggest
part of the economy, rose 0.3 percent, the worst performance since 2009.
The GDP slowdown owes partly to transitory forces such as warm weather and
volatility in inventories, which supports forecasts for a rebound as high confidence
among companies and consumers and a solid job market underpin growth. Even so,
the weakness at car dealers could weigh on expansion, and further gains in
business investment could depend on the extent of policy support such as tax cuts.
Theres no cause for concern, said Ryan Sweet, an economist at Moodys Analytics
Inc. in West Chester, Pennsylvania, citing seasonal-adjustment issues in the data
and temporary factors that affected consumer spending. Business investment is
encouraging, while consumers had a little bit of a hangover, and theyll bounce
back in second quarter. The key will be wage gains -- we need strong wage-growth
support for spending going forward.
The data are unlikely to dissuade Federal Reserve policy makers from raising
interest rates in the coming months. Economists were largely expecting a weak
growth figure, calling it a blip and not a sign of stagnation.
Analysts have pointed to issues with the Commerce Departments seasonal
adjustment of growth data: Since 2000, expansion in the first quarter of each year
has averaged 1 percent, compared with 2.2 percent for the rest of each year,
according to Wells Fargo Securities.
Trumps Target
Though the first-quarter figure isnt a verdict on President Donald Trumps policies,
economists are generally skeptical that growth will reach his goal of 3 percent to 4
percent on a sustained basis. Analysts estimates indicate just 2.2 percent to 2.3
percent annual growth through 2019, a tad above the average pace during the
almost eight-year expansion.
During the first quarter, a chief driver of growth was private, fixed nonresidential
investment, which contributed 1.12 percentage point to expansion, led by a record
increase in mining exploration, shafts and wells, a category that includes oil
structures. Residential investment added 0.5 point to growth.
The change in inventories, one of the most volatile parts of the GDP calculation,
subtracted 0.93 percentage point from growth, following a 1.01 percent gain. Trade,
also volatile from quarter to quarter, contributed 0.07 point after a 1.82 point drag
in the previous period.
Economists forecasts for overall growth ranged from zero to 2.2 percent. The GDP
estimate is the first of three for the quarter, with the other releases scheduled for
May and June when more information becomes available.
The 0.3 percent growth in household consumption, which accounts for about 70
percent of the economy, followed a 3.5 percent jump from October to December.
The median forecast in the Bloomberg survey called for 0.9 percent, and purchases
added 0.23 percentage point to first-quarter growth.
While some of the slowdown may be temporary, inflation is eating into consumers
wallets. Real disposable personal income rose at a 1 percent pace in the period, the
weakest since the fourth quarter of 2013. Even though hiring has been humming
along and the jobless rate of 4.5 percent is the lowest in almost a decade, a
sustained pickup in wage growth would help boost consumers ability to spend.
Business Investment
Nonresidential fixed investment, or spending on equipment, structures and
intellectual property, increased at a 9.4 percent annualized pace, the fastest since
2013. It grew at a 0.9 percent rate in the previous quarter.
Among the details, equipment spending advanced 9.1 percent, a two-year high,
while investment in nonresidential structures, including office buildings and
factories, surged 22.1 percent after dropping 1.9 percent in the prior quarter.
Residential spending increased at a 13.7 percent annualized rate, the most since
the second quarter of 2015, compared with the prior quarters advance of 9.6
percent.
Trade added slightly to growth, as exports increased by more than imports during
the quarter.
Final sales to private domestic purchasers -- which strip out government agencies,
inventories and trade -- rose at a 2.2 percent pace after a 3.4 percent advance.
Government spending fared worse, decreasing 1.7 percent and taking away 0.3
percentage point from growth. State and local outlays fell at a 1.6 percent
annualized rate, while spending by federal agencies dropped at a 1.9 percent pace.
The report also showed price pressures were picking up. The GDP price index rose
2.3 percent in the first quarter. A measure of inflation tied to consumer spending
and excluding volatile food and energy costs was up 2 percent, the fastest in four
quarters.
Demand for cryptocurrencies soars in Japan
More than 10 Japanese companies are launching exchanges for bitcoin and other
virtual currencies, with an eye to tap growing demand after legal changes that make
such trades cheaper and easier in the country.
SBI Holdings has set up SBI Virtual Currencies, an exchange between the yen and
cryptocurrencies like bitcoin and that of the Ethereum platform. The GMO
Internet group is also establishing its own company, with plans to increase the
number of digital currencies it trades based on demand. Kabu.com Securities and
foreign exchange trader Money Partners Group plan to enter the field as well.
Starting July, Japan's consumption tax will no longer apply to purchases of virtual
currencies. Exchanges in Japan have also been required since April to obtain a
special license, which has requirements for finances and asset management
structures, from the Finance Ministry.
"We didn't even have minimum guidelines" back in 2014, when the bitcoin
exchange Mt. Gox collapsed, "so users will now feel more secure," an SBI Virtual
Currencies representative said.
Around 18 companies are currently planning to apply for a license, according to the
Japan Cryptocurrency Business Association. This includes the more than 10
companies newly entering the market, as well as existing exchanges like bitFlyer.
Japan's three megabanks, however, are not planning at this time to start trading
digital currencies.
Many new players are interested in turning such currencies into a new investment
option. The price of bitcoin has tripled in the past year, and some estimate the total
value of all virtual currencies at over 4 trillion yen ($35.8 billion). "There is demand
among our clients for cryptocurrencies, given their rising value," said a source at
one company.
But the currencies tend to have low liquidity and high volatility. Because a large
volume of bitcoin trading occurs in China, that country's monetary policies have a
significant impact on its value. Some foreign banks are also refusing dollar wires to
and from virtual currency exchanges.
Digital currencies still occupy a small space in Japan. But they could catch on as a
cheap way to settle payments and transfer funds in the future.

Charts show eurozone recovery is strengthening

In the eyes of Mario Draghi, fragile and uneven is a thing of the past.
Solid and broad is how the European Central Bank president now characterizes
the euro-area recovery, with a host of numbers ranging from manufacturing to
employment constituting evidence that things are going better.
Gross domestic product data for the first quarter are due to be published
Wednesday, and economists predict an increase of 0.5 percent from the previous
three months. Reports from France and Spain gave mixed messages last week, with
growth in the former slightly weaker than anticipated and the latter beating
forecasts. Germany and Italy will report later in May.
Unemployment is steadily declining from a peak of more than 12 percent in 2013,
with improvements also visible in crisis-hit countries such as Spain. The regions
jobless rate remained at 9.5 percent in March, according to a Eurostat report
published Tuesday. Economists had predicted a drop to 9.4 percent. Draghi said last
week that virtually all the job losses during the crisis had been offset by hiring in
the past 3 1/2 years.

Better chances of finding a job make consumers more willing to spend. Euro-area
economic confidence hit its highest in a decade in April, and an index of consumer
sentiment is within striking distance of its strongest reading since before the
financial crisis. While shoppers in Germany, France and Spain are increasingly
upbeat, Italians feel that the benefits from brighter economic prospects have been
scarce.
Consumption-driven demand is good news for companies too. Momentum in euro-
area manufacturing and services accelerated to its fastest pace in six years in April
as firms increased operating capacity to meet buoyant demand, according to
preliminary survey results from IHS Markit.

To be sure, not all is perfect. Before a report on Friday showed core inflation at the
strongest in almost four years, the ECB cautioned that price growth still lacks a
convincing upward trend. At the same time, some economists have argued that the
recent spate of positive numbers overstates the strength of the recovery.
French politics remain a risk even after the outcome of the first round of presidential
elections reduced the chance that a euro skeptic would succeed Francois Hollande.
Britains departure from the European Union, protectionist policies in the U.S. and
negative surprises from emerging markets could also still cause economic pain.
In Draghis words: The risks surrounding the euro-area growth outlook, while
moving towards a more balanced configuration, are still tilted to the downside and
relate predominantly to global factors.

Euro area unemployment below 10 percent

The 19-member eurozone has again recorded a monthly unemployment rate of
under 10 percent, hitting a low not experienced since April 2009. But the differences
among member states are enormous, Eurostat notes.
The seasonally-adjusted jobless rate for the eurozone stood at 9.5 percent in
March, the European Union's statistics office reported Tuesday. The rate was stable
compared to February 2017, but down from 10.2 percent in the same month a year
earlier.
Eurostat estimated that 15.5 million men and women were unemployed in the euro
area in March, with 19.7 million in the larger 28-member European Union without a
job.
Compared with a year ago, the jobless rate fell in 23 EU member states, with the
largest decreases registered in Croatia, Portugal, Spain and Ireland.
Young people hit hardest
The lowest rate was logged in the Czech Republic (3.2 percent), followed by
Germany (3.9 percent) and Malta (4.1 percent).
Eurostat pointed out that youth unemployment remained a major headache in many
nations.
In March 2017, 3.883 million young people (under 25) were unemployed in the EU;
2.727 million in the eurozone. The highest rate in this age group was recorded in
Greece (48 percent), while Germany registered the lowest rate (6.7 percent).

Five countries sit on 90 percent of cash injected by ECB: study

Roughly 90 percent of the extra cash injected by the European Central Bank to
boost the euro zone's economy is piling up in five of the bloc's wealthiest countries,
an ECB study showed on Tuesday.
The paper cites "risk aversion" as one reason why the money is not flowing from
Germany, France, the Netherlands, Luxembourg and Finland to the rest of the bloc,
where some banks still rely on the ECB for cash.
This means banks in cash-rich countries are still reluctant to lend across borders
nearly 10 years after the financial crisis broke out and despite ECB efforts to keep
the euro zone together and growing.
"It seems that, following the financial crisis, a general increase in risk aversion and
more conservative internal risk limits among banks may still be limiting factors for
cross-border liquidity flows and the broad-based interbank redistribution of liquidity
within the euro area," the 14 authors of the paper wrote.
The ECB has created some 1.5 trillion euros worth of excess liquidity -- cash that
lenders deposit with the central banks minus mandatory reserves -- since 2015 via
aggressive bond purchases and cheap long-term loans to banks.
For a graphic on excess liquidity, click on reut.rs/1T68P94
But the fact that the money keeps accumulating in the bloc's richest countries
rather than flowing where it is needed the most risks undoing some of the ECB's
efforts and shows the European Union's objective to create a banking union is still
far from reached.
The study shows that 60 percent of the money spent by the ECB and national
central banks on buying bonds ends up in Germany, where sellers, mainly UK banks,
have their accounts. France accounts for a further 20 percent.
The authors note that this does not fully explain why the excess liquidity is then
accumulating in just five countries.
They find this is due to external factors, including healthier banks attracting more
depositors and new rules making bank-to-bank lending less attractive.
"Feedback from banks and further analysis suggest that regulatory requirements
and banks' business models strongly influence the level of excess liquidity held at
the individual bank level," the authors wrote.

Eurozone economy growing faster than UK, US

The euro zone economy started the year with robust growth that outstripped that of
the United States and set the stage for a strong 2017, preliminary estimates
showed on Wednesday.
The improving economy may weaken the euroskeptic parties that have gained
ground in several European Union states over the past years, many of which have
denounced the poor state of their economies and called for ditching the euro and
returning to national currencies.
The gross domestic product of the 19-country euro zone bloc grew by 0.5 percent
on the quarter in the first quarter, which translates to annualized growth of 1.8
percent in all of 2017, the European statistics agency Eurostat said.
The preliminary euro zone figure is much higher than the 0.7 percent annualized
growth recorded in the United States in the same quarter, the weakest performance
since the first quarter of 2014, according to U.S. estimates.
The weaker performance of the U.S. economy was a blow for the administration of
Donald Trump, who has promised strong growth with a protectionist agenda.
The contrasting data from the U.S. and the euro zone may weaken the French
presidential candidate Marine Le Pen, who is calling for tariff barriers to protect the
French economy. She faces free-trade supporter Emmanuel Macron in a May 7
runoff, which polls show Macron is likely to win.
In a further sign of a healthier recovery of the euro zone, Eurostat raised to 0.5
percent from 0.4 percent its figures on growth in the fourth quarter of 2016. The
year-on-year estimate for the last quarter was also revised up, to 1.8 percent from
the previous 1.7 percent.
Political risks, however, still represent a possible drag on euro zone growth.
"The economy is proving to be resilient to uncertainty both abroad and at home. Bar
a surprise at the French elections on Sunday, euro zone growth is set for a strong
2017," warned Bert Colijn, senior economist at ING.
Euroskeptic parties are also on the rise in Italy, the euro zone's third-largest
economy, which may hold general elections in the coming months. No date is set,
but they would come no later than next May.
Eurostat did not break down the components of the GDP growth, but economists
expected it was led mostly by domestic consumption and business investment.
Weaker domestic demand might reduce the pace of the expansion in the coming
quarters as consumer prices rise.
"There remains the possibility that growth could be hampered by consumers being
more reluctant to spend as their purchasing power is squeezed by overall higher
inflation and limited wage growth in most countries," Howard Archer, chief European
economist at IHS Markit said.
First estimates released in April show inflation in the 19-country currency bloc was
1.9 percent year-on-year in April, up from 1.5 percent in March and just short of the
four-year high of 2.0 percent recorded in February.
But euro zone inflation figures continue to fluctuate. Data on industrial producer
prices, also released by Eurostat on Wednesday, showed a marked slowdown in
March.
Producer prices fell 0.3 percent in March and year-on-year growth slowed to 3.9
percent from February's 4.5 percent, which was the highest in more than five years.
"It seems that the slowdown in producer price inflation largely reflected energy
effects, which should continue to bear down on producer and consumer price
inflation over the rest of the year," said Jack Allen, European economist at Capital
Economics, noting that the ambivalent figures are likely to leave the European
Central Bank's stimulus program unchanged this year.