I am currently rereading my investment bible, Security Analysis written by Benjamin Graham and David Dodd. The book is still as relevant as it was in 1933 when it was first written.
What stands out in the book is the need to buy stocks at discounted prices, or those which are undervalued. Such stocks are usually difficult to get these days as investors have more information today than they had in 1933. However, I took a good look at the Nairobi Securities Exchange (NSE) and noted that there is more than meets the eye.
The fact is; we are experiencing a bear run.
This year has been a difficult one at the market. The NSE All Share Index (NASI) began the year at 162.9. By the time of writing, it had dropped to 147.6. This was a reprieve considering that, by August 27, the NASI had fallen to 137.5. To date, the market has shed off 9.39% in one of the longest bear runs.
This is in contrast to the 2014 performance where the NASI closed the year with a 19.9% gain, coming second only to Dar es Salaam on the continent.
There are many reasons why the NSE is shedding value. Firstly, the government introduced an unpopular capital gains tax which worked against the market from day one. The tax has since been abolished.
Secondly, and more importantly, the international investment climate is still recovering from the 2009 recession. Investors are still very jittery and, at the slightest provocation, they move their money to safe havens. Internationally, most investors believe the United States (US) is the safest place for their money and so, at the slightest tension, there will be a capital flight to the US.
This year began with uncertainty around the Greek problem and a subdued Chinese economy. These two factors drove foreign investors to believe that they should be cautious and most of them sold their holdings and took their money to the US. This strengthened the dollar, driving the forex rates of other currencies through the roof, the Kenyan shilling included.
If there is bad news in the market, to the effect that a considerable number of investors are selling, other investors will also sell without knowing why. It has a ripple effect. The international pressures caused only half the paper loss, the other half was due to fear and panic by other investors.
Nevertheless, prices of many counters have gone down. It is naturally a loss to many, but is there a silver lining in this dark cloud?
To understand this, one needs to check the best performing industries of last year. The champions of 2014 were the insurance industry and the agricultural sector. In 2015, the major gainers of 2014 are in the red. Britam has shed off 41.5% since January. CIC Insurance, the best price gainer in the sector in 2014, has shed off 26.04% this year. Pan Africa Insurance suffered the most, having lost 45.42% in the year.
There is no doubt that the insurance industry is expanding in Kenya, with the growing middle class requiring a wide array of insurance services. Furthermore, actions by companies like Britam create an investment appetite as the adjustments herald a growing stock. Yet these companies have lost significant value and present a great opportunity to a long-term investor looking for discounted stock.
But the attraction is not only in insurance. Housing Finance, ARM Cement and Total Kenya are all in the red, presenting opportunities for growth.
The end of the year is approaching and many investors are looking for value investments that will make 2015 worthwhile. If Security Analysis is anything to go by, then there is a real opportunity in the Nairobi bear run.
Tellingly, bear runs present investors with a great opportunity to buy choice stocks at prices much lower than the actual value. So while many are making a flight from the bear, embrace it and give it a bear hug, it might make you rich.

A Bear Hug That Could make you rich

Kenya’s nascent mutual fund industry is becoming an important component in the country’s financial landscape. With increasing international focus on frontier economies, the country is slowly emerging as an investment destination for foreign investment funds seeking exposure in East Africa.
Moreover, the emergence of a thriving middle class is also creating capital flows for local asset managers. The industry, which is regulated by the Capital Markets Authority (CMA), now commands $430 million in assets under management, having grown at a compound annual growth rate (CAGR) of 21.2% since 2010, according to PricewaterhouseCoopers’ (PwC) Africa Asset Management 2020 report.
For a long time, growth in Kenya’s mutual fund industry was subdued due to an underdeveloped capital market. Until 2006, equity transactions were still being done through the floor-based open outcry system, share certificates still served as proof of ownership, trading hours were limited to two hours, trade settlements took four days and less than 50 entities were listed at the Nairobi Securities Exchange (NSE). As a consequence, by the close of 2005, only five investment funds operated and total market capitalization accounted for less than a third of its gross domestic product (GDP). This state of affairs seriously hampered Kenya’s capital markets as an important investment destination.
However, since 2006, all this changed drastically with the number of listed companies increasing to 63 and the total market capitalization rising to nearly 41% of GDP by the end of last year. Between 2006 and 2014, equity turnover doubled to $2.15 billion, Kenya managed to successfully issue its first sovereign bond which raised a total of $2 billion, the number of operating investment funds grew to 71 and the NSE received approval to demutualize and self list on the exchange. In April, the top foreign investment funds investing in Kenya had at least 25% of their funds allocated in the country, according to PwC research.
Despite this growth, the fund industry has a long way to go as it still accounts for an extremely small share of GDP at 0.7% and 0.8% of total financial sector assets. Among other reasons, a poor savings culture in the country has been blamed for the small size of the industry. The World Bank puts Kenya’s saving rate at around 12 to 13% of GDP which is half the average for all low-income countries (at 26% of GDP) and slightly lower than Africa’s rate which stands at around 17%. Furthermore, with wealth distribution highly unequal, the fund market has relied almost entirely on institutional investors. The young industry also has to deal with rising competition from other alternative investment vehicles such as the real estate sector and private equity.
Nonetheless, a combination of certain fundamental factors are likely to drive the mutual fund industry’s speedy growth in the coming years. These factors are stable economic growth, strong market performance, widespread adoption of mobile technology which makes delivery of new products cheaper, introduction of new asset classes, cross listings, loosening of regulations, political stability, investor education and the emergence of the middle class. The latter, which now stands at 44.9% of Kenya’s total population, is projected to grow at an average of 5% every year. The expansion of this group will be instrumental in driving demand for mutual fund products such as equity and fixed-income funds.
In addition, government’s agenda to grow the financial sector as stated through the Vision 2030 development program will also boost the mutual fund industry. Through the recently launched Kenya Diaspora Policy, funds can expect to tap into the ever increasing diaspora remittances. Since the CMA has been keen to market Kenya’s financial markets through diaspora conferences, mutual funds can expect to be a major beneficiary. According to the CMA, remittances inflows have risen from $408 million in 2006 to $1.43 billion in 2014, or the equivalent of a CAGR of 15%. Average monthly remittances now stand at over $100 million. Kenya’s government estimates that 15% of the remittances are used in productive investments.
The future is indeed bright and there is little doubt that Kenya’s mutual fund industry will grow to become a strong player within the finance sector and the economy at large.

Growing In Leaps  And Bounds

Burundi has been rocked by gunfire, protests and an attempted coup. At least 20 people are feared dead and hundreds of thousands are on the run since the skirmishes began in April.
Protests in East Africa’s smallest country began in the capital Bujumbura on April 25 after President Pierre Nkurunziza announced he was seeking a third term in office, despite a two-term limit in the constitution.
<div id="attachment_3692" style="width: 310px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-3692" class="size-medium wp-image-3692" src="/wp-content/uploads/2017/04/000_Par8171782-300x200.jpg" alt="" width="300" height="200" />QUALITY REPEAT A Burundian police officer holding a baton and army forces run after protestors throwing stones during a demonstration against incumbent president Pierre Nkurunziza&#8217;s bid for a third term on May 13, 2015 in Bujumbura. In the neighborhood of Musaga, hundreds of people waved sticks and threw stones as police responded with tear gas, a water cannon and live rounds. Protestors looted the local police post in Musaga, burning furniture, mattresses and clothing in a barricade fire, an AFP photographer said. Burundi&#8217;s presidency said an attempted coup by a top general had &#8220;failed&#8221; on May 13, 2015 and pro-president Burundi troops at state broadcaster fire warning shots over the heads of hundreds of protesters, an AFP reporter said. Burundian general Godefroid Niyombare on May 13 announced the overthrow of President Pierre Nkurunziza, following weeks of violent protests against the president&#8217;s bid to stand for a third term. AFP PHOTO / JENNIFER HUXTA</div>
Protestors immediately barricaded roads and set tyres alight. Since then, there have been daily riots in the capital.
The air is full of tension as army and police officials patrol the streets.
A group, led by Godefroid Niyombare, even attempted to overthrow the government while Nkurunziza was in Tanzania for talks with regional leaders on the crisis in his country. Despite initially claiming success, the coup failed, and many of its leaders were arrested. Niyombare remains on the run.
On May 5, the Constitutional Court said that Nkurunziza is eligible for a third term in office after four judges fled the country fearing for their safety. The court stated Nkurunziza’s first term does not count because he was appointed by parliament, not the citizens of Burundi.
Nkurunziza took office 10 years ago after the end of a 12-year civil war. Following a peace agreement in 2005 in Arusha, Tanzania, it was decided that no president will run for more than two terms.
International governments have expressed concern over the court’s decision.
“The eyes of the world are on Burundi. The steps necessary for a peaceful and prosperous democratic future for Burundi should be taken now,” Britain said in a statement.
“Reports of intimidation against members of the Constitutional Court do not give the impression of an independent court that was able to come to an impartial decision.”
“We are deeply concerned about President Nkurunziza’s decision, which flies directly in the face of the constitution of his country,” US Secretary of State, John Kerry, said during a visit to Kenya.
Many fear that civil war will return.
The country has been plagued with tension since it gained independence from Belgium in 1962. The civil war, fought between the country’s Hutu majority and Tutsi minority, began in 1993 and resulted in the death of around 300,000 people.
<div id="attachment_3693" style="width: 221px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-3693" class="size-medium wp-image-3693" src="/wp-content/uploads/2017/04/000_Par8173679-211x300.jpg" alt="" width="211" height="300" />Burundi&#8217;s President Pierre Nkurunziza talks to the media at the President&#8217;s office in Bujumbura on May 17, 2015 as he made his first official appearance since an attempted coup against him this week. Nkurunziza has been facing weeks of violent and deadly street protests over his controversial bid to stand for a third consecutive term on office, and on Wednesday top generals announced they were overthrowing him while he was on a visit to neighbouring Tanzania. AFP PHOTO / CARL DE SOUZA</div>
With the presidential elections slated for June 26, Nkurunziza continues to defy international pressure to withdraw from the elections. Furthermore, the president has rejected calls to delay the elections, saying that it “would worsen the current situation”.
So far, Belgium has suspended the $2.2 million it had pledged for Burundi’s elections and the Netherlands says it is reviewing its commitment to the country.
The current government remains hopeful that peaceful and fair elections will still be held.
Since the protests began, more than 100,000 Burundians have fled to neighboring countries Rwanda, Tanzania and the Democratic Republic of Congo. Many fear the ruling party’s youth wing militia ‘Imbonerakure’, according to the UN refugee agency.
The European Commission has disbursed $1.7 million to support and protect Burundian refugees in neighboring countries.
“Such sudden and massive displacement is a humanitarian tragedy and a serious challenge to neighboring countries’ capacities to accommodate refugees. It is a serious concern in an already fragile region,” EU Commissioner for Humanitarian Aid and Crisis Management, Christos Stylianides, said.
Burundi’s economy has grown by more than 4% annually since 2012 despite several constraints.
Last year, the International Monetary Fund (IMF) warned that the country’s medium term economic outlook remains bleak with risks arising from political uncertainties ahead of the general elections and ‘vulnerability to external shocks given Burundi’s narrow export base’.
According to Venuste Karambazi, an independent analyst based in Rwanda, Nkurunziza’s decision to run for office will put a damper on the struggling economy.
“Burundi is a poor country, so when there are riots, like the case now, these contribute to weakening the economy more and more. The capital is paralyzed, trade is paralyzed and other social activities come to a stop. This is a danger to the economy which is already weak. If the situation continues, we risk having a Burundian economy that is destroyed,” Karambazi said.

Genocide Looms Over  The Streets Of Flames

East Africa is fast emerging as an important investment destination going by the recent Foreign Direct Investments (FDI), according to the 2014 Africa attractiveness survey by Ernst &amp; Young.
Four East African countries were ranked in the top 10 countries by FDI projects in 2013, showing the regions increasing attractiveness among investors. FDI projects into the region increased by 7.4% in 2013 compared to the previous year, second only to West Africa which registered an improvement of 20.5%.
Also for the first time, the region overtook North Africa in terms of FDI projects. The region that includes Kenya, Tanzania, Uganda, Rwanda and Burundi accounted for 17% of FDI projects flowing into sub-Saharan Africa between 2007 and 2013, which according to the survey have grown at a Compounded Annual Growth Rate (CAGR) of 23.4%, the second highest in Africa.
East Africa’s main attraction lies in its growing market potential which is made up of 210 million people, an improving economic environment, infrastructure development, political stability, ongoing integration through the East African Community (EAC) initiative and the recent discoveries of gas and oil.
Rising disposable incomes have seen financial services, retail and consumer products (RCP) and technology, media and telecommunication (TMT) become the three most targeted sectors in the region. Banks have seen the usage of their mobile phone services by their more than 50 million subscribers increase  more than six-fold in the past five years, making East Africa the world’s fastest-growing market. Notable investor countries include Kenya, United States, Britain and India. Kenya leads the pack as the biggest investor increasing its investments by 9.5% in the 2012-13 period according to investment specialists fDi Intelligence.
Kenya, being the biggest economy in the region, has naturally seen plenty of interest directed its way. The country attracted the second-highest number of FDI projects last year behind South Africa. In addition, FDI projects into the country have been increasing at a CAGR of more than 40% in the past seven years. With such high interest, it’s not surprising that Nairobi is home to some of the biggest international organizations such as HSBC, Bank of China and IBM. The latter even established its first African innovation hub in the capital, further shoring up the city’s status as a telecommunication hub.
The attractiveness survey that tracks FDI in the region shows Nairobi’s share of FDI projects in Africa has increased fivefold from just 1.5% in 2007 to 7.5% in 2013. Nairobi is now listed third as the most attractive city to do business in sub-Saharan Africa.
Tanzania is not far behind, especially following its recent natural gas discoveries. The country, which also ranks as Africa’s third largest gold producer, has seen FDI projects grow at a CAGR of more than 23% in the past seven years which is impressive considering its need for more infrastructure. Dar es Salaam is set to become Africa’s fifth-most populous city in Africa by 2030 and will see the greatest expansion of middle class households with incomes between $5,000 and $20,000 every year by 2030.
Uganda which debuted in the ranking of the top 10 countries in 2013 also grew its FDI projects by more than 20% since 2007. Recent oil discovery may keep the momentum of double-digit growth for a long time to come. Neighboring Rwanda has equally enjoyed impressive growth in the past few years underpinned by huge investments in IT infrastructure &#8211; the country laid fiber-optic cables covering the whole country in 2010 &#8211; and increasing ease of doing business, which has seen the country ranked 32nd on the World Bank’s Doing Business rankings in 2014 and third in sub-Saharan Africa for its favorable business environment.
The remarkable progress in FDI inflow shows the improving perception toward the region. Ongoing work toward a common currency by 2023, together with the plans to make the region operate as a common market, should further boost East Africa’s attractiveness in the coming years.
Already the common market protocol which came into force three years ago, and set to be fully implemented by 2015, is expected to achieve the four freedoms &#8211; free movement of people, goods, services and capital within the region.
This should help grow East Africa’s intra-regional investment and encourage regional integration. With such progress, it’s undoubtable that the future is bright.

The Investment Hotspot

East African athletes are renowned for the awards they have collected due to their legs. Ethiopian and Kenyan runners are world-record holders across distances from the marathon to the mere 800 meters. Now, there is another sport for which they are flexing their muscles: cycling.
Rwanda is the unlikely candidate leading the bike boom. Five years after Jonathan ‘Jock’ Boyer – the first American to participate in the Tour de France – set up Team Rwanda, the country sent its first cyclist to the Olympic Games.
Adrien Niyonshuti – a survivor of the genocide that killed six of his brothers and a million other countrymen – rode in the mountain biking event. He was placed 39th of 40 riders, but that hardly mattered because he put Rwandan cycling on the map.
Niyonshuti is now a professional rider contracted to South African team MTN Qhubeka, which competes at events across five continents, including Niyonshuti’s home country in the Tour of Rwanda.
The race is 25 years old and this year, for the first time, it is set to launch a women’s version. Should the plan come to fruition, it will be the first major stage race for women on the African continent.
The wheels to turn cycling from a mode of transport into a competitive sport were put in motion by complete chance. In 2006, Boyer was lured to Rwanda by a childhood friend, Tom Ritchey, a bicycle frame designer and builder, who had traveled to the country. Like many foreigners who came to the country after the genocide, he wanted to serve the people and had a skill that could benefit them.
Ritchey had an association with American businessman Daniel Cooper, who was involved with Starbucks. Rwandans transported their coffee harvest on foot or by single speed Chinese bicycles. Cooper wanted to make the process more efficient. Ritchey designed a special cargo bicycle with an elongated rear to distribute through a non-profit start-up called Project Rwanda.
Their masterpiece was to be unveiled at a rally, the Wooden Bike Classic, which would feature races between cyclists, taxis and motorbikes and, for the first time, a mountain bike race. Niyonshuti, who was 15 at the time, won the climbing event. Boyer was impressed with the teenager’s potential and promised to return, but few believed him.
The following February, true to his word Boyer came back and started recruiting a team. He tested cyclists and selected the top 10 for intensive training. Niyonshuti was among them. A month later, Boyer handpicked him to complete in the Cape Epic, the biggest professional mountain bike event in the world that is held in South Africa. Boyer and Niyonshuti raced as a team and finished 33rd out of a field of 607.
That was how the concept of Team Rwanda took off. The coffee-carrying vehicles formed part of the broader project. They were sold at cost, usually on credit, to vendors, while the professional cycling arm was to make itself financially viable through donations and eventually corporate sponsorship.
Money has dripped in and the aim is to assemble a team that will compete at the Tour de France.
“Everything is progressing towards seeing an all-African team at the Tour de France. It will not be an all-Rwandan team but a team made up of riders throughout the continent,” Kimberly Coats, Team Rwanda’s director of marketing and logistics told Forbes Woman Africa.
“Federations across Africa are getting more involved and putting more money into cycling. What we need most is money, financial support and a commitment to sponsorship from local, national and international companies. The future of cycling is Africa, it’s now time to invest in this continent’s young talent.”
For the same reason, Team Rwanda has not been able to extend itself to women just yet.
“With our limited budget and the lack of races in Africa, we have focused on the men,” says Coats.
But if interest levels are anything to go by, Rwandan women are enthusiastic about cycling despite the difficulties they face in participation.
“Culturally, it’s not like America, where girls grow up playing sports and it’s okay. The girls in Rwanda grow up working in the fields, taking care of numerous siblings, dropping out of school early and then starting a family of their own. Sport isn’t something that they even think about,” says Coats.
Gender inequality affects much of the region and continent. Cast an eye to western Kenya’s Kisumu county, where a hotly-debated law could see women forced to sit sideways on motorcycles and bicycles because it is considered improper for them to straddle.
“Bicycles have brought a culture that is really demeaning to our women,” says Kisumu county assembly member Caroline Owen.
With attitudes like that, it is understandable why women are reluctant to take up sport in some areas, but in Rwanda the trend is catching on. Cricket is played widely, especially at schools. There are 10 institutions with established women’s teams and an inter-school tournament, sponsored by an Indian family, was introduced in February of last year.
Stories like these give hope to Rwandan women cyclists, that soon they too may receive the funding they need to race. They already have the support of the Rwandan Cycling Federation (RCF) and hold monthly races, in which women participate. In November 2011, the runlikeagirl.com blog reported that one of those events drew 84 female participants including Angelique Mukanekezi, who caught the interest of Boyer and Coats. She is part of their training program, which is slowly growing to accommodate women.
In March 2012, the national federation held a 40 kilometer race exclusively for women. Over 100 women took part.
“One of our objectives this year is to develop the sport among women so that we have a national team of women cyclists,” says Emmanuel Murenzi, executive secretary of the RCF.
The country is getting there. Last year, Rwanda sent two women to the Continental Championships in Egypt. The men’s team took bronze in the overall event and the two women finished 8th and 10th in the women’s junior event out of a field of 15. Their progress was hailed by Murenzi, who promised that this year they will up their game even further.
The next and biggest step will be to hold a women’s Tour of Rwanda and Coats sees no reason why that boundary cannot be breached. She also believes in Team Rwanda’s ability to cross borders. They have been asked to expand their project to Ethiopia and Eritrea and if they can find the funding. Soon, the men and women of East Africa will have another discipline to stretch their legs for.

Hope On Two Wheels

Significant oil and gas discoveries in East Africa have sparked excitement and hope that the region can transform its economies, providing thousands of new jobs and lifting many people out of poverty.
But the jury is still out on whether the frontier countries of Uganda, Kenya, Mozambique and Tanzania can avoid the ‘resource curse’ which has dogged the continent’s biggest oil producers, Nigeria and Angola. This is when the exploitation of abundant mineral resources leads to a weakening in governance, economic distortions, slowing growth and a deterioration of living standards for the poor.
The history of oil development in Africa so far has not set a happy precedent. Oil accounts for more than 90% of the export revenues of Nigeria and Angola, and has fueled rapid rates of economic growth. But the influx of wealth has not led to the kind of broad economic development required for either country, or for the more than half of their combined population of 180 million still living in grinding poverty.
The International Monetary Fund says that $32 billion went ‘missing’ from Angola’s coffers between 2007 and 2010, while other studies suggest that several billion dollars worth of oil revenues have been embezzled in Nigeria.
However Nigeria has recently taken a very positive step. It has established sovereign wealth funds to manage excess earnings from crude oil and gas, by putting aside money for future generations, funding infrastructure and stabilizing its budget.
Ghana, a newcomer to Africa’s oil and gas frontier, has started out on a promising note. The country is on track to become the continent’s third-biggest oil producer, with output of 400,000 barrels per day (bpd) in a few years. This is a fraction of the output of both Nigeria and Angola, which are each producing closer to two million bpd. But Ghana, with a population of 25 million, has taken steps to manage its resources in a transparent and efficient manner. In 2011, the government passed laws to govern how oil revenues are allocated. It created a public interest and accountability committee to monitor the process, with 13 members from professional bodies, think tanks, and pressure groups. And like Nigeria, Ghana’s government has also prepared the ground for a sovereign wealth fund.
Modest quantities of oil have been discovered recently in Uganda and Kenya. Kenya has the advantage of being a highly diversified economy, unlikely to be disturbed by a sudden influx of oil revenue. It also has a coastline which enables its oil to be exported easily to expanding Asian markets. Uganda, on the other hand, needs a pipeline to transport its crude to Kenyan ports. Kenya is set to become the first oil exporter in East Africa, but its reserves of 300 million barrels are dwarfed by those of Uganda, which has 2.5 billion barrels. The Kenyan government is reviewing petroleum sector laws and discussing with stakeholders how better to allocate its resources to drive infrastructure development as well as expanding training and education.
However, it is the massive natural gas discoveries off the coasts of Tanzania and Mozambique which have generated the most excitement about the region. At present, the two countries (mainly Mozambique) are believed to have about 220 trillion cubic feet of natural gas offshore. This could eventually make the region one of the world’s top exporters of liquefied natural gas (LNG).
The challenges these two countries face in developing their resources are similar to those that must be tackled in Kenya and Uganda. Firstly, massive infrastructure development is needed
for the conversion of gas to LNG, which could drain money from other sectors of the economy. The price tag of proposed oil and gas investments in Uganda, Tanzania and Mozambique amounts to about $50 billion, which is very large relative to the size of their economies.
Not only are the projects capital intensive, but it will take several years for significant revenues to be gene-rated, which means that these countries need to tap international credit markets. This poses a problem as none of them has investment-grade credit ratings, which will make borrowing costly. One possible strategy would be to incorporate infrastructure development requirements in the deals signed with international oil companies, provided they make financial sense.
East African oil and gas producers need to ensure that they get a fair slice of the pie in these agreements, without deterring investment. They must also increase their power- generating capacity to keep up with a faster pace of economic growth, Standard Bank warns in a recent report. Taking everything into consideration, energy policy must move swiftly to keep up with the breathtaking pace of oil and gas development in  the region.

Can Africa shrug off  the resource curse?

Despite its problems, East Africa’s third-largest economy has enjoyed a measure of political stability. In 1986, pragmatic former guerrilla leader, Yoweri Museveni, overthrew President Milton Obote and his National Resistance Movement (NRM); he has dominated the political landscape ever since and is expected to do so for the foreseeable future.
This vestige of political stability, coupled with western-backed economic reforms, culminated in robust economic growth for the east African nation. Between 2006 and 2010, growth averaged an impressive 7.2%. Growth has been supported predominantly by coffee exports, household consumption and infrastructure development. The commencement of oil production, following the discovery of oil in 2006, will be a further boost for growth in years to come.
However over the past financial year growth has taken a knock and was the lowest it has been for several years. Official statistics show growth to have slumped to 3.2% in FY2011/12, down from 6.7% the previous financial year. Growth was weighed down by rampant inflation and weak external demand, primarily emanating from concerns surrounding the Eurozone debt crisis.
<div id="attachment_994" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-994" class="size-large wp-image-994" src="/wp-content/uploads/2017/04/iStock_000001291877Medium-683x1024.jpg" alt="" width="474" height="711" />The equator, exactly at zero degrees north or south, The line is also painted on the road.</div>
The International Monetary Fund (IMF) expects growth to improve to 6% in 2012 and rise to 7% in 2013. Growth is likely to benefit from less stringent monetary policy on the back of subdued inflation. This is likely to improve credit extension to the private sector that had been adversely affected through tight monetary policy pursued since the middle of last year.
Inflation last year spiralled out of control prompting the Bank of Uganda to raise the central bank rate from 13% in July to 23% in November. Inflation decreased to 18% in June, from 18.6% a month earlier. Declining inflation allowed the central bank some scope to ease the policy rate. The central bank rate was lowered to 19% in July, down from 20% in June. Despite falling inflation, the Bank of Uganda is likely to be cautious in its monetary policy stance in months ahead. Rightly so as core inflation still remains high at 19.5% as of June.
Fiscal policy will complement monetary policy and remain accommodative in line with the country’s infrastructural and developmental ambitions.
Macroeconomic policy will be further anchored through the IMF’s Policy Support Instrument (PSI) program currently in place. In June the IMF gave the program a thumbs up which will soothe investor concerns.
There are several risks to growth in coming years. Uncertain global growth given the lack of a comprehensive and permanent solution to the European sovereign debt crisis should keep external demand low and continue to curtail exports. About 22% of Ugandan exports are destined for Europe.
Slowed global growth should keep energy prices low. Conversely, inflation will soar in the event that oil prices rise significantly. Food inflation in particular will also be dependent on rainfall conditions. Poor rains drove food inflation higher last year and it remained sticky at 12.7%, in June.
The possibility of war between Sudan and South Sudan will also have a considerable bearing on Uganda’s growth. The two neighbors engaged in border conflicts earlier in the year and have threatened each other with full-blown war. In the unfortunate event of war, Uganda has pledged to support South Sudan. A war between the two neighbors would threaten lucrative trade between Uganda and South Sudan.
Uganda has been rocked by mass protest following the general elections last year, which threatened the county’s stability. Continued protest will disrupt production. The protests have been led by opposition leaders and aim to turn the government’s attention to rising living costs, unemployment and rising corruption levels. Worryingly though, the protests have turned violent and police heavy-handedness to quell the protests has been reported.
Investors will be watching the economy closely in months to come. Top on their radar will be how quickly President Museveni addresses protests concerns. Any escalation of the protest would be detrimental to the economy. Investors will also have an eye on the commencement of oil production slated for 2013.

Uganda — Buffeted But Breathing

China is playing a big role in African oil through its exploration companies, like Sinopec and the Chinese National Petroleum Corporation, which are showing an increased interest in the commodity.
<div id="attachment_150" style="width: 484px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-150" class="size-large wp-image-150" src="/wp-content/uploads/2017/04/Par1912664-1024x685.jpg" alt="" width="474" height="317" />UGANDA-CONGO-OIL-CONFLICT-FISHERMEN</div>
Duncan Clarke, chairman and CEO of Global Pacific &amp; Partners, and a leading authority on African oil, says that most of the BRICS nations, along with emerging economies such as Korea, have an interest in Africa. He says there are around 500 companies involved in upstream oil production on the continent, many opting for joint venture arrangements. Africa’s long-term oil and gas potential is huge but politics may hamper growth.
FORBES/FOCUS oil in Africa “The terms are getting tougher and what may appear demanding on the investor actually smacks of resources nationalism,” says Clarke. Political instability in the East Africa region has impeded any major developments over the past 20 years in countries like Somalia, Mozambique, Uganda and Ethiopia, according to research analyst at Frost and Sullivan, Ross Bruton. Aside from political instability, there is inadequate infrastructure, especially at ports. Refining capacity is lacking in many countries, including those with a long-established track record of reliable oil reserves such as Nigeria and Angola, according to Bruton. South Africa—which has no oil reserves to speak of—currently holds 80% of refining capacity in Southern Africa.
<h3>SOUTHERN AFRICA:</h3>
Southern Africa is not a major oil producer, with the notable exception of the Cabinda region of Angola which has reserves of over 5 billion barrels and surpassed the 2 billion barrel per day average production of African oil heavyweight Nigeria in 2008.
Oil companies with clout in Angola include the parastatal oil company Sonangol, Texas-based ExxonMobil, France’s Total and British Petroleum. California-based Chevron was the first multinational to be fined by an African country when Angola punished it for unsound environmental practices in 2002.
The Southern African scene may well change in the future through the discovery in July of 11 billion barrels of oil reserves o‑ the Namibian coastline. One of the key companies involved is a subsidiary of London-listed Chariot Oil, Enigma Oil &amp; Gas. “Much deep oil opportunity exists o‑ the coasts of Namibia and Angola,” says Bruton.
The DRC is a smaller oil producer with Total and Italian Oil Company Eni dominating. ExxonMobil and Chevron are also there. Mozambique is another exciting Southern African energy producer, according to Bruton. The country is a major developer of natural gas and supplies South African oil and gas heavyweight Sasol. Most recently, Mozambique’s oil authority announced that the US-based energy company, Anadarko Mozambique, had discovered a 200 billion cubic meter gas resource in the mineral-rich Rovuma basin, where Anadarko has significant investments.
<h3>EAST AFRICA:</h3>
Few strides in oil development have been made in East Africa because of political instability in the region. But the region has vast oil potential. Somalia alone has estimated reserves of around 10 billion barrels, but the country’s troubled political climate is scaring o‑ investment. Tullow Oil, which operates in 15 African countries, is the only significant energy company with interests in East Africa. Its most notable holding is in Uganda’s Lake Albert
Rift Basin where 1.1 billion barrels have been discovered, with a further 1.4 billion expected to be found. Tullow says that it could produce as much as 200,000 bpd in the country, but has run into difficulties. Some exploratory e‑ ort has been made in relatively stable Kenya, but with little success to recommend the country as a viable energy developer. However, mineral discoveries in Mozambique have spurred hope that black gold is lurking underneath Kenyan soil. Media reports from the country claim that small, independent developers are selling their licenses to Western-based energy giants, although details on these deals are not forthcoming.
<h3>WEST AFRICA:</h3>
Nigeria has the biggest explored oil reserves in sub-Saharan Africa with a presence by most of the major oil producers. It has an estimated 37 billion barrels worth of petroleum compared to Angola, which is the next biggest oil producer in Africa at 13 billion barrels. Both countries are restricted to 2 million bpd production by OPEC. Ghana is another potential rich producer in West Africa—40 billion barrels worth of reserves are estimated and these are located deep at sea. Bruton says attention has turned towards Ghana since the Gulf of Mexico oil spill disaster, which has prompted more regulation on deep sea oil exploration in the northern hemisphere. Tullow operates in Ghana’s Jubilee Fields, which are estimated at 1 billion barrels. Production is seen reaching 120,000 bpd this year.

Tag: East Africa

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