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ISSN 1474-5615
Vol 5 Issue 7 July 2011

East & Central Africa

Business Monitor International’s monthly regional report on political risk and macroeconomic prospects

Kenya
XXXXXXX THIS
THIS MONTH’S
MONTH’S TOP
TOP STORIES
STORIES

Inflation: A Clear And DRC: Possible UN Withdrawal May

Heighten Risk

Present Danger
BMI View: The prospect of the withdrawal of about 20,000 UN
peacekeeping troops from the Democratic Republic of Congo
signals an encouraging development in the conflict-torn country,
BMI View: We believe the 25-basis-point interest rate hike enacted in late but it also represents an increased risk of a return to violence.
March will be grossly inadequate to tame surging inflation. We therefore We anticipate a drawdown in the coming months in anticipation
expect at least 100 basis points of further hikes as well as more concerted for the upcoming elections.
page 5
action to defend the shilling against bouts of weakness.
The Central Bank of Kenya (CBK)’s in order to tame price growth and man- Tanzania: Economy To Navigate Rising
monetary policy committee (MPC) age inflation expectations. With this in Headwinds
unexpectedly raised the Central Bank mind, we now see a further 100bps of BMI View: While the outlook for the Tanzanian economy contin-
Rate (CBR) by 25 basis points (bps) to hikes at the very least over the course ues to look bright for the most part, uncertainty has risen slightly
6.00% on March 22. The decision sig- of 2011. The CBK is also likely to in recent months. Exports have been buoyed by elevated gold
nals an abrupt about-turn in monetary be less lax about shilling weakness prices and high demand for manufactured goods, while the latest
policy as it follows close on the heels of and we believe the authorities will data from the Bank of Tanzania indicate that domestic demand is
a 25bps cut as recently as late January. intervene more actively in the foreign also robust. However, rising inflation and a weakening currency
The action is a clear indication that the exchange market in a bid to curtail have raised questions about whether the economic momentum
central bank has shifted its focus away currency weakness, thereby containing can and will be maintained over the short-to-medium term.
from stimulating growth and towards the imported component of inflation. page 7
fighting spiralling inflation. The sudden
change in policy is a worrying signal Usual Suspects Driving Prices Sudan: Peace Process On Edge
that the CBK was slightly behind the The onset of monetary tightening page 6
curve when it enacted the cut in January was inevitable when viewed in the
and we believe it will have to act ag- context of March’s inflation reading
OIL
OIL MARKET
MARKET OUTLOOK
OUTLOOK
gressively over the remainder of 2011 ...continued on page 2

XXXXXX
Uganda

Investment Looking
Good, For Now
BMI View: Uganda is expected to experience strong headline real GDP
growth over the coming years, especially after oil begins flowing in 2012. Source: BMI
Over the medium term, we believe political turmoil will keep the country
Front-month Brent crude traded in choppy fashion in May and
below its full potential – particularly with regard to investment and tourism
we still expect a moderation in prices in H211. However, any
– while inflation will constrain consumption.
sell-off would not mirror 2008. The underlying strength of the
BMI expects Uganda’s real GDP tion, slated to begin in 2012. Over the global economy would still be sufficient to provide long-term
growth to increase to an annual aver- near term, Uganda’s growth will be support in the US$90.00-100.00/bbl area. Moreover, the ration-
age of 8.6% over the next five years, constrained by rising inflation, which ing of power supply in China could be a supportive dynamics in
from an average of 7.5% over the past has put pressure on consumers, and the coming months, as it could drive a surge in diesel imports.
decade. Much of this growth will be ongoing political unrest. As a result, we note upside risks to our forecast for an average
underpinned by the onset of oil produc- ...continued on page 4 of US$94.00/bbl in 2011 and US$99.00/bbl in 2012.

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  KENYA
RISK SUMMARY
POLITICAL RISK
Increasing Health Facilities
Leads To Nurse Shortage
Kenya is facing a shortage of nurses and is
considering hiring laboratory technicians
and pharmacists, according to Public Health
Minister Beth Mugo. She added that the
health ministry has urged the Public Serv-
ice Commission to change the available
positions for nurses to other professionals
in the healthcare sector. The shortage of
nurses has been attributed to an increase in
the number of health facilities constructed
through the country’s Constituency Devel-
opment Fund.
Our short-term political risk rating is 65.4.
ECONOMIC RISK
Remittances From Abroad
On The Up
The Central Bank of Kenya stated on May
16 that remittances sent by Kenyans liv-
ing abroad increased by 37% y-o-y to
US$71.6mn in March, owing to an improve-
ment in economies in Europe and the US.
This was an increase from the US$60.8mn
transferred in February. Remittances from
North America accounted for approximately
53% of the total in March, while Kenyans
in Europe contributed 27%. Furthermore,
remittances rose to US$196.5mn in Q111,
compared with US$143.8mn in Q110.
Money sent home from Kenyans working
abroad is the country’s fourth largest foreign
exchange earner.
Our short-term economic risk rating is 46.5.
BUSINESS ENVIRONMENT
Mombasa Refinery Cut Loose
In The Summer
Kenya has announced that the troubled
Mombasa refinery will stop refining crude on
behalf of fuels retailers as of July 2011. The
move will allow retailers to source fuel from
international markets, improving the supply
of refined products. By opening up the plant
to competition, the Kenyan government has
implicitly admitted that it is willing to allow
the plant to fail, despite holding a stake in
the refinery’s operator, Kenya Petroleum
Refineries Ltd. The Mombasa refinery has
a capacity of about 80,000 barrels per day.
Our business environment rating is 39.2.
2 2 EAST & Central AFRICA – JULY 2011
...continued from top of front page
released eight days after the decision to hike
the CBR was made. Indeed, headline price
growth spiked to 9.2% year-on-year (y-o-y)
compared with 6.5% in February. In month-
on-month terms, the consumer price basket
rose 2.3% from February to March, up from
1.3% a month prior. The major drivers of
the increase in inflation were predictably
transport which, up by 15.9% y-o-y, was
pushed higher by higher global oil prices.
Food prices also rose sharply in March, up
15.1% y-o-y, as poor rains in parts of the
country have negatively impacted domestic
food production. While monetary tightening
will have little impact on these supply-side
drivers of inflation, in the monetary policy
statement released subsequent to the hike,
the MPC was anxious that ‘temporary
shocks…should not be allowed to persist and
be factored into pricing structures’. With
political crises ongoing in the Middle East
and North Africa and meteorologists pre-
dicting below-average long rains in parts
of the country, high food and oil prices are
likely to persist. The MPC will therefore be
forced to continue hiking in a bid to anchor
inflationary expectations.
Policy Reversal, Lending Rates Unmoved
Kenya – Benchmark Lending Rate, Headline Inflation &
Commercial Bank Lending Rate
Source: Central Bank of Kenya, National Bureau Of Statistics
The longevity of the CBK’s dovishness
in the face of rising inflation was driven to
a large extent by the authorities’ desire to
lower borrowing rates. The CBK has consist-
ently stated that commercial bank lending
rates were too high and that this was putting
bank finance out of the reach for the majority
of consumers and businesses. As the chart
above shows, lending rates have been largely
unresponsive to CBR cuts. It seems the CBK
was left with little choice but to accept defeat
on this front and turn its attention squarely
on price growth.
Market Implications
As we have argued previously, the direction
of monetary policy and inflation is line with
our expectations for yields on local debt to
rise over the course of 2011.
Debt Yields Up, Currency Down
Kenya – Yields On 10-Year Government Bond, % (Top) &
Exchange Rate, KES/US$ (Bottom)
Source: BMI
As for the Kenyan shilling, a recent
spate of weakness certainly contributed to
the sharp rise in inflation. The central bank
admitted as much in its communiqué and it
‘felt there was a need to stabilise expecta-
tions in the foreign exchange market’. With
this in mind, we expect the authorities to
more actively defend the currency against
further weakness through direct intervention
if needs be. This, in combination with gener-
ally tightening monetary conditions, should
provide support to the shilling, which we see
heading towards resistance in the KES82.00/
US$ region in the first instance.
The outlook for the equity market is less
positive. We have been warning of the risks
posed by rising inflation for some time. We
believe that inflation has now reached the
point where price growth poses real risks to
companies’ earnings as input costs rise and
consumers’ purchasing power falls. Further-
more, the aggressive monetary policy that
will be needed to try to rein in inflation will
raise the cost of finance for companies that
rely on bank financing. Foreign investors
are also likely to be increasingly concerned
about Kenya’s macroeconomic stability.
While certain companies with little debt
and the ability to pass rising input costs to
customers might fare better, we believe the
broad direction of the Nairobi Stock Ex-
change-20 Index will continue to be down.
www.meamonitor.com
economic outlook

Shilling: A Mixed Picture February) has forced the Central Bank of

Kenya (CBK) into an abrupt about-turn in
its monetary policy. Indeed, the monetary
BMI View: The longer-term outlook for the Kenyan shilling is clouded and we ac-
authorities raised rates by 25 basis points
cordingly hold a cautious view, forecasting the shilling to average KES83.00/US$ in
(bps) in March, undoing an interest rate cut
2011. Kenya’s terms of trade have deteriorated over the first few months of 2011; it
of the same amount enacted in January, in
seems improbable that these will improve markedly in the coming months and this
a sign that attention has shifted squarely
will continue to exert depreciatory pressure on the currency. On the other hand, the
onto price growth. We are forecasting that
Central Bank of Kenya has shifted into monetary tightening mode and has stated that
the CBK will raise rates by at least another
management of exchange rate expectations will be an important component of this.
100bps over the remainder of 2011.
Several factors have been contributing to the high levels of demand. Poor, short rains The CBK stated in the monetary policy
deterioration of the terms of trade. The price in the late months of 2010 have hampered statement that accompanied the latest rate
of oil, which makes up 20-25% of Kenya’s hydroelectric production and increased the hike that it would attempt to anchor ex-
import basket, has spiked sharply higher demand for fuel to power generators. Mete- change expectations, and we believe this
in the early months of 2011. This has been orologists are predicting below-average long will mean more proactive intervention in
driven, in part, by supply concerns stemming rains in parts of the country and we therefore the market. There are some concerns that
from unrest in the Middle East and North believe demand for oil will remain elevated. the monetary authorities’ capability to inter-
Africa (MENA). However, BMI believes At the same time, inclement weather has and vene in the market is limited by a low level
that price rises (especially more recently) will continue to affect Kenyan agricultural of foreign exchange reserves. These stood
have also been driven by improved data production and exports. The Tea Board of at US$3.9bn at the beginning of April and
from the US and a reduction in risk premia Kenya has stated that tea output could fall by were sufficient to cover about 3.9 months
associated with the disaster in Japan and as much as 10% to 360mn kg in 2011, bod- of imports, below the CBK’s mandate to
what these will mean for oil demand. This ing negatively for foreign currency inflows maintain reserves at above four months
implies that oil prices could very well stay given that tea was Kenya’s biggest export of import cover. However, a US$500mn
above US$100/bbl even if there is resolution earner in 2010. external credit facility agreed with the IMF
to the unrest in MENA. The news is not all bad for the shilling, should take some of the pressure off reserve
The effect of high oil prices on Kenya’s however. Surging inflation (which increased levels and allow the authorities to focus their
terms of trade are exacerbated by current to 9.2% y-o-y in March from 6.5% in attention on the exchange rate.

DATA & FORECASTS

BMI View: Although we are optimistic
about Kenyan economic prospects over the
coming years, we are aware that significant
risks exist. The most obvious macroeco-
nomic concern centres around inflation.
Headline price growth spiked sharply in April
to 12.1% y-o-y, up from 5.4% in January. Al-
though we have long espoused the view that
inflation would rise over the course of 2011,
the April reading suggests prices are heading
higher more quickly than we had anticipated.
With this in mind, we have downwardly
revised our 2011 real GDP growth forecast
to 5.2% from 6.0% previously. Our 2012
growth forecast remains at 6.3%.

2008 2009 2010e 2011f 2012f

Population, mn [4] 38.8 39.8 40.9 42.0 43.1
Nominal GDP, US$bn [5] 30.1 29.5 37.8 42.1 49.8
GDP per capita, US$ [5] 778 740 924 1,002 1,155
Real GDP growth, % change y-o-y [6] 1.6 2.5 5.2 5.2 6.3
Budget balance, KESbn [6] -77.2 -110.6 -172.7 -170.3 -161.1
Budget balance, % of GDP [5] -3.7 -4.9 -5.8 -5.2 -4.3
Consumer prices, % y-o-y, eop [1,7] 27.7 5.3 4.5 6.2 6.5
Lending rate, %, eop [6] 15.0 11.8 10.1 11.0 11.8
Real lending rate, %, eop [2,8] -12.7 6.5 5.6 4.8 5.3
Exchange rate KES/US$, eop [9] 63.70 75.70 80.00 76.92 73.96
Exchange rate KES/EUR, eop [9] 89.18 96.14 107.02 110.00 99.11
Goods exports, US$bn [5] 5.0 4.5 5.1 5.6 6.2
Goods imports, US$bn [5] 10.6 9.5 11.0 12.3 13.4
Balance of trade in goods, US$bn [5] -5.6 -5.0 -6.0 -6.8 -7.2
Current account, US$bn [5] -2.0 -1.6 -2.2 -2.7 -2.8
Current account, % of GDP [5] -6.5 -5.5 -5.8 -6.5 -5.7
Foreign reserves ex gold, US$bn [10] 2.9 3.9 4.6 5.5 6.3
Import cover, months g&s [3,11] 2.8 4.1 4.3 4.6 4.8
Total external debt stock, US$mn [12] 7,440.7 8,035.9 8,678.8 9,373.1 10,123.0
Total external debt stock, % of GDP [13] 24.7 27.3 23.0 22.3 20.3
Total external debt stock % of XGS [13] 90.4 108.2 104.3 102.4 99.5
Short-term debt as a % of international reserves [13] 23.4 13.4 15.0 14.6 14.6
Short-term foreign debt, % of total [13] 9.0 6.4 8.0 8.5 9.0
Notes: e/f = BMI estimates/forecasts. 1 Basket reweighted In 2009; 2 Real rate strips out the effects of inflation; 3 Cover for goods and services; Sources: 4 World Bank/BMI calculation/BMI;
5 Central Bank of Kenya/BMI calculation; 6 Central Bank of Kenya; 7 Kenya National Bureau of Statistics; 8 Central Bank of Kenya/BMI; 9 BMI; 10 IMF IFS; 11 IMF IFS and Central Bank of
Kenya/BMI calculation; 12 World Bank GDF; 13 World Bank GDF/BMI calculation.

www.meamonitor.com JULY 2011 – EAST & Central AFRICA 3

  UGANDA
RISK SUMMARY
POLITICAL RISK
Museveni Chooses VP, PM
Ugandan President Yoweri Museveni has se-
lected former parliament speaker, Edward
Ssekandi, as his vice president, calling him
a ‘clean trustworthy and consistent person’.
Museveni also appointed the outgoing
security minister, Amama Mbabazi, as the
prime minister. Mbabazi, according to the
president, is the ruling National Resistance
Movement party’s ‘most ideologically reli-
able cadre’ with ‘vast legal knowledge’. The
two appointees will need to be vetted by
the House Appointments Committee prior
to serving in their new capacities. Museveni
has said he will wait for the formation of
the committee before making more ap-
pointments.
Our short-term political risk rating is 60.4.
ECONOMIC RISK
Coffee Exports Rebound
After a period of lacklustre exports, April
figures for coffee export volumes and rev-
enue have shown significant improvement,
according to Uganda’s Coffee Development
Authority (UCDA). Over 176,560 60kg bags
were exported over the month, compared
to 152,640 bags a year ago. Revenues nearly
doubled, owing to the increased volumes
and high coffee prices in the global market.
Export revenues reached US$26.9mn in
April, compared with US$15.6mn in April
of last year. The UCDA said that high prices
were given to coffee farmers on account of
the crop’s good quality.
Our short-term economic risk rating is 49.2.
...continued from bottom of front page investment, saying ‘the current trend of riots
and demonstrations does not augur well with
According to data from the Uganda our efforts’. We expect investment to be
Investment Authority (UIA), planned in- strong owing to the overriding importance
vestments into Uganda should be strong for of investments for the oil industry, but ad-
2011. Planned investments in Q111 were dressing the unrest quickly and tactfully will
US$604mn, a nearly threefold increase be crucial to set investors’ minds at ease
from Q110, when planned investments moving forward.
totalled US$210mn. April non-oil invest- Furthermore, the rising cost of living will
ment totalled US$104mn, up from March’s have a direct impact on consumers. With
US$74mn. inflation soaring well into double-digit ter-
While investments have been strong so ritory – headline consumer price inflation
far, BMI is closely watching the political reached 14.1% y-o-y in April, compared
scene and its effect on investor sentiment. with 5.0% at the beginning of the year – and
Since the beginning of April, leaders from food prices climbing nearly 40% y-o-y, the
the main opposition parties, along with a purchasing power of most Ugandans has
civil society called Action for Change, have been markedly reduced. Consumption is
staged protests over the rising cost of food expected to decline until either prices come
and fuel. The demonstrations have in several down or wages increase to keep pace.
instances deteriorated into riots and violence, If unrest persists without a resolution
and international observers, including the in sight, our estimates for investments and
rights group Human Rights Watch, have longer-term productivity will likely have
blamed the heavy-handed response by Presi- to be adjusted. If donor countries become
dent Yoweri Museveni’s security forces for disillusioned with Museveni’s government
the escalation. as a result of its handling of the demonstra-
Planned investments will undoubtedly be tions, aid receipts could decline and further
constrained as a result of the unrest, and the constrain growth. Conversely, a quick
reputation of Uganda as a politically stable resolution to the political unrest and better-
country may be tarnished. Indeed, the UIA than-expected weather could cause us to
has stressed that peace is vital to continued revise our forecasts upwards.
DATA & FORECASTS
BMI View: While the current account is expected to remain in deficit for 2011 and 2012, oil
production should see the shortfall decline when output begins next year. We are forecasting a
current account deficit of 10.6% of GDP in 2011 and 8.7% of GDP in 2012.
2008 2009 2010e 2011f 2012f
Population, mn [3] 31.7 32.7 33.8 34.9 36.1
Nominal GDP, US$bn [4] 16.5 16.9 16.6 17.7 22.1
GDP per capita, US$ [5] 573 570 543 558 674
Real GDP growth, % change y-o-y [4] 10.4 5.2 6.9 6.8 9.3
UGX nominal growth, % change y-o-y [5] 20.7 21.3 5.7 14.4 18.4

Budget balance, UGXbn [1,6] -280.0 -1,857.6 -2,378.7 -2,339.0 -2,464.6

BUSINESS ENVIRONMENT Budget balance, % of GDP [1,5] -1.0 -5.4 -6.6 -5.7 -5.0
Consumer prices, % y-o-y, ave [5] 12.0 13.0 4.1 12.4 10.8
Power To Increase ‘30%’ Consumer prices, % y-o-y, eop [7] 14.3 10.9 3.1 13.4 8.2
Lending rate, %, eop [4] 19.0 20.0 19.7 23.8 21.8
Benon Mutambi, acting CEO of state-run Real lending rate, %, eop [2,8] 4.7 9.1 16.6 10.4 13.6
Uganda Electricity Regulatory Authority, Exchange rate UGX/US$, ave [5] 1,712.79 2,022.57 2,173.16 2,340.89 2,217.87
Exchange rate UGX/US$, eop [5] 1,935.00 1,895.00 2,337.00 2,285.74 2,150.00
has said that owing to a ‘quantum leap’ in Exchange rate UGX/EUR, eop [5] 2,709.00 2,406.65 3,126.21 3,217.50 2,814.00
the levels of investments from the private Goods exports, US$bn [4] 2.2 2.3 2.3 2.4 2.9
sector, Uganda’s power generating capacity Goods imports, US$bn [4] 4.0 3.8 4.0 4.5 5.0
Balance of trade in goods, US$bn [1,4] -1.8 -1.5 -1.7 -2.0 -2.1
will increase to 747MW by the end of 2011, Current account, US$bn [4] -1.3 -1.0 -1.5 -1.9 -1.9
compared with 576MW at the end of 2010. Current account, % of GDP [5] -7.7 -6.0 -9.0 -10.6 -8.7
Mutambi said that the investments have been Foreign reserves ex gold, US$bn [4] 2.3 3.0 3.0 3.3 3.6
Import cover, months g&s [4] 5.2 6.9 6.2 6.0 6.0
driven by liberal economic policies and the
potential for profits. The 250MW Bujagali Total external debt stock, US$mn [9] 1,818.7 2,309.6 2,743.7 3,154.4 3,454.0
Total external debt stock, % of GDP [5] 11.1 13.7 16.5 17.9 15.7
hydropower dam, one of the largest energy Total external debt stock % of XGS [5] 60.5 70.1 79.3 83.3 76.9
projects in the region, starts operating in Short-term debt as a % of international reserves [5] 6.1 4.3 4.4 4.6 4.1
April next year. Short-term foreign debt, % of total [5] 7.7 5.6 4.7 4.8 4.3
Our business environment rating is 37.0. Notes: e/f = BMI estimates/forecasts. 1 Fiscal year, July-June; 2 Real rate strips out the effects of inflation; Sources: 3 World
Bank/BMI calculation/BMI; 4 BOU, BMI; 5 BMI; 6 Ministry of Finance, BoU, BMI; 7 UBOS, BMI; 8 IMF/BMI; 9 World Bank, BMI.

4 4 EAST & Central AFRICA – JULY 2011 www.meamonitor.com

 dr congo 
Political outlook
RISK SUMMARY
Possible UN Withdrawal POLITICAL RISK

May Heighten Risk

Commission Announces
Election Schedule
The Electoral Commission in the Demo-
BMI View: The prospect of the withdrawal of about 20,000 UN peacekeeping troops cratic Republic of Congo has announced
from the Democratic Republic of Congo signals an encouraging development in the that the presidential and legislative elections
conflict-torn country, but it also represents an increased risk of a return to violence. We are scheduled to be held on November 28,
anticipate a drawdown in the coming months in anticipation for the upcoming elections. after opposition parties pushed for polls to
be held before the expiry of President Joseph
BMI is cautiously optimistic that the Demo- While a withdrawal will be an important
Kabila’s term in December. The elections are
cratic Republic of Congo (DRC) will soon step for the country, BMI notes that there is
seen as an important step towards achieving
be ready to move on from its troubled past, some risk of a return to violence. UN Secretary
stability after an end to civil conflict in 2003.
including being capable to provide for its General Ban Ki-Moon has warned that armed
The UN has agreed to provide logistical as-
own security. International Cooperation groups, both foreign and Congolese, still oper-
sistance for the elections, according to Roger
Minister Raymond Tshibanda has told the ate in the region and ‘pose significant threats’.
Meece, head of the peacekeeping mission in
UN Security council that his country’s He also said that with 1.7mn displaced, the
the Democratic Republic of Congo.
government wants to see an ‘orderly, pro- humanitarian situation ‘remains serious’.
Our short-term political risk rating is 27.5.
gressive withdrawal, without delays’ of Despite these considerations, we believe
roughly 20,000 UN peacekeeping troops the ruling government will want to show that
that are stationed there. The minister said it is making headway on the security situation ECONOMIC RISK
the mission in the DRC should shift to con- to bolster its international reputation as well
Inflation Target ‘Difficult’
solidating peace and reinforcing democracy, as its support domestically, with general elec-
The Democratic Republic of Congo’s gov-
rather than maintaining security. Tshibanda tions scheduled for the end of 2011. There-
ernment will struggle to achieve its 13%
said that DRC President Joseph Kabila does fore, we expect troop levels will at least begin
annual inflation target for 2011, according
not want to do anything that jeopardises the to be drawn down in the coming months. We
to central bank director general for mon-
improved security conditions in the country, will be watching the security situation closely
etary policy and banking operations, Jean
but it is time for the Security Council to to see if militias are poised to take advantage
Louis Kaymebe. This is the result of soaring
revisit its commitment to the country and of the drawdown or if, as DRC officials have
food and fuel prices. In April, the inflation
‘ensure that the mandate is adapted to meet said, there remain only ‘last pockets of resist-
rate was at 13.8%, a significant rise from
the new needs present on the ground’. ance’ incapable of serious damage.
2010 levels, when price growth dipped
DATA & FORECASTS below 10.0%. The IMF and Congolese
authorities have stated that inflationary
BMI View: With immense natural resources, a growing population and a relatively low base, pressures are likely to restrain real GDP
we continue to expect strong growth in the DRC. We forecast real GDP expansion of 7.0% in growth this year.
2011, picking up slightly to 7.3% in 2012. Our short-term economic risk rating is 29.8.

2008 2009 2010e 2011f 2012f

Population, mn [1] 64.3 66.0 67.8 69.7 71.6
BUSINESS ENVIRONMENT
Nominal GDP, US$bn [2] 12.8 12.7 12.5 15.0 18.4
GDP per capita, US$ [2] 199 192 184 215 257
Traceability Standards To
Real GDP growth, % change y-o-y [2] 6.3 2.7 5.8 7.0 7.3 Affect Mining
CDF nominal growth, % change y-o-y [2] 30.6 35.3 15.6 19.0 19.3
In an effort to improve the transparency
Budget balance, CDFbn [3] -151.9 -137.9 -736.7 -1,667.4 -1,950.9 of the mining sector and reduce the sale of
Budget balance, % of GDP [3] -2.2 -1.4 -6.7 -12.8 -12.5 smuggled minerals used to fund militias in
Consumer prices, % y-o-y, ave [4] 17.2 42.9 24.6 10.9 12.0
Consumer prices, % y-o-y, eop [4] 25.8 53.4 9.8 12.0 12.0 the Democratic Republic of Congo, new
Exchange rate CDF/US$, eop [5] 550.00 875.00 885.00 858.45 836.99 traceability rules were instituted in April.
Exchange rate CDF/EUR, eop [5] 770.00 1,111.25 1,183.86 1,227.58 1,121.56
Goods exports, US$bn [6] 6.6 5.6 6.8 7.9 9.6
The regulations, pushed by US policymak-
Goods exports, % change y-o-y [6] 7.2 -15.0 21.0 17.2 20.9 ers and backed by high-tech firms like Apple
Goods imports, US$bn [6] 6.7 5.4 6.3 7.3 8.7 and Hewlett-Packard, require exporters
Goods imports, % change y-o-y [6] 27.7 -19.0 16.0 15.6 19.0
Balance of trade in goods, US$bn [6] 0.1 -0.2 -0.5 -0.6 -0.9 to prove the origin of their minerals to
Current account, US$bn [6] -1.8 -0.8 -1.0 -0.3 0.6 avoid the trade of ‘conflict minerals’. The
Current account, % of GDP [6] -14.4 -6.6 -7.8 -2.1 3.4
difficulty that operators have had to meet
Foreign reserves ex gold, US$bn [7] 0.1 0.8 1.0 1.1 1.1 the standards has meant that exports have
Import cover, months g&s [7] 0.1 1.4 1.6 1.5 1.3 dropped sharply following the introduction
Total external debt stock, % of GDP [8] 102.9 36.7 42.8 41.0 38.4
Total external debt stock % of XGS [8] 185.0 77.4 74.2 73.4 70.4 of the regulation.
Our business environment rating is 17.8.
Notes: e/f = BMI estimates/forecasts. Sources: 1 World Bank/BMI calculation/BMI; 2 AfDB/IMF/BMI; 3 BCC/IMF/BMI;
4 Banque Centrale du Congo/BMI; 5 BMI; 6 IMF/BMI; 7 BCC/BMI; 8 IMF, BMI.

www.meamonitor.com JULY 2011 – EAST & Central AFRICA 5

  SUDAN
economic outlook
RISK SUMMARY
POLITICAL RISK Peace Process On Edge
No Return To War, Southern BMI View: We have cautioned that the unsettled status of the Abyei region poses a
President Promises serious risk to the Sudanese peace process and Southern Sudan’s hopes of attracting
Southern Sudanese President Salva Kiir said Western investment into its crucial oil sector. With the north invading Abyei town,
in late May that a northern Sudanese incur- we see a real risk that the issue could derail the peace process and in turn alienate
sion into the disputed Abeyi region would potential investors.
not lead to a return to conflict, nor would
The fragile peace process that is scheduled to Abyei, as the borders delineated as part of
it derail the south’s move to independence.
see Southern Sudan declare its independence the Permanent Court of Arbitration in 2009
Kiir called on northern forces to withdraw
in July appeared on the brink of collapse put the crucial Bamboo and Heglig oil fields
from the region, which was supposed to vote
on May 23 after the Khartoum government outside Abyei’s boundaries. Nevertheless,
in a referendum on whether it would join an
invaded and took control of the disputed the conflict surrounding the region has huge
independent Southern Sudan or remain part
town of Abyei. The invasion was followed ramifications for the future of Sudan’s peace
of the north. The referendum was delayed as
by a move from President Omar al-Bashir process and thus the future of the country’s
neither side could agree on who was eligible
to dissolve the joint governing council that crucial oil sector.
to vote in the referendum.
had run the region, claiming that Abyei was BMI has highlighted three main disa-
Our short-term political risk rating is 36.3.
now part of the north. The north’s military greements that pose the greatest risk to
actions have been condemned by Western a peaceful divorce of north and south in
ECONOMIC RISK governments and the UN, which called on Sudan: an agreement on the Abyei question,
the north to withdraw immediately. final delineation of the north-south border
Economy Diversification
Control of the Abyei region has long and an agreement on oil revenue sharing.
Strategy Bearing Fruit been disputed by Khartoum and Juba, with There has been little evidence of progress on
Official data showed that non-oil exports the south claiming cultural and religious any of these fronts, but the Abyei question
surged by 34% y-o-y to US$451.9mn in ties with the region and the north claim- has clearly come to the fore. This poses a
the first quarter of 2011, buoyed by soaring ing that access to fertile grazing land and serious threat to the peace process because
gold exports. The precious metal earned waterways within the Abyei borders are there is as yet no obvious solution to the
the country US$246.9mn, some 45% higher vital to the northern Misseriya tribe. Oil problem and violence has escalated in the
than the same period a year earlier. In a plays only a small part in the conflict over region, with both sides trading attacks.
positive sign that the government’s drive to
diversify the economy away from oil ahead DATA & FORECASTS
of oil-rich Southern Sudan’s secession, bank
lending to the industrial sector grew by 29% BMI View: Sudan’s external position has come under significant pressure in recent months, ema-
in March compared with the same month nating largely from the capital account. Amid concerns about the economic and politico-security
of last year. implications of impending secession by the oil-rich south (which is scheduled to take place on
Our short-term economic risk rating is 32.3. July 9), citizens have increasingly ditched holdings of Sudanese pounds in favour of dollars. Our
tentative forecast is for the pound to average SDG2.90/US$ in 2011 and SDG3.20/US$ in 2012.
BUSINESS ENVIRONMENT
2008 2009 2010e 2011f 2012f
Southern Sudan Business Population, mn [1,2] 41.3 42.3 43.2 35.1 35.8
Environment Improving Nominal GDP, US$bn [1,3] 57.9 54.2 76.7 63.1 66.0
GDP per capita, US$ [1,3] 1,401 1,283 1,775 1,797 1,843
According to a report by the World Bank, Real GDP growth, % change y-o-y [1,4] 6.8 4.5 5.7 -10.9 2.4
Southern Sudan has made progress in im- SDG nominal growth, % change y-o-y [1,3] 29.3 3.7 40.7 3.2 15.5
proving its business environment ahead of Budget balance, SDGbn [1,5] 2.1 -2.3 -0.8 -9.8 -10.9
Budget balance, % of GDP [1,3] 1.7 -1.8 -0.5 -5.4 -5.2
secession from the north. In particular, posi- Consumer prices, % y-o-y, ave [1,3] 14.3 11.2 13.0 15.7 14.0
tive steps had been made as far as regulation, Consumer prices, % y-o-y, eop [1,3] 14.9 13.4 15.4 16.0 12.0
Exchange rate SDG/US$, eop [6] 2.16 2.31 2.50 3.30 3.10
land ownership and company registrations Exchange rate SDG/EUR, eop [6] 3.02 2.94 3.34 4.72 4.15
are concerned. On the latter point, business Goods exports, US$bn [5] 12.4 5.9 14.0 7.6 5.5
registrations take 15 days, which is relatively Goods imports, US$bn [5] 9.1 6.6 7.2 6.6 6.8
Balance of trade in goods, US$bn [5] 3.3 -0.7 6.9 1.0 -1.3
fast for Sub-Saharan Africa. However, the Current account, US$bn [5] -5.2 -6.0 1.4 -4.2 -6.6
process costs almost twice as much as the Current account, % of GDP [3] -9.0 -11.1 1.8 -6.6 -10.0
Foreign reserves ex gold, US$bn [5] 1.4 1.1 1.2 1.1 1.1
Sub-Saharan Africa average. The report also
Import cover, months g&s [3] 1.3 1.5 1.5 1.4 1.4
called for the removal of legal uncertainties, Total external debt stock, % of GDP [8] 58.2 65.8 46.6 57.1 36.6
an improvement of infrastructure and a Total external debt stock % of XGS [8] 261.5 551.9 243.8 431.5 381.3
Short-term debt as a % of international reserves [8] 1,347.5 1,773.0 1,589.3 1,751.1 729.7
reduction in bureaucracy. Short-term foreign debt, % of total [8] 55.9 54.3 53.6 52.7 34.4
Our business environment rating is 36.5. Notes: e/f = BMI estimates/forecasts. 1 Forecasts from 2011 onwards assume secession of Southern Sudan and hence
exclude the Southern Sudanese portion of the economy; Sources: 2 World Bank/BMI calculation/BMI; 3 IMF/BMI calculation;
4 African Development Bank; 5 IMF; 6 BMI; 7 World Bank GDF; 8 World Bank GDF/BMI calculation.

6 6 EAST & Central AFRICA – JULY 2011 www.meamonitor.com

 TANZANIA 
Economic outlook
RISK SUMMARY
Economy To Navigate POLITICAL RISK

Rising Headwinds
Donor Dependence Down
The Tanzanian government is aiming to
reduce its dependence on donors to 10%
BMI View: While the outlook for the Tanzanian economy continues to look bright from the current 25% by 2015, according to
for the most part, uncertainty has risen slightly in recent months. Exports have been Philemon Luhanjo, public service head and
buoyed by elevated gold prices and high demand for manufactured goods, while the chief secretary to the cabinet. This will be
latest data from the Bank of Tanzania indicate that domestic demand is also robust. achieved by augmenting domestic revenue,
However, rising inflation and a weakening currency have raised questions about whether battling corruption and tightening public
the economic momentum can and will be maintained over the short-to-medium term. spending. Luhanjo stated that reports of the
Controller and Auditor General exposed
The latest data from the Bank of Tanzania caution that there remain several concerns serious weaknesses in the management of
show that the economy is growing at a relating to the economy. Most pertinently, human, financial and government resources.
healthy clip. Exports grew by 35.5% in inflation came in at 8.6% y-o-y in April, The government will also aim to provide a
nominal terms in the 12 months to Febru- having more than doubled since bottoming conducive environment to attract foreign
ary compared with the same period a year at 4.2% in October 2010. Although the rate investment, particularly in agro-processing
earlier. This was thanks in large part to of price growth has not spiked as sharply as and extractive industries.
record-high gold prices (gold is Tanzania’s in Kenya and Uganda, the authorities are Our short-term political risk rating is 66.7.
biggest foreign currency earner), rising clearly concerned and banned food exports
demand for manufactured goods from Tan- for three months in a bid to reduce food price ECONOMIC RISK
zania’s neighbours as well as increases in inflation (food is the biggest component of
tourist numbers and revenues. In addition the consumer price basket, making up 48%). Balance Of Payments Surplus
to a healthy external sector picture, the data In addition to food, the early 2011 spike Tanzania’s central bank has reported a
indicate that the domestic economy is also in oil prices has been another contributing US$191.5mn balance of payments surplus in
in a solid state. Indeed, the three-month factor to increasing price growth. Rising oil Q111, compared with a US$486mn surplus
moving average of the rate of credit growth prices have had a detrimental effect on the in Q110. Meanwhile, the current account
has headed steadily higher since bottoming country’s terms of trade and this has seen the deficit widened to US$2.32bn in the first
in February 2010. currency head to historic lows, exacerbating quarter from US$2.26bn in the year-ago
Despite these positive indicators, we price pressures via imported inflation. period. The increase came on the back
of higher oil prices, which resulted in an
DATA & FORECASTS inflated import bill. However, gold brought
in US$1.7bn in revenues in Q111, up from
BMI View: Higher prices for oil, which is the country’s largest single import, will more than offset
US$1.4bn a year earlier, while manufactured
the benefit of elevated prices for its biggest foreign currency earner: gold. Continued surpluses in
goods – including cement and textiles – gen-
the services and current transfers accounts will be insufficient to offset this growing trade account
erated US$1.0bn in earnings compared with
shortfall and we therefore see the overall current account deficit growing to US$3.2bn (12.6%
US$524.4mn in Q110. National debt rose
of GDP) in 2011, up from an estimated US$2.4bn (10.2% of GDP) in 2010.
1.1% y-o-y to US$11.34bn in Q111.
Our short-term economic risk rating is 56.7.
2008 2009 2010e 2011f 2012f
Population, mn [4] 42.5 43.8 45.0 46.4 47.8 BUSINESS ENVIRONMENT
Nominal GDP, US$bn [5] 21.2 22.6 23.7 25.9 29.7
GDP per capita, US$ [6] 499 523 525 559 621 Mobile Pressures
Real GDP growth, % change y-o-y [5] 7.4 6.0 6.4 6.5 6.6
Unemployment, % of labour force, eop [1,7] 4.1 5.0 5.5 5.3 5.1 Tanzania’s mobile operators may have to
Budget balance, % of GDP [2,9] 2.4 -2.2 -4.7 -4.9 -5.3 increase prices if fuel costs continue to rise,
Consumer prices, % y-o-y, eop [7] 13.5 12.2 3.8 7.5 7.0 according to Zantel ‘s chief commercial op-
Lending rate, %, eop [11] 14.1 11.0 9.2 8.6 8.0
Real lending rate, %, eop [3,12] 0.6 -1.2 5.4 1.0 1.0 erator, Norman Moyo. He said the Tanzanian
Exchange rate TZS/US$, eop [13] 1,310.00 1,330.00 1,500.00 1,500.00 1,500.00 shilling’s weakness was also playing a role,
Exchange rate TZS/EUR, eop [13] 1,834.00 1,689.10 2,006.55 2,145.00 2,010.00
Goods exports, US$bn [5] 2.7 3.1 3.6 4.0 4.2
putting pressure on operators, which are
Goods imports, US$bn [5] 6.5 5.8 7.0 8.2 9.1 already feeling the squeeze from the mar-
Balance of trade in goods, US$bn [5] -3.8 -2.7 -3.5 -4.1 -4.9 ket’s ongoing price war. Raising prices will be
Current account, % of GDP [6] -13.6 -7.7 -10.2 -12.6 -13.0
Foreign reserves ex gold, US$bn [14] 2.9 3.5 3.4 3.6 3.9 unpopular with subscribers, but BMI is also
Import cover, months g&s [15] 4.2 5.7 4.6 4.3 4.3 concerned that operators facing shrinking
Total external debt stock, % of GDP [17] 28.0 24.2 24.1 24.5 25.1 margins will find their funds for investing in
Short term foreign debt, % of total [17] 13.5 13.7 14.0 15.0 14.1
new technologies and infrastructure under
Notes: e/f = BMI estimates/forecasts. 1 Surveys conducted in 1990/91, 2000/01 and 2006; 2 Fiscal year (x-1)/(x), so 2008
figure is for FY2007/08. Includes grants; 3 Real rate strips out the effects of inflation; Sources: 4 World Bank/BMI calculation/ even greater pressure.
BMI; 5 Bank of Tanzania; 6 Bank of Tanzania/BMI; 7 Tanzania Bureau of Statistics; 8 Bank of Tanzania, Tanzania Ministry of Our business environment rating is 33.5.
Finance; 9 Bank of Tanzania, Tanzania Ministry of Finance, BMI; 10 Tanzania Bureau of Statistics/BMI; 11 IMF; 12 IMF/BMI;
13 BMI; 14 IMF IFS; 15 IMF IFS/BMI; 16 World Bank; 17 World Bank/BMI.

www.meamonitor.com JULY 2011 – EAST & Central AFRICA 7

  REGIONAL

Economic outlook

SSA Economic Growth: A policymakers. Central banks are under pres-

sure to raise interest rates at a time when
economic recoveries are not assured and,

Progress Report in some cases, credit growth is still weak.

Meanwhile, finance ministries are hearing
calls to alleviate the rising costs of food
BMI View: Africa faces a difficult period over the coming months, with high inflation
and fuel through targeted subsidies, and
and elevated borrowing costs likely to pose challenges to policymakers. Nevertheless,
this poses a risk to the drive towards fiscal
we retain our positive outlook for growth. In our view, Ghana, Nigeria and Zambia
consolidation. Furthermore, borrowing costs
will outperform over the medium term.
for governments have risen sharply in recent
At the start of 2011, BMI held an upbeat out- spread to SSA. Secondly, the elevation in months as local debt yields have shot up. We
look for economic growth in Sub-Saharan oil prices associated with the MENA crisis also need to bear in mind that many countries
Africa (SSA). The region was benefiting has impacted macroeconomic fundamentals are holding elections in 2011 or 2012, with
from high commodity prices, strengthening in varying ways. Broadly speaking, net an associated risk of fiscal profligacy.
external demand and the feed-through ef- oil exporters such as Nigeria and Angola
Rising Sharply
fects of previous accommodative fiscal and have been reaping the gains of higher oil East Africa – Consumer Price Index, % y-o-y
monetary policy. Since that time, our view revenues, while net oil importers have been 8

has dimmed a little, although we remain suffering, widening current account deficits. CentAm
LatAm
US 6
broadly sanguine. We still see the external East Africa has been hard hit, since high
environment as relatively supportive, with oil import costs have been compounded by 4

BMI’s forecasts for 2011 economic growth weak harvests, necessitating elevated food 2

in the US and eurozone standing at 2.9% imports at a time when grain prices have
0
and 1.8% respectively. Furthermore, com- been lofty. The impact is illustrated in the
modity prices look set to remain high, even latest inflation numbers: in Kenya, inflation -2

factoring in an anticipated moderation in the has risen to 12.1% y-o-y in April from 5.4% -4
second half of the year. However, the ongo- in January; while in Uganda the prints were

2009f

2010f

2011f

2012f
2000

2001

2002

2003

2004

2005

2006

2007

ing increase in inflation across much of SSA
poses tangible risks to the growth trajectory.
There have been several wild cards
for the global economy over the past few
months, with varying implications for SSA.
Key Changes
SSA – 2011 Real GDP Growth Forecasts, %
Source: BMI
The Tohoku earthquake that struck Japan in
March was devastating for parts of Asia, but
the implications for Africa are fairly mar-
ginal, as Japan is not a key export market.
More pertinently, the political crisis across
the Middle East and North Africa (MENA)
has had a tangible, two-fold impact. Firstly,
institutional investor interest has been
dampened amid fears that the unrest could
14.1% and 5.0% respectively. In Tanzania,
the price pressures have not been quite so
acute, but inflation has still risen notably to
8.6% in April from 6.4% in January.
This faster-than-anticipated rise in infla-
tion, in combination with a number of other
factors, has prompted us to downwardly
revise our real GDP growth forecasts for
Kenya and Uganda. As shown in the chart
(left), we have lowered Kenya’s 2011 fore-
cast to 5.2% from 6.0%. We see the economy
suffering from high inflation, poor rains and
elevated oil prices. The ongoing tighten-
ing of monetary policy could also dampen
economic activity if banks start to raise
borrowing costs for individuals and busi-
nesses. In Uganda’s case, we have revised
our 2011 real GDP growth forecast to 6.8%
from 7.3%. This adjustment was in part the
result of high inflation and the lacklustre lo-
cal harvest. However, we have also factored
in an expected decline in foreign investment
and tourism owing to political concerns –
Uganda’s reputation for stability is under
threat following recent demonstrations and
attacks on opposition leaders.
Looking ahead, we believe the coming
months will be a difficult period for African
2008e
Source: African Central Banks & Statistics Bureaux
Although all these pressures will un-
doubtedly put policymakers to the test, we
hold a sanguine view. Inflation should mod-
erate if oil and food price pressures abate
over the second half of the year. Moreover,
investor interest is likely to hot up as it be-
comes increasingly clear that SSA will not
suffer from a MENA-style meltdown.
We are above-consensus on Ghana,
Nigeria and Zambia, forecasting 2011 real
GDP growth of 14.0%, 7.8% and 7.5%
respectively. These countries’ strong,
commodity-led growth is expected to be
sustained over the medium term. In Ghana’s
case, we see double-digit growth spurred by
the onset of domestic oil production, with
our bullishness reinforced by the strong eco-
nomic expansion seen in 2010. For Nigeria,
we envisage robust growth fuelled by strong
oil production, a recovering banking sector
and rising investment inflows propelled by
an improved political risk environment in
the aftermath of elections. Finally, Zambia
remains a favoured market owing to buoyant
copper production, a recent bountiful harvest
and a fast-improving business environment.

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