UNITED BANK FOR AFRICA PLC

GLOBAL MACRO-ECONOMICS ANALYSIS

FEBRUARY 2017
GLOBAL ECONOMIC TRENDS
GLOBAL ECONOMIC TRENDS: KEY CONSIDERATIONS

 What are the major economic developments globally and how are these affecting Africa’s
economic prospects?

 What trends are driving trade and other financial flows towards Africa?

 Where are the destinations of these financial flows in Africa and what factors are making
these countries attractive?

 Which countries present significant domestic opportunities?

3
GLOBAL ECONOMIC ASSESSMENT (1/13)

 China and India are poised to be increasingly significant in the global economy and have a
more active commercial presence in Africa
20
- TOP 25 COUNTRIES BY GDP 2014 $’tr - - TOP 25 COUNTRIES BY GDP 2020 $’tr -
20 China further narrows
18
the gap between it
16 and the US from $7tr in
2014 to $5tr in 2020
14 15

12
India overtakes Italy,
10
10 Brazil and France to
8 become the 6th Largest Nigeria overtakes
6 Sweden to be the
21st largest
5
4 economy in the
World
2

0 0
USA
China
Japan
Germany
UK
France
Brazil
Italy
India
Russia
Canada
Australia
Korea, Rep.
Spain
Mexico
Indonesia
Netherlands
Turkey
Saudi Arabia
Switzerland
Sweden
Nigeria
Poland
Argentina
Belgium

USA
China
Japan
Germany
UK
India
France
Italy
Brazil
Canada
Russia
Australia
Korea, Rep.
Spain
Mexico
Indonesia
Netherlands
Turkey
Saudi Arabia
Switzerland
Nigeria
Sweden
Poland
Argentina
Belgium
 Establishing a presence in China/India or establishing partnerships with banks in these countries
will offer a strong value proposition to African businesses with strong commercial ties to these
countries
Source: World Bank, Errnst & Young, OECD, Team Projections
4
GLOBAL ECONOMIC ASSESSMENT (2/13)

 China is also becoming increasingly prominent in the global financial system and will continue to be
a key source of inflows into Africa
- TOP INTERNATIONAL FINANCIAL CENTRES
BY AGGREGATE ASSETS OF LARGEST BANKS - - GLOBAL FINANCIAL INDEX RANKING*-
TIER 1 CURRENT PREVIOUS
RANK CITY ASSETS ($m) CITY
CAPTAL ($m) RANK RANK
1. Beijing 14,664,442 983,825 1. London 2
2. Tokyo 7,569,722 365,133 2. New York 1
3. London 6,883,143 340,698 3. Hong Kong 3
4. Paris 6,709,692 258,145 4. Singapore 4
5. New York 6,658,903 540,873 5. Tokyo 5
6. Frankfurt 3,709, 142 142,691 6. Seoul 7
7. Toronto 2,573,423 118,417 7. Zurich 6
8. Zurich 2,354,003 114,093 8. Toronto 11
9. Shanghai 1,983,491 137,541 9. San Francisco 8
10. Madrid 1,945,336 99,454 10. Washington DC 12
40. J’Burg 234,190 14,947 16. Dubai 23
41.. Dubai 187,411 22,665 33. J’Burg 32
Source: The Banker Magazine, The Global Financial Centres Index
* Covers Business Environment, Financial Sector Development, Infrastructure, Human Capital and Reputational & General Factors. 5
GLOBAL ECONOMIC ASSESSMENT (3/13)

 However, despite the higher growth in emerging markets, advanced economies will still be the major
sources of finance and trade as they dominate the global economy

10
% GLOBAL GROWTH 2008 - 2021 - DISTRIBUTION MIX OF GLOBAL GDP 2020 -
9

8 USA
Others 21%
7
Australia 27%
6 2%
5

3 China
Russia 16%
2
2%
1

0 Canada Brazil Eurozone

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2021
2% 2% UK 16%
World Advanced Economies India 4% Japan
Emerging & Developing Asia Sub-Saharan Africa 3% 5%
Middle East & North Africa Emerging & Developing Europe
 Presence in these world financial centres is critical to being able to tap into these commercial ties
Latin America & the Caribbean

with the continent

Source IMF - World Economic Outlook April 2016 , World Bank

6
GLOBAL ECONOMIC ASSESSMENT (4/13)

 Europe, the US and China are also the most important global markets for Africa-related trade and
investment flows

CAPITAL
TRADE CAPITAL REMITTAN AFRICAN EU COUNTRY
COUNTRIES INFLOWS ($BN)
VOLUME INFLOWS CE FLOWS DIASPORA
/ REGIONS France 18.3
($BN) ($BN) ($BN) ('000)
Belgium 5.2
China 310 6.1 0.04 16
Germany 2.7
European United Kingdom 2.6
106 28.8 23.1 12,013
Union

US 100 7.9 9.0 1,700

India 90 0.02
Brazil 30 0.04
UAE 5 2.1
Canada 5.1 1.2 438

Sources: Financial Times, Reuters, United States Census Bureau 7

GLOBAL ECONOMIC ASSESSMENT (5/13)

 Commodity prices are projected to remain below the highs of 2011-2012 through to 2020 thereby
putting pressure on African commodity exporters and the African economy in general for the
foreseeable future
120
100 IMF projects for the Oil
80 Price to be $45.3pb
60 CRUDE $/bbl, 58.8 while the Economist
40
20 Intelligence Unit
0 forecasts an increase
to $71.4pb in 2020
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
5.0
4.0
3.0 COCOA $/kg, 2.8 IMF projects the
COPPER $/lb, 2.6
2.0 COTTON $/kg, 1.8 copper price will
1.0 be $1.99/lb
0.0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2000
1500
1000 GOLD $/oz, 1041 EIU projects the gold
500 price will rise to
0 $1,290/oz by 2019
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
Source: World Bank – Commodity Market Outlook 8
GLOBAL ECONOMIC ASSESSMENT (6/13)

 In addition, global monetary policy decisions, including rate hikes in the United States, is negatively
affecting African currencies
• The US Federal Reserve raised interest rates in December by 25bps, the 1st rate rise in 7 years, and
signaled further rate increases to come in 2016

• The Bank of England has talked down an early commencement of rate rises as previously signaled due to
concerns about global growth. Expressed concerns a Brexit could lead to a technical recession in the UK

• The People’s Bank of China cut rates 6 times in 2015 in its bids to counter slowing economic growth in the
country

• The European Central Bank plans to review its €1.5tr stimulus program in March to see if there is a need
to increase it to stimulate economic growth

• The Bank of Japan imposed a 0.1% fee on deposits, effectively a negative interest rate, in an attempt to
force bank to lend to stimulate economic growth

- Dollar Index Spot January 2011 – May 2016 -

Current strengthening of the USD

signifies risk aversion and low FPI
outlook to Africa in the short term

9
GLOBAL ECONOMIC ASSESSMENT (7/13)

 These are leading to a downward revision of Africa’s growth projections

- CHANGE IN WORLD ECONOMICS OUTLOOK PROJECTIONS SINCE OCTOBER 2015 -

0.5

-0.4 0 0 -1.3 -0.9 -0.9 -0.8 -0.1 -1.3 -0.8 2016

-0.3 -0.3 -0.2
2017
World Output Advanced Emerging & Sub-Saharan Middle East & Emerging & Latin America &
Economies Developing Asia Africa North Africa Developing the Caribbean
Europe

 Global uncertainty and risk aversion will continue to put constraints on Foreign Portfolio
inflows into Africa in the short term

10
GLOBAL ECONOMIC ASSESSMENT (8/13)

 However, despite these short-term headwinds, the underlying fundamentals driving Africa’s growth
are strong and the future still remains bright due to strong population growth, GDP growth and
progress in risk indicators

- AFRICA POPULATION (BN) - - AFRICA GDP $’TR - - AVERAGE AFRICAN COUNTRY

RISK CLASSIFICATION** -
3.5 14
25%* 6.30 6.30
3 12 Significant
economic
2.5 10
activity outside
20%*
2 8
Nigeria
16%*
1.5 6 6.08
6.06
6.04
1 4

0.5 2

0 -

2015 2030 2050 2015 2020 2030 Jan Jan Jan Jan Jan'
Nigeria Africa Nigeria Africa
'00 '05 '10 '15 16

* % of Global Population
** Source: OECD

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GLOBAL ECONOMIC ASSESSMENT (9/13)

 Hence, there is expected to be an increase in inflow of funds into the continent targeted at these
opportunities
- FINANCIAL FLOWS INTO AFRICA $’M - - TRADE INTO AFRICA $’M -
70,000 700,000

60,000
600,000

50,000
500,000

40,000

400,000
30,000

300,000
20,000

10,000 200,000

- 100,000
FDI ODA MLS

-10,000
-
2010 2014
-20,000
Export Import
2010 2014

12
GLOBAL ECONOMIC ASSESSMENT (10/13)

 Of these flows, FDIs are the most resilient source of capital inflows into emerging markets and should
be the focus of banks especially in stable growing African countries

DRIVERS OF EMERGING MARKET CAPITAL FLOWS

PORTFOLIO PORTFOLIO BANKING
FDI
EQUI TY DEBT FLOWS
Global Risk Aversion

PUSH Interest Rates in

FACTORS Advanced Economies
Advanced Economies
Output Growth
Emerging Market
Output Growth
PULL
FACTORS Asset Return Indicators

Country Risk Indicators

Strong Evidence of Positive Relationship Some Evidence of Positive Relationship Mixed Evidence , no
Clear Relationship
Some Evidence of Negative Relationship Strong Evidence of Negative Relationship

Source: International Institute of Finance - What Drives Capital Flows to Emerging Markets? 13
GLOBAL ECONOMIC ASSESSMENT (11/13)

 The African countries attracting the largest FDI Flows are as follows:

AVERAGE AVERAGE
COUNTRY ANNUAL FDI $M CUMULATIVE COUNTRY ANNUAL FDI $M CUMULATIVE
(2010 – 2014) (2010 – 2014)
1 Nigeria 6,489 11% 14 Zambia 1,694 75%
2 South Africa 5,290 19% 15 Tunisia 1,288 77%
3 Angola 4,830 27% 16 Uganda 977 79%
4 Mozambique 4,257 34% 17 Niger 867 80%
5 Egypt 4,182 41% 18 OTHERS 12,114 100%
6 Ghana 3,128 46% TOTAL 61,190 100%
7 Morocco 2,750 51%
8 Congo Rep. 2,735 55%
9 Congo DRC 2,420 59%
Countries with UBA Presence
10 Algeria 2,416 63%
11 Eq. Guinea 2,114 66%
12 Tanzania 1,823 69%
13 Sudan 1,815 72%

14
GLOBAL ECONOMIC ASSESSMENT (12/13)

 Besides the Oil & Gas Sector, Infrastructure Development (made up of Electricity, Gas &
Water; Transport and Construction) is the main driver of FDI flows into Africa

SECTOR DISTRIBUTION OF FDI INTO AFRICA

(2012 - 2014 AVERAGE)

MINING, QUARRY & PETROLEUM 25%

ELECTRICITY, GAS & WATER 22%

TRANSPORT 13%

CONSTRUCTION 11%

BUSINESS SERVICES 11%

NON-METALLIC MINERALS 5%

MOTOR VEHICLE 5%

FOOD, BEV & TOBACCO 5%

TEXTILE 3%

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GLOBAL ECONOMIC ASSESSMENT (13/13)

 In terms of domestic opportunities, the countries that present the most attractive
opportunities are as follows:
S/N COUNTRY SCORE S/N COUNTRY SCORE
Country Assessment Scoring
1 Nigeria 62 18 Zambia 23 Based on:
2 Ethiopia 39 19 Ghana 23
3 South Africa 39 20 Mali 22 1. 85% Weighting to
4 Seychelles 33 21 Liberia 21 Economic Potential
5 Mauritius 33 22 Cameroon 20 (GDP, GDP per Capita,
GDP Growth and
6 Egypt 32 23 Chad 20 Population)
7 Congo, DR 31 24 Uganda 20
8 Namibia 30 25 Mauritania 20 2. 15% Weighting to
9 Tanzania 29 26 Malawi 20 Governance
10 Algeria 29 27 Congo, Rep. 20
11 Gabon 27 28 Tunisia 20
12 Angola 26 29 Senegal 19
13 Kenya 25 30 Sierra Leone 19
14 Rwanda 25
15 Mozambique 25 Countries with UBA Presence
16 Cote d'Ivoire 25
17 Morocco 24

16
IMPLICATIONS FOR THE AFRICAN BANKING INDUSTRY (1/1)
S/N IMPLICATIONS
1. China and India’s increasing relevance in the global economy provides opportunities to establish
a presence or partner with banks in these countries to offer a strong value proposition to
businesses with commercial ties to these countries
2. Probability of the UK leaving the EU further highlights the importance of establishing offices in other
European countries such as France or Germany so that possible restrictions on UK banks will not
affect banking relationships with the remaining countries especially in the Euro trading bloc
3. The right type of banking license in these locations is important to fully extend a broad array of
services to US multinationals, NGOs and African diaspora communities
4. Slowdown in global economic growth with the prospect of interest rate rises by the US Federal
Reserve in the near future has the potential to impact portfolio flows into the continent in the short
term
5. African commodity dependent countries which fail to diversity their economies are likely to
struggle in attracting capital inflows into their economies
6. Despite current short term headwinds, Africa’s growth trajectory (especially outside Nigeria) is set
to continue for the foreseeable future and provides significant opportunities for long term investors
7. Presence in the most attractive African countries for FDI inflows and integration with the global
financial system with a presence in international financial centres is key to trapping these financial
flows into the continent
8. Opportunities exists for banks to exploit domestic opportunities on the continent to drive the
economic development of African countries

17