Fixed Income, Currency and Commodities

Transcription

1 Ecobank Middle Africa Guidebook 2013: Fixed Income, Currency and Commodities Translating Local African Knowledge into Performance. ecobank.com

2 : Currency Volatility (2009-) The front cover imagery illustrates the exchange rate volatility of Middle Africa currencies between The data clearly demonstrates that some currencies are more volatile than others Why? The strength of export revenues and import demand, the level of FX reserves, capital flows and capital account restrictions and economic growth are all contributory factors, but the key driver is the exchange rate regime, i.e. is it a fixed or floating system or a hybrid. For example, the Ghanaian authorities operate a floating exchange rate regime, which helps to explain the volatility of the Cedi relative to other currencies. Contrastingly, fixed exchange rate regimes or managed floats, such as that implemented in Nigeria, are much less volatile. The ability to maintain a fixed rate depends on the authorities holding sufficient FX reserves to defend their fixed rate if necessary. Nigeria, for example, currently has around USD47 bn of reserves, equivalent to the value of nearly 6 months of the country s imports. There are advantages and disadvantages to both types of regime. In some countries with floating regimes, currency risk and increased transaction costs have increased, in turn reducing the gains from international trade. Equally, with fixed regimes, if there is a sharp devaluation as FX reserves come under pressure, this can lead to major trading and investment losses. Ultimately, there is no right or wrong exchange rate regime. However, over the past decade, there has been a shift from intermediate exchange rate regimes (i.e. soft pegs) to fixed or floating regimes, as soft pegs are not viable in the long term and are more open to crises. Translating Local African Knowledge into Performance. Central Africa (XAF) Ghana (GHS) Zambia (ZMK) -0.5 Kenya (KES) (XOF) Nigeria (NGN)

3 Ecobank: Group at a glance Where we operate in Middle Africa Ecobank is a full-service bank focused on Middle Africa. It provides wholesale, retail, investment and transactional banking services to governments, financial institutions, multinationals, local companies, SMEs and individuals. The Group has 23,355 employees in 35 countries. Unrivalled pan-african network Ecobank is present in more countries in Africa than any other bank in the world. Ecobank currently is present in 32 countries across the continent, as highlighted in the map opposite. The Group also has a subsidiary in Paris and representative offices in Dubai and London. One Bank Ecobank operates as One Bank with common branding, standards, policies, processes and technology to provide a consistent and reliable customer experience across the entire network. At 31 December, Ecobank had a unique network of 1,226 branches, 1,681 ATMs and 4,259 POS machines, servicing over 9 million customers Diversified business mix Ecobank s mix of retail, wholesale and investment banking is diversified across geographies, customers and products to provide a sustainable platform for long-term growth and value creation. Sustainability Ecobank seeks to comply with international best practices in key areas such as business ethics, anti-money laundering and corporate governance. We also seek to factor social responsibility and sustainability into our business approach and to contribute to poverty alleviation and wealth creation. Investment story Incorporated in Lomé, Togo, Ecobank Transnational Incorporated (ETI) is the parent company of the Ecobank Group. ETI is listed on the BRVM in Côte d Ivoire, the Ghana Stock Exchange and the Nigeria Stock Exchange and has over 585,000 shareholders.

4 Key Not yet present in Ethiopia Not yet present in Angola and Mozambique 01. Benin 02. Burkina Faso 06. Mali 07. Niger Cape Verde 04. Côte d Ivoire 08. Senegal 09. Togo 05. Guinea Bissau Nigeria / Rest of 10. Ghana 11. Guinea 14. Sierra Leone 15. The Gambia Liberia 13. Nigeria Central Africa 16. Cameroon 17. Central African Republic 18. Chad 19. Congo 20. Equatorial Guinea 21. Gabon 22. São Tomé and Príncipe 34 East Africa 23. Burundi 24. Ethiopia 27. Tanzania 28. Uganda 25. Kenya 26. Rwanda Southern Africa 29. Angola 30. Democratic Republic of Congo 33. Zambia 34. Zimbabwe 31. Malawi 32. Mozambique

5 Contents Foreword by Albert Essien, Deputy Chief Executive Officer, Group Executive Director, Corporate & Investment Bank, Ecobank Group by Paul-Harry Aithnard, Group Head, Research Ecobank s FICC Credentials Ecobank: Group at a glance Page 3 Page 4 Page 5 Page 6 regional economic overview Banking and financial sector overview Hydrocarbons overview Soft commodity overview Page 8 Page 26 Page 32 Page 38 : Country Profiles Nigeria / Rest of : Country Profiles Central Africa: Country Profiles East Africa: Country Profiles Southern Africa: Country Profiles Benin Burkina Faso Cape Verde Côte d Ivoire Guinea-Bissau Ghana Guinea Liberia Nigeria Cameroon Central African Republic Chad Congo, Republic of Equatorial Guinea Burundi Ethiopia Kenya Rwanda Angola Democratic Republic of Congo Malawi Mozambique Page 54 Page 60 Page 66 Page 70 Page 76 Page 108 Page 116 Page 122 Page 126 Page 148 Page 154 Page 158 Page 164 Page 170 Page 188 Page 194 Page 198 Page 206 Page 226 Page 232 Page 238 Page 244 Mali Niger Senegal Togo Sierra Leone The Gambia Gabon São Tomé and Príncipe Tanzania Uganda Zambia Zimbabwe Page 82 Page 88 Page 94 Page 100 Page 134 Page 140 Page 176 Page 182 Page 212 Page 218 Page 250 Page 258 Southern Africa East Africa Central Africa Nigeria / Rest of 1

6 Foreword Welcome to this second edition of Ecobank s Fixed Income, Currency and Commodities (FICC) Guidebook. It reflects our commitment to providing our clients with an essential reference document to assist in monitoring key developments in debt markets, exchange rates, macroeconomic performance, and commodities across the 30 plus African countries that constitute our Middle African footprint. Middle Africa represents a market of over 910 million people with a combined GDP of nearly USD1.3 trillion. It remains one of the fastest growing regions in the world, thanks to macroeconomic policy improvements, a stronger business climate brought about by ongoing reform, and attractive demographics, with an emerging middle class whose disposable income is increasing each year. Yet it tends to be a region that is under-researched and, as a result, misunderstood or overlooked by international institutional investors. Having seen first-hand the development of Africa s financial markets and investment opportunities for more than 30 years, I understand the complexities of investing in Africa and recognize the importance of having access to up-to-date and comprehensive information when making investment decisions. Thanks to the combination of the Ecobank Research platform and a seamless retail, corporate and investment banking presence across Middle Africa, we believe that we are able to gather information that is often difficult to access and present it in a clear and concise manner. In turn, our expertise and local knowledge helps to support our clients business operations, underpinning not only their growth but also that of Middle Africa. Whether you are relatively new to the continent or are an experienced investor, I would encourage you to consider Ecobank as a key strategic partner as you look to expand and diversify your African businesses and portfolios. I strongly believe that Ecobank s pan-african reach and local knowledge can afford you a competitive edge. Albert Essien Deputy Chief Executive Officer Group Executive Director, Corporate & Investment Bank Ecobank Group Southern Africa East Africa Central Africa Nigeria / Rest of 3

7 Nigeria / Rest of Central Africa East Africa Southern Africa 2013 is proving to be another year of strong growth in Middle Africa, which we define as the region between the Maghreb and South Africa, despite external headwinds from the global economy. The Eurozone crisis is slowly being resolved and the US recovery appears more resilient than previously thought. Meanwhile, growth in Asia remains robust, notwithstanding a recent slowdown in China. Despite these ongoing challenges, Africa continues to grow, thanks to numerous attractive investment opportunities and strong domestic demand. Moreover, Middle Africa is growing in importance for global investors searching for yield; thanks to our pan-african footprint, Ecobank can provide this wider, international audience with unique investment perspectives. This under-researched region is the fastest growing part of Africa, including many of the world s fastest growing economies in , according to the IMF. Middle Africa s macroeconomic fundamentals have improved significantly, thanks partly to the bull run in commodities, but also to ongoing policy reform. On average, public debt levels remain moderate at around 40% of GDP (down from an average of 64% in 2007, before the global crisis). Inflation has fallen significantly from over 16% in 2008 to an average of 6%, affording greater currency stability and more flexible exchange rate regimes. Domestic fixed income markets have expanded, with domestic public debt issuances, now in excess of USD20 billion, exceeding foreign and external debt. The yield curve in several countries has extended to 20 years and, in one case, 30 years, and market infrastructure has been reinforced. The investor base has also widened, with increased appetite for these markets from local and international investors. Nevertheless, there remain risks to Middle Africa s outlook. A renewed Eurozone crisis would have a major impact on the continent s prospects, due to Africa s dependence on European bank credit and trade. The policy options of African governments are limited by reduced fiscal space, inflationary pressures from higher fuel and food prices and the limited effect of monetary policy on some African financial sectors. More importantly, weaker global investor confidence would affect Africa s local currencies and markets, especially in those countries where foreign portfolio inflows add to local market liquidity. In general, however, the continent s exposure to European banking risks has been reduced significantly and the growing depth of domestic financial markets is reducing its dependence on European funding. Our bullish stance is not solely predicated on Africa s growth story. There is a structural trend the global search for yield which will underpin Africa s performance, despite challenging market conditions. As African capital markets deepen and become more sophisticated, institutional asset allocations will diversify to include fixed income markets, following the model of other frontier markets. The fixed income asset class in Africa is becoming increasingly attractive as liquidity improves and local credit markets attract new issuers. Indeed, Ecobank launched the first ever African domestic bond index, the Ecobank MABI (Middle Africa Bond Index), in late 2011 to provide a much needed benchmark for Middle Africa s fixed income markets We hope you will enjoy using our second edition of the Middle Africa FICC Guidebook and that it will encourage you to investigate Ecobank s wider research, corporate and investment banking capabilities further. For example, our online research portal ( provides easy access to up to date, insightful analyses of Middle Africa s FICC markets from Ecobank s award winning research team. Successful investing in Africa requires patience, but the rewards can be very high. As this is a continent of 55 very diverse countries at varying stages of economic development, it is very important to understand local regulations, business practices and culture. Ecobank is uniquely positioned to inform your investment decisions by providing such local knowledge. We look forward to working with you in the future. Paul-Harry Aithnard Group Head of Research 4

8 Ecobank s FICC Credentials Ecobank s Corporate and Investment Banking division is responsible for the Group s Fixed Income, Currencies, and Commodities-related business across Middle Africa. We offer African and international clients an unrivaled capability to trade currencies and sovereign and corporate fixed income securities, together with a wide variety of soft commodity financing instruments in these markets. Ecobank s in-country Treasury teams undertake fixed income and currency transactions via a one-stop shop facility to provide a seamless service. Thanks to our thorough knowledge of Middle African markets, economies, and policies, Ecobank is able to meet any requests, be they local, regional, or global, from initial enquiries to completing trades for a wide range of products. We understand local business customs, regulations and country-specific risks better than any other bank in Africa because we operate on the ground each and every day. This enables us to support our clients in developing their businesses across Middle Africa. Our clients receive a dedicated service which, based on a thorough understanding of their business, provides tailored options and solutions. The country-based client service team is supported by our Paris-based global treasury business and our team of economic, financial, and commodity specialists. Clients can also access Ecobank s wide range of corporate and investment banking services via our team of in-house corporate advisory specialists and our network of correspondent banks. Please direct any questions or requests to the Ecobank country contacts provided below or to the affiliates using their contact details as provided in the country pages of this guidebook. Alternatively, please visit for further information regarding the Ecobank Group. Key Contacts Group Head, Treasury Aziz Dia [email protected] Tel: Tel: Regional Treasurer, International Olivier Carrolaggi [email protected] Tel: Tel: Head of Currencies and African Assets Distribution Vicente Pons [email protected] Tel: Acting Group Head, Investment Banking Ikenna Onyejiaka [email protected] Tel: Tel: Group Head of Research Paul-Harry Aithnard [email protected] Tel: Tel: Group Head, Financial Institutions and International Organizations Sebastian Ashong-Katai [email protected] Tel: / 6431 Tel: / Head of Economic Research Angus Downie [email protected] Tel: Tel: Southern Africa East Africa Central Africa Nigeria / Rest of 5

9 Ecobank: Group at a glance Central Africa East Africa Southern Africa Nigeria / Rest of Our global network Ecobank s international operations are in six countries, running six offices, with over 70 employees that look after corporate and investment banking clients. Very strong revenue and profit growth reflects the relatively new operations, particularly in London, that opened in early The importance of the international operations lies in their ability to channel investors interest and finances towards Middle Africa and the development of its people and resources. Our representative offices are located in: A Dubai B Johannesburg C London D Luanda E Paris F Beijing G New York* * Plans to open representative office in the near future. Our key figures as at 31 December 18,564 Ecobank employees 9.6 mn Ecobank customers F 20 bn Total assets US$ 2.2 bn Total equity USD C E 1,226 Branches and offices 1,681 Ecobank ATMs D B A Our business segments Corporate and Investment Bank We provide financial solutions to global, regional, and public corporates, financial institutions, and international organisations. Products and services include pan-african lending, trade services, cash management, internet banking, and value-chain finance. We also provide treasury services, corporate finance, investment banking, and securities and asset management. G Domestic Bank We provide a full range of convenient, accessible, and reliable financial products and services to more than 9 million individuals, small businesses, local corporates, and public sector organizations, through our extensive network of 1,226 branches and offices, 1,681 ATMs, and 4,259 points of sale. 6

10 MOROCCO TUNISIA ALGERIA LIBYA WESTERN S AHARA EGYPT CAPE VERDE THE GAMBIA GUINEA-BISSAU SENEGAL MAURITANIA GUINEA MALI BURKINA FASO BENIN NIGER NIGERIA CHAD SUDAN ERITREA DJIBOUTI SIERRA LEONE CÔTE D IVOIRE G HANA CENTRAL AFRICAN REPUBLIC SOUTH SUDAN ETHIOPIA CAMEROON EQUATORIAL GUINEA SÃO TOMÉ & PRÍNCIPE CONGO GABON D.R. CONGO RWANDA BURUNDI UGANDA KENYA SOMALIA 9 Countries Benin Burkina Faso Côte d Ivoire Cape Verde Mali Niger Senegal Togo Guinea Bissau 246 Branches 2,672 Employees Rest of 5 Countries Ghana Guinea Liberia Sierra Leone The Gambia 147 Branches 2,408 Employees 1 Country 610 Branches 9,993 Employees Nigeria 7 Countries Cameroon Chad Central African Republic São Tomé Rep. of Congo Gabon Equatorial Guinea 76 Branches 989 Employees Central Africa 5 Countries Rwanda Kenya Burundi Uganda Tanzania 76 Branches 1,220 Employees ANGOLA NAMIBIA East Africa SOUTH AFRICA BOTSWANA ZAMBIA SWAZILAND LESOTHO ZIMBABWE 5 Countries D.R. Congo Malawi Zambia Zimbabwe Angola 40 Branches Southern Africa 515 Employees TANZANIA MOZAMBIQUE MADAGASCAR 5 Countries France UK Dubai South Africa USA China Branches 74 Employees International Southern Africa East Africa Central Africa Nigeria / Rest of The number of employees for the Group is inclusive of employees of ETI, EDC, and eprocess, which are not represented in our geographic cluster distribution. The number of branches for the Group is inclusive of a number of offices that are not part of the numbers for the clusters. The Group total assets and revenues are made up of numbers from our geographic clusters, other entities not part of our cluster grouping, and the impact of consolidation adjustments. 7

11 regional economic overview Nigeria / Rest of Central Africa East Africa Southern Africa Global Economy The global economy is beginning to recover after the slowdown in, which was largely caused by adverse developments in the eurozone and the US fiscal/debt crisis. However, while global economic prospects appear to be improving in 2013, there is a concern that a pattern first seen in 2010 may be repeating: growth in developed economies starts each year on a relatively strong, upward trend only for it to slow significantly by Q2 onwards as a result of pressures in developed economies. It is too early to confirm whether or not this trend will be repeated, but what appears clear is that the recovery in many developed economies is likely to remain weak through end 2013, although the likely tapering of quantitative easing in the USA starting in the latter part of 2013 signals a stronger recovery in the USA than previously predicted. Global GDP growth is likely to accelerate by 3% in 2013 with a slight pickup to 4% in Following a weak start to 2013, activity in large developed economies is expected to increase gradually, with the USA at the forefront despite the fiscal and debt problems it continues to face. Despite this somewhat uncertain start, policymakers in developed economies successfully tackled two major problems in and early 2013, preventing the eurozone from breaking up, and reducing a sharp fiscal contraction in the USA caused by sequestration linked to the fiscal cliff. In contrast, growth in many emerging markets and less developed economies remains relatively strong, supported by policy easing that has boosted internal demand. Caution is necessary, and this could require monetary policy tightening to prevent asset bubbles from forming. A weak but steady improvement looks likely for the global economy: however, ongoing pressures remain evident and new risks have emerged. There are risks stemming from what happens in the eurozone (for example, adjustment fatigue, insufficient reform, and prolonged stagnation) and from how the USA tackles its large fiscal deficit and high level of debt. Meanwhile, Japan recently adopted more expansionary macroeconomic policies in response to its long-standing economic malaise. However, if monetary easing is mishandled, it could disrupt global trade and lead to currency wars. Faced with these challenges, developed economies will probably maintain a gradual but sustained fiscal adjustment that supports growth along with a continuation of accommodative monetary policy. 8

12 regional economic overview Sub-Saharan African Economy Sub-Saharan Africa (SSA) continues to withstand most of the effects of the global crisis and is expected to remain largely insulated from adverse global economic developments in the remainder of 2013 and beyond. Strong real growth at some of the highest levels in the world reflects various factors: improved weather prospects, robust domestic demand, strong population growth, ongoing demand for exports (particularly from Asia), and high global commodity prices along with strengthening macroeconomic policies, capital markets, and infrastructure. Although nearly all countries expanded in, some were adversely affected by weakness in the eurozone. Currency pegs to the euro and/or strong trade links to Europe highlight some of the direct links that will remain a major concern for the continent in Moreover, weak global growth is likely to moderate growth in Middle Africa s export sector, which in turn could increase pressure on some currencies following relatively strong depreciation in. Inflation slowed in, particularly in eastern Africa, largely due to stabilizing global food and energy prices. Tighter monetary policies helped slow inflation in early 2013 although prices rises have recently strengthened. Nonetheless, inflation should remain somewhat moderate under the assumption that there will be no oil or other commodity price shocks. Macroeconomic policies vary between countries, but many were generally accommodative for most of However, strong growth in many countries should help rebuild support for future policy interventions. The business operating environment in many countries in SSA has improved over recent years. Although there has been some slippage, governments recognize the benefits of strengthening their investment climates, which is something that in SSA has underpinned many countries improved scores in global competitiveness rankings. Meanwhile, most Middle African banking sectors remain largely insulated from global financial strains owing to limited levels of global financial integration (bar the trade channel). However, improvements in portfolio quality, liquidity, and revenues would be welcome. There are major risks in the outlook due to global uncertainties. Sustained financial pressures in the eurozone could slow growth in sub Saharan Africa in the remainder of 2013 with an adverse impact on individual countries depending on the importance of direct links to Europe. Another oil price shock could drive inflation up, cut growth, and strain fiscal and external balances in oil-importing countries. Southern Africa East Africa Central Africa Nigeria / Rest of 9

13 regional economic overview Africa in a Global Context: Key Indicators Middle Africa continues to grow strongly despite ongoing weakness in the global economy. Strong growth reflects robust domestic demand and a buoyant demand for exports in emerging markets (particularly Asia). Although sub-saharan Africa (SSA) accounts for a small share of global GDP, resilient growth over recent years has seen its share increase steadily. Moreover, strong population growth offers many opportunities to investors, which in turn will indirectly support increased exports and help underpin higher increases in FDI over coming years. Sub-Saharan Africa s share of global GDP SSA s share of global GDP is small compared with other regions. However, it remains one of the fastest expanding regions in the world in real terms. This is all the more interesting given investors sustained weak outlook for global growth in, some of which has carried over into 2013 as a result of the US fiscal/debt crisis and the ongoing crisis in the eurozone. Middle Africa s share of global GDP will rise in 2013 (and beyond) as its economies continue to grow robustly and the growth of developed economies stagnates or contracts over the short-term. Global GDP (2013e) Sources: IMF, WEO Africa s share of global GDP (USD mn) Sources: IMF, WEO Nigeria / Rest of 7% 4% 2% 32% Europe North America East Asia South America Middle East and North Africa Sub-Saharan Africa Europe North America East Asia South America Middle East Sub-Saharan Africa 25% Central Africa East Africa Southern Africa 30% Sub-Saharan Africa s share of global exports Highlighting the continent s dynamism, growth in the share of global exports has also accelerated sharply in recent years, and continued progress in infrastructure and policy improvements, will improve the business environment and make Middle Africa a more attractive location for investment. This in turn will drive productivity, much of which will be in export sectors. Sub-Saharan Africa s share of global population Population growth remains strong, which represents attractive opportunities for many firms looking to expand in Middle Africa s growing markets. Opportunities will increase across income brackets: at the low end, the huge number of consumers creates good prospects for providers of mass-market goods and services. Meanwhile, at higher income levels, sustained growth in the middle class, which remains relatively small, offers the potential to service these growing markets with more sophisticated products and advice e 10

14 regional economic overview Africa s share of global exports (%) Source: World Bank Europe North America Developing Asia South America Middle East and North Africa Sub-Saharan Africa Others Africa s share of global population (mn) Sources: IMF, WEO Europe North America East Asia South America Middle East Sub-Saharan Africa f f Sub-Saharan Africa s share of global FDI Hydrocarbons continue to represent the main sector attracting foreign direct investment (FDI) into Africa (excluding South Africa), but manufacturing, financial services, and telecoms are all growing in importance. The oil and gas sector will remain of great interest to oil majors because of investment opportunities that exist not only in countries that are established producers (Angola, Nigeria, and Gabon for example), but also for new producers (Ghana and Mozambique), and countries that offer the prospect of good returns (such as Kenya, Uganda, and Sierra Leone). Meanwhile, textiles, foodstuffs, and consumer goods are some of the growth areas to be exploited as are financial services, given Middle Africa s huge unbanked and underbanked population. Telecoms has seen strong growth in recent years, but the development of mobile banking and other telecom-based consumer services such as call-centers suggests there will be increased investment ahead as returns remain robust. Overall, FDI is likely to increase as investors seek to take advantage of these and other opportunities that will serve consumers in Middle Africa as well as those in Asia and developed economies. Africa s share of global FDI inflows (%) Source: World Bank f Europe North America Developing Asia South America Middle East and North Africa Sub-Saharan Africa Others Regional GDP (2013e) 35% 10% 7% 18% 7% 19% 4% Sources: IMF, WEO CEMAC UEMOA Nigeria Rest of West Africa SADC South Africa East Africa Southern Africa East Africa Central Africa Nigeria / Rest of 11

15 regional economic overview Nigeria / Rest of Central Africa East Africa Southern Africa Africa in a : Key Indicators Business climate The business operating environment in Middle Africa has improved over recent years in many countries. Although there has been some slippage, governments recognize the benefits of improving their investment and business climates, and this has underpinned many sub-saharan African countries improved scores in global competitiveness rankings. Of particular note is the progress made in improving infrastructure, such as power infrastructure, road networks, and customs efficiency, although progress comes from a low base and further improvements would be welcome. Meanwhile, as scores have improved, so too has economic performance: real GDP growth remains at some of the highest levels in the world, external sector performance has benefited from high global commodity prices, and inflation has recently started to fall, although some currencies have weakened owing to a combination of loose fiscal policies, external sector pressures, and economic shocks. World Bank/IFC Doing Business Recent trends indicate that governments in Middle Africa have increased their efforts to reform regulatory frameworks, particularly in the areas of launching a business, obtaining licenses, and registering properties. However, in many countries across Middle Africa, the private sector continues to struggle to conduct business owing to the poor quality of transport infrastructure and frequent power outages, both of which sustains the high cost of doing business in the region. Nonetheless, most governments realize the benefits to be gained from opening up their economies and improving the operating environment, such as higher tax revenues, improved standards of living, and greater access to capital. World Economic Forum Global Competitiveness Report In the WEF s most recent GCR, the majority of African countries continue to rank poorly in terms of global competitiveness, reflecting major challenges in the region. This includes infrastructure deficiencies, weak institutional capacity, labor market rigidities, weak property rights, poor access to finance, and the burden of customs procedures (although these are improving). However, governments realize the magnitude of these problems and are increasing their efforts to improve road, port, and power infrastructure. While improvements to infrastructure continue to be made, with further investments planned by multilateral and bilateral donors as well as the private sector, a huge workload remains to be undertaken and tens of billions of dollars in investments are required. World Bank/IFC Ease of doing business rankings 2013 (1=Best, 185=Worst) Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Mali Liberia Madagascar Malawi Mauritania Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Source: IFC Doing Business 2013 Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe 12

16 regional economic overview WEF Global competitiveness ranking Source: WEF Global Competitiveness Report -13 (1=Best, 142=Worst) Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Chad Côte d'ivoire Ethiopia Gambia, The Ghana Guinea Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Nigeria Rwanda Senegal Seychelles Sierra Leone South Africa Swaziland Tanzania Uganda Zambia Zimbabwe Business competitiveness ranking (select countries) Sources: IFC Doing Business 2013, WEF Global Competitiveness Report Better Better World Economic Forum Global Competitiveness Report -13 World Bank/IFC Doing Business 2013 WEF GCR IFC DB South Africa 1 South Africa 1 Zambia 2 Ghana 2 Ghana 3 Zambia 3 Kenya 4 Uganda 4 Cameroon 5 Kenya 5 Nigeria 6 Ethiopia 6 Senegal 7 Nigeria 7 Tanzania 8 Tanzania 8 Ethiopia 9 Mozambique 9 Uganda 10 Cameroon 10 Côte d Ivoire 11 Senegal 11 Mozambique 12 Angola 12 Angola 13 Côte d Ivoire 13 1 = Best; 142 = Worst 1 = Best; 185 = Worst Southern Africa East Africa Central Africa Nigeria / Rest of 13

17 regional economic overview Nigeria / Rest of National Accounts Market size Nigeria dominates the continent (excluding South Africa) and accounts for nearly one-third of sub-saharan GDP owing to the size of its population, which drives domestic demand, and its wealth of natural resources that provide high levels of fiscal and export revenues (GDP is likely to increase significantly following the rebasing of national accounts that appears likely to take place in 2014). After Nigeria, Angola is the next largest economy an economy which is based mainly on the production of hydrocarbons and minerals. There are several medium-sized economies that are relatively diversified, given limited or no natural resources: they are based on agriculture/the agro-industry, the exploitation of some natural resources, and relatively developed manufacturing and services sectors, (Côte d Ivoire, Ethiopia, Ghana, and Kenya, for instance). Apart from these main countries, most economies in Middle Africa are relatively small and reliant on one or two main exports (usually agricultural). Real GDP growth Several countries continued to expand strongly at over 8% in real terms in, including Côte d Ivoire, Ghana, Liberia, Niger, and Sierra Leone. Côte d Ivoire s expansion reflected the economic rebound following the end of conflict, while growth in Ghana, Liberia, Niger, and Sierra Leone mostly reflected the development of natural resources. Outside these high-growth economies, most countries in Middle Africa continue to expand at around 5% in real terms, which is good given ongoing global weakness and uncertainty. However, real growth rates in the high single digits are required in many countries to lift vast sections of their populations out of poverty as well as to provide employment to the new entrants to the labor markets of each country. Real GDP growth (%) Source: IMF e Central Africa East Africa Southern Africa Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Swaziland Tanzania Togo Uganda Zambia Zimbabwe 14

18 regional economic overview Economic structure Agriculture still accounts for a substantial part of GDP in most countries, although manufacturing and services continue to grow in importance as countries develop. Agriculture in Middle Africa is mainly based on subsistence production, as is the case in Malawi, but commercial output remains a large, growing, and important sub-sector as it is for example in Ghana. Industrial activity generally remains constrained by weak power supply and infrastructure; however, countries like Kenya show what can be achieved despite infrastructure deficiencies. Services such as banking and telecoms are reasonably developed in most countries. However, while telecom coverage is widespread across the continent, most countries still display significantly high unbanked/underbanked levels. Economic structure, (% share of agriculture, industry, services) Source: World Bank 100 Services Industry Agriculture Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Tanzania Uganda Zambia Zimbabwe Southern Africa East Africa Central Africa Nigeria / Rest of 15

19 regional economic overview External Sector Main exports and trade partners Exports vary across Middle Africa, but many are based on natural resources like hydrocarbons, minerals, and metals. Some countries produce these commodities for export, reflecting the high level of natural resources on the continent. Agriculture, horticulture, floriculture, and other crops/grains also account for a large share of exports in many countries. Again, with large tracts of fertile land in many Middle African countries, production of food and other crops provides the base for a strong level of exports. Middle Africa s trade partners are located around the world. Traditional export markets are in Europe (supported by the EU s Everything But Arms trade agreement with African, Caribbean, and Pacific (ACP) states); more recent export markets range from the USA (for hydrocarbons, textiles, and other goods under the African Growth and Opportunity (AGOA) trade agreement) to Asia and now Latin America. Exports of goods and services, 2013e (% of GDP) Source: IMF Nigeria / Rest of 20 0 Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa South Sudan, Rep. Swaziland Tanzania Togo Uganda Zambia Zimbabwe Central Africa East Africa Southern Africa Imports of goods and services, 2013e (% of GDP) Source: IMF Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Comoros Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa South Sudan, Rep. Swaziland Tanzania Togo Uganda Zambia Zimbabwe 16

20 regional economic overview Main exports and trade partners Country Main exports Main export partners Main import partners Angola Oil, diamonds Portugal, China, US China, US, Brazil Benin Cotton, cashew, re-exports Nigeria, Côte d Ivoire France, Nigeria Botswana Nickel, copper, beef, tourism EU, South Africa South Africa, EU, US Burkina Faso Gold, cotton, shea butter Singapore, China, Ghana France, Togo, South Africa Burundi Tea, coffee, sugar UK, Germany, Benelux Benelux, France, Germany Cameroon Oil, timber, cocoa EU, CEMAC, China France, Nigeria, Italy Cape Verde Re-exports, fish, clothing, tourism Spain, Portugal, France Portugal, Benelux, Spain Central African Rep. Timber, diamonds, cotton Benelux, China, France France, US, Cameroon Chad Oil, cotton, livestock US, Nigeria, France US, France, Cameroon Comoros Vanilla, cloves, scent Turkey, France, Singapore France, UAE, South Africa Congo, Dem. Rep. Copper, cobalt, minerals EU, Japan, South Africa EU, China, South Africa Congo, Rep. Oil, timber, minerals US, China France, China, Benelux Côte d Ivoire Cocoa, coffee, oil Germany, Nigeria, Benelux Nigeria, France, China Equatorial Guinea Oil, timber US, Spain, China US, Spain, China Eritrea Livestock, animal products Saudi Arabia, Yemen, Italy UAE, Saudi Arabia, Italy Ethiopia Coffee, textiles, livestock Saudi Arabia, Italy, US, China Djibouti, Switzerland Gabon Oil, timber, manganese US, China, EU France, US, China Gambia, The Groundnuts, fish, tourism India, France, China China, Senegal, Côte d Ivoire Ghana Oil, cocoa, timber US, UK, Benelux Nigeria, China, Côte d Ivoire Guinea-Bissau Fish, cashews, groundnuts India, Nigeria, Pakistan Portugal, Senegal, France Kenya Tea, coffee, horticulture, tourism UK, Netherlands, Uganda UAE, China, India Liberia Rubber, diamonds, iron ore India, US, Poland South Korea, Singapore, Japan Madagascar Vanilla, tourism, cloves, clothing France, US, Germany France, China, Iran Malawi Tobacco, tea, sugar US, UK, South Africa South Africa, China, India Mali Cotton, gold, livestock France, Switzerland, Côte d Ivoire, Senegal, China Côte d'ivoire Mauritius Financial services, clothing, tuna EU, UK, India India, France, South Africa Mozambique Aluminium, minerals, sugar Belgium, South Africa, Zimbabwe South Africa, Netherlands, Portugal Namibia Diamonds, uranium, zinc, copper EU, US, Canada China, India, South Africa Niger Uranium, livestock, gold France, Japan, US China, France, US Nigeria Oil, cocoa US, EU, India EU, US, China Rwanda Tea, coffee, coltan Kenya, DRC, China Kenya, Uganda, UAE São Tomé and Príncipe Cocoa, copra, palm kernels Portugal, Netherlands, Spain Portugal, France, UK Senegal Peanuts, phosphates, tourism Mali, India, The Gambia France, UK, China Seychelles Tourism, fish, cinnamon UK, France, Mauritius South Africa, China, France Sierra Leone Diamonds, rutile, bauxite Belgium, US, Netherlands South Africa, China, US South Africa Metals & minerals, maize, China, US, Japan, UK China, Germany, US wine, cars Swaziland Sugar, fruits, cotton South Africa, EU, Mozambique South Africa, China, EU Tanzania Coffee, cotton, tea, gold UK, Germany, India UK, Germany, Japan Togo Phosphates, cocoa, coffee France, Burkina Faso, Ghana, France, Germany Netherlands Uganda Coffee, tea, fish South Sudan, Kenya, UK Kenya, UAE, China Zambia Copper, cobalt, lead, zinc Switzerland, China, Pakistan South Africa, China, DRC Zimbabwe Tobacco, tea DRC, South Africa, Botswana China, Italy, Netherlands Source: Ecobank Southern Africa East Africa Central Africa Nigeria / Rest of 17

21 regional economic overview Current account Most countries in SSA are import-dependent for many goods and services, particularly refined petroleum products. With a limited array of exports, the current accounts in many countries remain locked into a structural deficit. Producers of large amounts of hydrocarbons (such as Nigeria, Angola, and to a lesser degree Gabon and the Republic of Congo) have generally maintained current account surpluses, reflecting recent high oil prices and despite fluctuating production levels. In most cases, non-oil producers record current account deficits because of the high costs associated with refined petroleum product imports despite cyclical high export levels. Current account (% GDP including grants) 15 Source: IMF EAC SADC CEMAC ECOWAS Nigeria / Rest of Central Africa East Africa Southern Africa -12 FX reserves e Faced with persistent current account deficits, drawing down foreign reserves has been one way many countries have maintained balance of payments equilibrium. However, owing to sustained strong import demand, many countries (particularly non-oil producers) struggle to raise their levels of foreign reserves from one year to the next. FDI and portfolio inflows remain largely directed towards countries that have respectively attractive resource and capital market investment opportunities, which helps boost reserves in those countries. FX reserves (months of import cover of goods and services equivalent) e Source: IMF EAC SADC CEMAC ECOWAS 18

22 regional economic overview Inward FDI Southern Africa (dominated by South Africa) accounts for the largest share of FDI inflows to the continent owing to the strength of its manufacturing and mining base. While the hydrocarbons sectors in West and Central Africa are also important FDI destinations, East Africa remains a recipient of small FDI inflows reflecting the smaller costs linked to manufacturing compared to resource exploitation. There is a large potential for inward FDI given Middle Africa s growing population, rising levels of disposable income, and increasing demand for Africa s exports (particularly from fast-growing emerging markets such as in Asia). Inward FDI (USD bn) 20 Sources: UNCTAD, WIR EAC SADC CEMAC ECOWAS f Remittances Remittances are an important form of capital inflow to all countries in Middle Africa. Remittances come from both outside and within Africa. dominates inflows of remittances owing to the large size of its aggregate population and the increased mobility of its people compared with those living in other regions of the continent. Ease of movement between countries is also a contributing factor. East Africa benefits from remittances sent from a large population living outside Africa, but its intra Africa remittances are relatively small when compared with those of. Remittances (USD bn) f Source: World Bank EAC SADC CEMAC ECOWAS (rhs) Southern Africa East Africa Central Africa Nigeria / Rest of 19

23 regional economic overview External debt to official creditors The average stock of external debt owed to official creditors is currently averages less than 25% of GDP, reflecting recent HIPC and MDRI debt relief initiatives (some of which are still ongoing). However, several countries have sustained high levels of external debt (Cape Verde, Guinea, São Tomé and Príncipe, and Zimbabwe), while others (such as Ghana, Malawi, Mali, Niger, Senegal, and Uganda), have seen their debt stocks rise despite earlier debt relief and strong nominal GDP growth, which is a cause for concern given the uncertainty of export revenues caused by the weak global economy. Nonetheless, Middle Africa s indebtedness is significantly lower than that of some European countries, such as Greece, Spain, Italy, and France. External debt to official creditors, 2013e (% GDP) Source: IMF Nigeria / Rest of Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Tanzania Togo Uganda Zambia Zimbabwe Central Africa East Africa Southern Africa External debt, e (USD bn) Source: World Bank Excluding South Africa Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone Tanzania Togo Uganda Zambia Zimbabwe 20

24 regional economic overview External debt service The average external debt service ratio is around 4% of exports of goods and services, which is reasonably low. As external debt stocks have diminished (in general) and export revenues have remained reasonably strong, the ratio has fallen for many countries over recent years. However, with growth in global GDP still weak and the outlook remaining uncertain, export revenues are now less robust than in pre-crisis years, highlighting the pressures some countries face in servicing their debts. While these pressures are not critical, as was the case in the early 2000s prior to HIPC and MDRI debt relief, it is worth monitoring developments in many countries in order to take action to reduce potential debt-servicing pressures. Debt service (% exports of goods, services, and income) Source: World Bank Southern Africa East Africa Central Africa Nigeria / Rest of e Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Congo, Dem. Rep. Côte d'ivoire Ethiopia Gambia, The Ghana Guinea Kenya Lesotho Liberia Madagascar Malawi Mali Mauritius Mozambique Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Tanzania Uganda Zambia 21

25 regional economic overview Nigeria / Rest of Central Africa East Africa Southern Africa Currencies, Interest Rates, and Inflation Nominal exchange rates vs USD (annual average) Middle Africa s exchange rate regimes have generally moved from fixed/pegged arrangements to floating-type arrangements. This policy change, along with weakening terms of trade, has largely led to currency depreciation against the US dollar over recent years, which also reflects high levels of import dependency and the costs related to importing high levels of goods and services. Meanwhile, currencies linked to the euro performed relatively well in, appreciating by an average of 1.8% compared to 2011, highlighting the strong support provided by the currency arrangement, which is underpinned by the French Treasury and, ultimately, the European Central Bank. Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank Gambia (L) Liberia (L) Cape Verde (L) 160 Nigeria (L) 7000 Guinea (R) Ghana (R) XOF (L) Sierra Leone (R) e Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank e Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank Zambia (R) Malawi (L) Botswana (L) South Africa Angola (L) 35 (L) 9 Mozambique (R) e Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank Kenya (R) Uganda (L) Tanzania (R) Burundi (L) Rwanda (L) Ethiopia (R) e Nominal exchange rates vs USD (annual avg.) Sources: Bloomberg, Ecobank Congo, D.R. (L) Cameroon (L) São Tomé & Príncipe (R) e e 22

26 regional economic overview Currency volatility Exchange rate volatility varies between countries in Middle Africa, which mainly reflects global economic developments, investor sentiment and expectations, and the choice of exchange rate regime fixed or floating (or a system in between). Higher volatility can lead to a currency s value being spread over a larger range of values; it also means that the value of the currency can change significantly over a short period of time. However, lower volatility does not automatically lead to currency stability because a currency can display low levels of volatility but depreciate at a steady pace over a period of time (such as the Nigerian naira). Nonetheless, the strong volatility of some exchange rates in Middle Africa since the start of the global crisis has been a concern for policymakers and investors. Exchange rate volatility in some countries has raised currency risk and increased transaction costs, which in turn have reduced the gains from international trade. Over the last decade or so, there has been a shift from intermediate exchange rate regimes (i.e. soft pegs) to fixed or floating regimes, as soft pegs are more open to crises and are not viable over long periods ( Although countries such as Ghana and Kenya have floating regimes, which has helped absorb external pressures, they have also experienced greater currency volatility than countries such as Nigeria (which has a managed float regime). In a world now generally shaped by the twin poles of exchange rate regimes (fixed and floating), Middle African countries should remain cautious about making any changes to their respective exchange rate regimes. Moreover, when considering making any regime change, the level of financial sector development is an important issue that needs to be considered. The extent of any negative impact on exchange rate volatility depends partly on the level of financial and capital market development. Therefore, the development of local capital markets is important in helping to deepen capital pools that can be drawn upon to supply FX to meet demand that in turn can help reduce exchange rate volatility. Fixed regimes are not always seen as progressive policies for Middle African countries, but moving to a fully floating regime without the adequate level of financial development could upset trade performance and reduce investment prospects. However, as countries increasingly move towards floating exchange rate regimes, exchange rate volatility is expected to rise, partly because of the nature of floating regimes and also partly because of a progressive removal of trading restrictions (some of which are based within the capital account). Exchange rate volatility (standard deviations) Jan 2009 Jan 2010 Jan 2011 Jan Jan 2013 Source: Ecobank GHS:USD KES:USD NGN:USD XOX/XAF:USD ZMW:USD Southern Africa East Africa Central Africa Nigeria / Rest of 23

27 regional economic overview Deposit interest rate (% average) Interest rates remain high across Middle Africa, reflecting various factors: loose fiscal policy and high levels of government spending that have required the simultaneous implementation of relatively tight monetary policies. Furthermore, rising global commodity prices since the mid-2000s have undermined the strength of Middle Africa s currencies. Monetary authorities have responded to currency weakness by maintaining tight monetary policies. However, while high interest rates have supported currencies, government borrowing costs in many countries have risen, and the private sector has been crowded out, which in turn has undermined business development. CPI (annual average % change) Inflation has generally been contained at a low level in the CFA franc zone countries, helped in part by the effect of the exchange rate peg to the euro, which provides a monetary anchor. However, in many other countries, inflation has fluctuated more owing to several factors: elevated levels of money supply growth (largely driven by growth in government spending), rising food prices partly caused by the effect of bad weather on food production, and sustained high global commodity prices that have increased cost-push pressures. As a result, interest rates in some countries remain elevated. Nonetheless, in some other countries, improved food production has helped slow inflation, which in turn has created space to cut interest rates. CPI inflation (% change since 2011) Source: IMF Nigeria / Rest of e Central Africa East Africa Southern Africa 5 0 Angola Benin Botswana Burkina Faso Burundi Government Cameroon Fiscal balance Cape Verde Central African Rep. Chad Comoros Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Most governments in SSA have sustained relatively large fiscal deficits over recent years, reflecting three key issues: (i) strong pressures to maintain high levels of spending to address poor health, inadequate education, and debilitated infrastructure; (ii) low levels of revenues due to small corporate sectors, a general lack of income tax, large informal economic activity, and fluctuating trade taxes/levies stemming from reliance upon one or only a few exports; and (iii) weak public financial management (PFM) that impedes the delivery of public funds to intended recipients. However, PFM has improved over recent years, which in turn has led to more responsible fiscal actions and outcomes. As a result, efforts to reduce fiscal deficits are being strengthened with the expectation that more prudent fiscal policies will become entrenched in the years ahead. Liberia Madagascar Malawi Mali Mauritius Mozambique Namibia Niger Nigeria Rwanda São Tomé & Príncipe Senegal Seychelles Sierra Leone South Africa Swaziland Tanzania Togo Uganda Zambia Zimbabwe 24

28 regional economic overview Fiscal balance, inc. grants, 2013e (% GDP) Source: IMF Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Government debt Central African Rep. Chad Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho High levels of government spending, sustained fiscal deficits, and large amounts of external borrowing resulted in an accumulation of public sector debt (both external and domestic) in many countries prior to the 2000s. However, on the external side, from the early 2000s onwards, multilateral and bilateral donors provided debt relief for many countries in Middle Africa through the Highly Indebted Poor Countries (HIPC) debt relief initiative. In addition to this, there was relief provided by multilateral donors under their Multilateral Debt Relief Initiative (MDRI). Meanwhile, the domestic debt stock has remained relatively low in some countries, reflecting prudent fiscal policies. However, in other countries domestic debt has risen at the same time that external liabilities have fallen, suggesting little net benefit overall from HIPC and MDRI relief. Government debt, 2013e (% GDP) Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Rep. Chad Congo, D.R. Congo, Rep. Côte d'ivoire Equ. Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Guinea-Bissau Kenya Lesotho Liberia Liberia Madagascar Madagascar Malawi Malawi Mali Mali Mauritius Mauritius Mozambique Mozambique Namibia Namibia Niger Niger Nigeria Nigeria Rwanda Rwanda São Tomé & Príncipe São Tomé & Príncipe Senegal Senegal Seychelles Seychelles Sierra Leone Sierra Leone South Africa South Africa Swaziland Swaziland Tanzania Tanzania Togo Togo Uganda Zambia Zimbabwe Source: IMF Uganda Zambia Zimbabwe Southern Africa East Africa Central Africa Nigeria / Rest of 25

29 Banking and financial sector overview Nigeria / Rest of Central Africa East Africa Southern Africa Banking Sector Number of banking institutions While Africa continues to lead developments in the mobile banking space, the physical presence of banking sector infrastructure across Middle Africa remains relatively low. However, the scale of competition varies across the continent, with over 40 banks competing in Kenya compared with just four in Lesotho and Namibia. At an average of 14 banks, Middle Africa lags behind the BRICS countries, which have an average of 355 banks (although there is significant variation between these countries). Nonetheless, Middle African countries offer attractive opportunities to investors to tap into growing demand for financial services as these economies develop. Number of commercial bank institutions e Kenya Tanzania South Africa Ghana Uganda Angola Congo, Democratic Republic of (DCR) Mauritius Nigeria Zambia Mozambique Ethiopia Zimbabwe Cameroon Gambia, The Malawi Sierra Leone Togo Botswana Gabon Rwanda Burundi Cape Verde Chad Liberia São Tomé and Príncipe Congo, Republic of Seychelles Madagascar Central African Republic Equatorial Guinea Lesotho Namibia Brazil China India Russia 1,249 1,205 1,143 1,092 1,058 1, France Germany Japan UK USA 7,556 7,446 7,323 7,207 7,010 6,771 6,468 6,228 6,228 Sources: IMF, Ecobank 26

30 Banking and financial sector overview Number of banks and ATMs per 100,000 of population Reflecting the relatively limited level of competition is the low level of bank branches and ATM machines in many Middle African countries. In the UEMOA region for example, fewer than 10% of people have bank accounts, which helps explain the limited physical presence of banks in many member countries. On a broader level, across Middle Africa only about 25% of adults have accounts at formal financial institutions, and only around 3% have credit cards. Nonetheless, one attraction of Africa s banking sector is the high potential revenues to be driven from the large unbanked population as banking infrastructure (including branches and ATM machines) investment continues to increase. Commercial bank branches per 100,000 adults e Seychelles Cape Verde São Tomé and Príncipe Mauritius Angola South Africa Gambia, The Botswana Gabon Namibia Kenya Nigeria Rwanda Equatorial Guinea Zambia Zimbabwe Liberia Mozambique Togo Burundi Congo, Republic of Ethiopia Lesotho Sierra Leone Cameroon Guinea Tanzania Uganda Central African Republic Chad Congo, Democratic Republic of (DCR) Madagascar Malawi Sources: IMF, Ecobank Southern Africa East Africa Central Africa Nigeria / Rest of 27

31 Banking and financial sector overview Nigeria / Rest of Central Africa East Africa Southern Africa ATMs per 100,000 adults e Namibia South Africa Cape Verde Mauritius Seychelles Botswana Angola São Tomé and Príncipe Gabon Kenya Nigeria Lesotho Mozambique Zambia Equatorial Guinea Rwanda Tanzania Ghana Uganda Congo, Republic of Cameroon Madagascar Zimbabwe Burundi Central African Republic Chad Congo, Democratic Republic of Liberia Ethiopia Sierra Leone Sovereign Credit Ratings (foreign currency) S&P, Moody s, and Fitch Sources: IMF, Ecobank Few countries in Middle Africa have attained investment grade sovereign credit ratings. However, this has not prevented a small but growing number of governments from successfully accessing the Eurobond market, and this is reflected in strong demand from global investors. Nonetheless, relatively low sovereign credit ratings reflect various factors, such as Public Financial Management weaknesses, credit risks, insufficient structural reforms, bottlenecks within productive sectors of the economy, lack of economic diversification, and political/social pressures. As governments recognize the benefits of being able to access global capital, they continue their efforts to improve the attractiveness of their economies to foreign investors by enhancing the business environment and reducing barriers to investment. 28

32 Banking and financial sector overview Sovereign Credit Ratings S&P Moody's Fitch July 2013 Angola BB- Ba1 BB- Benin BBB- B Botswana A+ Aa3 Burkina Faso BBB- Cameroon BBB- BBB- Cape Verde BB BB- Gabon BBB- BBB- Ghana B+ B1 B+ Kenya BB- Ba2 BB- Lesotho A- Sovereign Credit Ratings S&P Moody's Fitch July 2013 Mauritius A2 Mozambique B+ B Namibia A3 A- Nigeria BB- Ba1 BB- Rwanda B B Senegal BBB- A2 Seychelles B South Africa A- A2 A- Uganda B+ B Zambia B+ Ba2 BB- Ecobank MABI vs JP Morgan EMBI and other local currency bond indices Source: Bloomberg Jan 2010 Jan 2011 Jan Ecobank MABI Jan 2013 JP Morgan EMBI Debt Markets Ecobank MABI vs JP Morgan EMBI and other local currency bond indices The Ecobank Middle Africa Bond Index (MABI) continues to outperform JP Morgan s benchmark Emerging Market Bond Index (EMBI) on a regular basis. The MABI offers investors: (i) strong investment performance; (ii) low correlation with other Emerging Markets; and (iii) exposure to the fast-growing markets in key economies in Middle Africa. Furthermore, the outlook for the performance of the MABI is good given the continued strong prospects for real growth in Middle Africa despite global economic uncertainty and weakness. Ecobank MABI annual returns (%) Source: Ecobank Southern Africa East Africa Central Africa Nigeria / Rest of 0 Jan Apr Jul Oct 29

33 Banking and financial sector overview Nigeria / Rest of Central Africa East Africa Southern Africa Ecobank MABI Eligibility Criteria Countries included in the first phase of the Ecobank MABI (Ghana, Kenya, Nigeria, Benin, Côte d Ivoire, Senegal, and Togo) all share similar characteristics that make them eligible for inclusion in the index. These characteristics range from relatively high levels of government domestic debt issuance, liquid and deepening debt capital markets, and robust trading platforms to high levels of investor interest in securities (both domestic and foreign). Primary Criteria Countries must meet certain primary criteria in order to be eligible for the index: Only sovereign issuers are eligible for the index. Inclusion is based on currency and domicile. Only local currency debt issued by issuers domiciled in the relevant country is eligible. The local currency sovereign debt of the country must not be in default. The bond market must meet the size and investability criteria. Additional Criteria The local currency bond market must fulfill several criteria in order to become eligible for the indices: Time to Maturity: The time to maturity must be at least 15 months at each rebalancing date. Bond market size: The minimum size required for an individual bond at first inclusion is USD25 million (equivalent in respective local currency) or larger. Maturity Bucket: In order to calculate maturity indices, all bonds are categorized in maturity buckets according to their time to maturity: 1 3 years, 3 5 years, 5 7 years, 7 10 years, years, and 15 years or greater to maturity. Bond types are fixed coupon and zero coupon bonds. Bond data s source is SSA countries that have certain key bond-related characteristics: Minimum size of issuance is USD25 million (local currency equivalent) Minimum level of local market liquidity Over-the-counter (OTC) and/or secondary market activity Weighting Framework Bond data are qualified as objectively as possible and ranked with regard to six indicators that are based on information that is freely available to the public: 1. Bond market infrastructure and local financial systems (25% weighting) 2. Country macroeconomic performance (20% weighting) 3. Issuers, issuing strategy, and bond supply (20% weighting) 4. Legal, regulatory, and tax infrastructure assessments (15% weighting) 5. Investor base (10% weighting) 6. Active participation of market participants (10% weighting) Index membership is updated quarterly on the last working day of each quarter (March, June, September, December). FX conversion takes place at entry and exit at the market rate when entering/exiting. 30

34 Southern Africa East Africa Central Africa Nigeria / Rest of 31

35 Hydrocarbons overview Overview and introduction Africa s share of global oil and gas production has stood at 10% and 6% respectively over the past 24 months. Ecobank Research estimates that the total production of oil in Africa in 2013 is likely to be around 8.9 mn barrels per day (bpd). Of that amount, sub-saharan Africa (SSA) will produce around 5.9 mn bpd compared to our estimates of 5.5 mn bpd in and assuming that at least 150,000 bpd of South Sudan s 350,000 bpd production returns to market. Africa also produced an estimated 230 billion cubic metres (bcm) of natural gas in, and this is likely to increase to around 250 bcm in 2013, with new supplies from Angola, Mozambique, and Tanzania. Up to 70 oil and gas discoveries have been made in SSA over the past five years, with Uganda, Mozambique, and Tanzania being the greatest beneficiaries of these. Despite the new focus on the East Africa region, around 90% of SSA s oil and gas exports will still originate from and the Gulf of Guinea region in the next decade. However, there will be a gradual decline in demand from the USA for SSA s oil, as growing domestic oil and shale gas production in the USA and North America as a whole adds to the global supply pool, and decreases energy import levels in North America. Top 8 producers of crude oil in sub-saharan Africa, -13 (mn bpd) 2.5 Sources: Ecobank Research, Bloomberg, NNPC, Sonangol, GNPC, SNH, SNPC, GePetrol e 2013f 2.0 Nigeria / Rest of Nigeria Angola Republic of Congo Equatorial Guinea Gabon Chad Ghana Cameroon Central Africa East Africa Southern Africa China has rapidly emerged as the largest single buyer of the region s oil, accounting for close to 60% of all Asian imports of oil from SSA. While Asia as a whole still lags behind Europe as the largest importer of SSA s oil, it has been a larger importer than North America for the past 12 months. China s demand for SSA s commodities has seen state-backed companies such as the China National Petroleum Corporation (CNPC) acquire assets for the first time in frontier plays such as Mozambique s offshore Rovuma gas basin. While Asian buyers will probably reduce their oil imports owing to slower than expected growth in 2013, this is unlikely to be significant enough to trigger a large decline in imports of SSA s to the East. Despite slow economic recovery globally, key emerging-market economies, such as India and China, are likely to remain firm trading partners for SSA for decades to come. Brent oil prices in the first half of 2013 have averaged USD106 a barrel (bbl), up 1.3% from the average price in. Given uncertain global supply and demand dynamics, it is not clear if prices will rise significantly in the remainder of the year. With global oil demand likely to remain slow in 2013, oil prices in particular are likely to remain just above the USD100/bbl over the next months. Increased output from non-opec countries is likely to continue into 2013, with increasing North American unconventional supplies constituting a further downward drag on oil prices. This is also likely to have a moderating impact on the prices of key SSA oil grades such as Nigeria s Bonny light, which has historically traded at a premium of around USD3 to Brent. 32

36 Hydrocarbons overview China, the USA and Europe will account for around 46% of global oil demand in 2013, though oil demand in the USA and Europe has been steadily declining in recent years. Demographic changes, slow economic recovery, and high unemployment will continue to dampen global oil demand in the years ahead. Oil supply growth is still only about 50% of what it used to be in 2010, and much of the supply growth in the years ahead is likely to come from unconventional sources. Oil SSA is set to produce approximately 5.9 mn bpd of oil in 2013 (dominated by Nigeria and Angola), up from the estimated 5.5 mn bpd produced in. This increase will largely reflect the expected return of at least 150,000 bpd in production from South Sudan, which was shut-in for most of. At full capacity, the region s largest producer, Nigeria, could produce 3 mn bpd, but it has faced periodic production challenges, which have continued from ; production fell to as low as 1.9 mn bpd at the end of that year, though the average stood at around 2.45 mn bpd. Government forecasts of 2.53 mn bpd for 2013 would appear ambitious, and levels closer to are more likely. Crude oil production in Africa* ( 000 bpd) Sources: Ecobank Research, BP Statistical Review of World Energy * Includes North Africa Natural gas production in Africa* (bcm) Sources: Ecobank Research, BP Statistical Review of World Energy 250 * Includes North Africa f: Ecobank forecast 200 f: Ecobank forecast f f In 2013, there is likely to be new production from international oil company (IOC) ExxonMobil s deepwater Erha North Phase 2 field, and Italian IOC ENI s deepwater Oberan field (both in Nigeria). It remains unclear, how much of the illegal oil theft (also known as bunkering ) scourge can be curbed in In, Nigeria lost up to 400,000 bpd to this practice at certain periods. A lingering challenge is industry uncertainty fueled by delays in passing the Petroleum Industry Bill (PIB), which could remain the dominant obstacle to a major boost in production over the next months. Security problems and regulatory uncertainty have combined to force IOCs like Shell and Chevron to divest their onshore assets in Nigeria and focus on deepwater exploration and production instead. This divestment trend is likely to continue for the foreseeable future, and it is likely that a portion of onshore production amounting to at least a 100,000 bpd will have been sold by IOCs by the end of Finally, US demand for Nigerian oil looks set to fall further in 2013 to around 580,000 bpd, continuing a downward trend that intensified in, caused by rising domestic oil and shale gas production in North America. Production in Angola also fell to 1.7 mn bpd at the end of owing to maintenance work on some oil fields. However, BP s Block 31 ultra deepwater PSVM project, discovered in 2002, and comprising four oil fields (Pluto, Saturn, Venus, and Mars), is likely to reach 150,000 bpd by the end of In 2013, hopes of pre-salt potential in Angola, both onshore and offshore, hinge on the country s geological similarities with Brazil, which recently made large pre-salt reservoir discoveries. Despite OPEC quota limits, oil production will continue to rise over the next 12 months as new projects gather pace. Angola s total oil production capacity will probably rise to around 1.9 mn bpd in 2013, up from an estimated 1.79 mn in. In Angola introduced new FX legislation governing the oil and gas sector, and aimed at retaining as much Southern Africa East Africa Central Africa Nigeria / Rest of 33

37 Hydrocarbons overview Nigeria / Rest of Central Africa East Africa Southern Africa local value within the country as possible, requiring IOCs to use local banks for oil and gas transactions. Angola is known to have one of the most progressive regimes for oil contracts, the overall government stake in Angola s oil and gas sector is considered to be relatively high. However, this has not necessarily served as a major deterrent to oil and gas development and exploration, and appetite for investment in Angola s natural resource industry will remain robust. Ghana s Jubilee oil field reached 110,000 bpd at the end of, and we expect that Jubilee production could peak in 2013 at a rate just above 120,000 bpd. Jubilee field partners are also fast-tracking plans to develop the Tweneboa, Enyenra, and Ntomme (TEN) field, which would create another long-term boost to production beyond Oil production in Côte d Ivoire is likely to hover around 44,000 bpd in 2013 as investment activity in the country picks up. Meanwhile, new producer Niger awarded five new oil licenses for oil exploration in the country in, and Chinese state oil firm, CNPC, which already produces 20,000 bpd from the Agadem field, could be joined by other investors, who the government hopes will help boost production to 80,000 bpd by Q Production has fallen in Chad to around 115,000 bpd following an earlier peak of 220,000 bpd, though an extra 50,000 bpd is expected in early Although intense exploration activity continues in other n countries such as Benin, Togo, Liberia, and Sierra Leone, which awarded eight new oil blocks in to teams of investors, no discoveries were made in any of these countries in, and any hopes of oil production remain a longer-term prospect. In Central Africa, production is dominated by the Republic of Congo, which produced 370,000 bpd in. New investment of around USD1.9 bn could speed up the development of the 70 mn barrel Lianzi field. Growing optimism about pre-salt plays could attract new interest in the Republic of Congo and Gabon. With the exception of the Central African Republic (CAR), all the Economic Community of Central African States (CEMAC) members are oil producers that have a host of maturing and declining fields. CEMAC oil producers produced a total of 1.1 mn bpd in aggregate in. A big game-changer in 2013 for the region s producers, to offset the longer-term decline in production, could be pre-salt exploration which is already under way in Congo and Gabon. However, with little sign of any planned pre-salt exploration, in Equatorial Guinea, short term increases in production will hinge on the Aseng oil and gas condensate field, as well as the Zafiro field, which has been the key source of Equatorial Guinea s 250,000 bpd production. In the short-term at least, production from Aseng will help stem any significant decline in the country s output. Sub-Saharan African oil consumption, historical and forecasts, ( 000 bpd) e 2013f Sources: CITAC, Ecobank Research Central Africa East Africa Southern Africa Oil discoveries by Tullow at the Ngamia-1 and Twiga-1 wells in northern Kenya in mid-, following the near-perpetual gas finds in Tanzania and Mozambique in the prior 24 months and continuing into, firmly cemented the East African region s status as an oil and gas exploration frontier. The passing of Uganda s long-awaited oil law in December has boosted hopes of first oil production in To the north, South Sudan resumed oil production early in 2013, following months of tension with Sudan over 2014f 34

38 Hydrocarbons overview oil transit fees. Out of South Sudan s total capacity of 350,000 bpd, an initial production level of between 100,000 bpd and 180,000 bpd is expected, though actual levels in 2013 have hovered around 80,000 bpd so far. Further increases in production will depend on the success of political talks with Sudan. In the SADC region, Namibia is a continuing hotspot for oil and gas exploration, though its pre-salt potential has come to dominate Southern African oil exploration. SSA s oil trading patterns have remained relatively stable over the last few years, with the main oil producers representing key sources of oil for the region s refineries. However, intra-regional flows of oil still represent only 3% of the region s total oil trade. Currently, much of the intra-regional oil-trade flows in originate from Nigeria, the region s largest producer. However, with Ghana now the largest producer (after Nigeria) in the ECOWAS region, at 110,000 bpd, it could potentially supply some of West Africa s intra regional exports. % share of global oil production by region in 2011 Source: BP Statistical Review of World Energy () % share of global gas production in 2011 Source: BP Statistical Review of World Energy () 10.4% 9.7% 16.8% North America South and Central America Middle East Europe and Eurasia Africa Asia Pacific 6.2% 14.6% 26.5% North America South and Central America Middle East Europe and Eurasia Africa Asia Pacific 9.5% 21% 32.6% Natural Gas Gas production in Middle Africa in 2013 will stand at nearly 2.4 trn cubic feet per day (cf/d) production accounts for 64% of the region s 6.6 bn cf/d. Overall, gas production from the and the Gulf of Guinea region will continue to dominate gas production in Middle Africa, possibly accounting for 79% of gas production in New production from Nigeria, Angola, and Ghana is also expected to boost the region s gas output. Middle Africa s Liquefied Natural Gas (LNG) exports lie in the region of 60 mn metric tonnes (t) a year, though that figure is expected to rise by at least 20% with increases in LNG exports from Angola, which commenced earlier in Gas production for LNG in Angola could result in the addition of almost 600 mn cf/d to the region s total tally by the end of However a recent LNG export dispute in Nigeria has seen export volumes drop by nearly 10%. Gas exploration intensified along the n coast in, with major discoveries reported in Ghana, Côte d Ivoire, and Equatorial Guinea. These discoveries will spur major gas developments in these countries and even Nigeria (where exploration efforts have reduced as a result of regulatory uncertainty) in The region s demand for power has risen considerably over the last few years and will drive gas demand significantly in New gas plants planned under Nigeria s National Integrated Power Projects (NIPP) scheme have been underutilized primarily because of a lack of adequate gas supply. In Ghana especially, efforts to increase power supply have suffered from a decline in supply from the Gas Pipeline (WAGP). The WAGP has failed to deliver the level of gas agreed by its partners 120 mn cf/d due to various issues including high moisture, low pressure, pipeline attacks, etc. The success of the project in 2013 is likely to hinge on the direction of gas policy in Middle Africa s largest gas producer, Nigeria. 31.6% 16% 5.1% Southern Africa East Africa Central Africa Nigeria / Rest of Gas production grew by 31% in Central Africa in to 174 mn cf/d. The growth in production was largely attributable to new production in Cameroon. Central Africa s gas is predominantly for power generation. 35

39 Hydrocarbons overview However, this could change as urea fertilizer production is set to join the mix in In Gabon, a new fertilizer plant off the country s coast will produce an estimated 2,200 t of ammonia and 3,850 t of urea per day. In Central Africa, gas volumes are likely to rise to 225 mn cf/d, underpinned by new production in Cameroon and the Republic of Congo. Estimates of possible gas reserves off the coast of East and South eastern Africa are in the region of 441 trn cf according to the United States Geological Survey (USGS). Tanzania is the only gas-producing country in the East Africa region. Reserves increased strongly in following discoveries in the Rovuma basin, which have tripled gas reserves to 28.7 trn cf. Up until, Tanzania s 200 mn cf/d was produced purely for power generation. However, with its new-found gas reserves, there is talk of one or two LNG trains by US IOC ExxonMobil, the UK BG Group, and Norwegian national oil company (NOC) Statoil. Tanzania in the meantime hopes to step up gas production to 400 mn cf/d by Q to boost power generation. Prior to, Mozambique s gas reserves were estimated at about 5.5 trn cf. Gas production of about 345 mn cf/d was largely geared towards the fulfilment of the country s bilateral arrangement with South Africa to boost power generation in South Africa. Gas production in the region is forecast to grow steadily over the next few years, predicated on a rising demand for power. A substantial production increase is expected from 2017/18, when LNG plants are expected to come on stream. Explorers believe Mozambique s gas reserves can support up to six LNG trains that could require USD5-8 bn in development costs over the next five years. Nigeria / Rest of Central Africa East Africa Southern Africa Refined products Demand for refined products across the entire African continent is likely to rise by up to 40% to 4.3 mn barrels (b) in 2020, from just 3 mn b five years ago. This equates to an annual growth rate of around 3-4%, or indeed up to three times the global demand increase forecast by the IEA. Middle Africa s total installed refinery capacity stands at 860,000 bpd. However, we estimate that the region is likely to face a product supply gap of 485,000 bpd in 2013, underpinning continuing dependence on imports. Across Middle Africa, gasoline and diesel will remain the primary fuels used in road transport. Gas oil and diesel constituted the most consumed product across all key sectors in. Côte d Ivoire is the largest exporter of refined petroleum products among Middle Africa s refining countries. West, East, and Southern Africa import more refined products than they export (and in s case despite significant oil exports). Middle African refining capacity vs product demand by sub-region, ( 000 bpd) *excludes South Africa Sources: Reuters, CITAC, Ecobank Research Installed refining capacity Regional product demand Central Africa East Africa Southern Africa* 36

40 Hydrocarbons overview s petroleum products market is still one of the key markets in Middle Africa (first chart in overview section ). Oil consumption in is projected to rise to 665,000 bpd in 2013, driven by a considerable growth in demand for diesel, aviation fuel, LPG, and gasoline. It includes the largest importer of petroleum products in Middle Africa, Nigeria, which annually imports refined products worth nearly USD7 bn, due to the low capacity utilization of its refineries less than 30% in. Also part of is Côte d Ivoire, which could still hold the key to an improved refined products supply in the region. The country s 80,000 bpd Société Ivorienne du Rafinnage (SIR) is a key supplier to the region, as oil consumption in Côte d Ivoire is only 27,000 bpd. However, the region s fuel demands are set to rise even faster, driven by strong urbanization, rapid economic growth, and regional integration of businesses. Active refining capacity in the region is currently around 38% of the 620,000 bpd installed refining capacity. Central Africa s oil consumption is projected to rise 5% to 74,800 bpd in Unlike in, where active refinery capacity is less than the region s consumption, Central Africa s four refineries in Cameroon, Chad, Gabon, and the Republic of Congo have a combined active capacity of 106,000 bpd. Among these, Cameroon s SONARA is the key refinery in the Central Africa region. Cameroon s estimated consumption of only 27,000 bpd is significantly lower than the refinery s 45,000 bpd output; the balance is exported to the region. However, keeping fuel prices low remains a challenge for the region, and consequently fuel subsidies are widespread. Cameroon s fuel subsidy bill has been rising alongside gasoline consumption, reaching USD600 mn in. % share of Sub-Saharan Africa s crude oil production Source: Ecobank Research % share of crude oil exports from Africa (inc. N. Africa) Source: Intracen 6% 5% 34% 2% 5% 2% 1% 44% Nigeria Angola Republic of Congo Equatorial Guinea Gabon Chad Ghana Cameroon Côte d'ivoire Democratic Republic of Congo (DRC) Niger Asia Africa Europe Latin America Middle East North America Other East Africa s downstream market consumes about 328,000 bpd of petroleum products and will see a 4.5% increase to 342,000 bpd in There is, however, only one refinery in the region, the Kenya Petroleum Refineries Ltd (KPRL), which functioned below 50% of its installed capacity throughout, resulting in high levels of fuel imports in. Further increases in imports are likely to create additional logistics problems for the region, which has struggled to cope with the demands of importing its fuel needs. Diesel represents almost 50% of the 156,000 bpd of refined products consumed in Southern Africa (excluding South Africa). However, the bulk of the diesel is imported from neighboring South Africa, Asia, and Europe. The only refinery in the region is Zambia s 24,000 bpd Indeni Refinery, which is only sufficient for Zambia s own demand of approximately 20,000 bpd and not the more than 110,000 bpd needed by the region. Mozambique s 350,000 bpd refinery, which is expected to commence construction in 2013, is a welcome development and is likely to find ready markets across the region. However, the refinery is not due for completion until % 4% 20% 6% 44% 20% 2% Southern Africa East Africa Central Africa Nigeria / Rest of 37

41 Soft commodity overview Nigeria / Rest of Middle Africa s leading soft commodities Middle Africa is a leading producer of agricultural commodities for the global market, with a dominant position in the cocoa, coffee, cashew nut, and tea export markets. is the production hub for tropical cash crops notably cocoa, palm oil, and natural rubber (NR) while East and Southern Africa dominate the production of sugar, tea, and coffee. South Africa and Nigeria are the largest soft commodity producers in terms of volume, but owing to the high level of domestic demand they consume most of their production, requiring large imports of wheat, rice, sugar, and maize. A handful of Middle African countries are market movers, notably Côte d Ivoire and Ghana, which together account for 60% of world cocoa production, and Kenya, which accounts for a third of world tea exports. But the majority of Middle Africa s soft commodity producers account for only a small fraction of global production cotton production, for instance, accounts for just 5% of global production limiting the region s influence over the global market. Middle Africa s agricultural sector is focused on the large-scale production of staple foods, notably maize, rice, and palm oil for domestic consumption, although most regions run food deficits and require large volumes of imports to satisfy domestic demand. Large volumes of local staples notably cassava, sorghum, and millet are traded informally and are not captured by official data. There is also significant production of cash crops for export to the global market, including cocoa, coffee, tea, NR, and nuts (groundnuts and cashew nuts). However, the level of processing of these crops is low, with an estimated 75% of cocoa beans and 90% of cashew nuts being exported raw to foreign markets. As a result, concerted efforts are being made to extract more value from these commodities prior to export, and heavy investment is under way to boost processing capacity, warehousing facilities, and export infrastructure. This should help reduce the level of wastage, as currently around 30-40% of all soft commodities rot before they reach the market. The development of commodity exchanges could unlock the financing potential for the agricultural sector, which suffers from low use of fertilizers and pesticides, poor irrigation, and inefficient practices. Middle Africa s top 10 soft commodity exports, USD 000s, 2011 Source: Intracen Central Africa East Africa Southern Africa 7% 7% 8% 8% 6% 9% 5% 10% 27% 13% Cocoa Fish Wood Cotton Tobacco NR Sugar Coffee Nuts Tea 38

42 Soft commodity overview Cocoa Cocoa, the main ingredient in chocolate, is produced in tropical regions, and dominates the global cocoa sector, accounting for around three-quarters of global production. Other important producers are Indonesia, Brazil, and Ecuador, and there are numerous micro-producers of specialty cocoa varieties (for example, Venezuela and São Tomé and Príncipe). Côte d Ivoire is by far the most important cocoa producer, with output of 1.49 mn t in 2011/12, the second highest on record. Major reform of the sector is under way, including the introduction of a new pricing regime and investment in new varieties and farming practices. Ghana is the country s closest competitor, with 880,000 t of production in 2011/12, and its cocoa sector continues to expand under the sound management of the Ghana Cocoa Board (Cocobod). Cameroon and Nigeria compete for third place, but their cocoa sectors have struggled in recent years to expand production above 250,000 t, owing to aging trees, bad weather (notably flooding in Nigeria), and low-quality beans. Large volumes of cocoa are smuggled throughout, artificially inflating the exports of Togo, which is a major trade entrepôt for cocoa and other soft commodities produced in the region. Both Côte d Ivoire and Ghana are important cocoa-processing hubs, together producing 655,000 t of cocoa products in 2011/12. However, only around 30% of Ivorian production and 25% of Ghanaian production is processed domestically, and major efforts are under way in both countries to boost the volumes processed. Major competition from the rapidly expanding processing hubs in Indonesia and Malaysia could stifle these efforts, and key to their success will be creating new sources of domestic demand for cocoa, which is little used in African diets. Cocoa production (tonnes, 000s) / /11 Sources: ICC, Ecobank Research 2011/12 Côte d Ivoire Ghana Nigeria Cameroon Togo Rest of world % of world cocoa production, % 5% 29% 5% 22% Sources: ICC, Ecobank Research 38% Côte d Ivoire Ghana Nigeria Cameroon Togo Rest of world Southern Africa East Africa Central Africa Nigeria / Rest of 39

43 Soft commodity overview Coffee World coffee production is dominated by Brazil and Vietnam, which produce both the Arabica and Robusta varieties and together account for around half of global production. The other main producing regions are Central and South America, Southeast Asia (notably Indonesia), and East Africa, with most countries focusing on a single variety. Middle Africa s leading coffee producers are Ethiopia, the world s largest producer of the more expensive Arabica variety, with production of 6 mn 60 kg bags in 2011/12, and Uganda, the region s largest exporter of the Robusta variety, with production of 2.7 mn bags. Côte d Ivoire is s leading producer, with production of 1.9 mn bags in 2011/12, and production is forecast to rise further as the sector recovers from the country s prolonged political crisis. Middle Africa s coffee exports are dominated by Uganda and Ethiopia, which together account for 60% of the region s coffee exports. Although Ethiopia s production has expanded dramatically in recent years, its exports are limited by the fact that most of its coffee is consumed domestically, whereas Uganda s production is primarily for export. The region produces numerous varieties of coffee that have different uses: Arabica is used for fine coffee, Robusta for instant coffee, and some Cameroonian varieties are used for flavoring chocolate. The certification process offers an opportunity for Ethiopia and Kenya to build strong international brands for their beans. Coffee production in Middle Africa (60 kg bags, 000s) Sources: ICC, Ecobank Research Selected coffee prices (US cents per lb) Sources: ICC, Ecobank Research Nigeria / Rest of Ethiopia Uganda Côte d Ivoire Kenya Cameroon Tanzania ICO Composite Mild Arabica Robusta 4000 Central Africa East Africa Southern Africa / / /

44 Soft commodity overview Tea Global tea production is dominated by China and South Asia (notably India and Sri Lanka), which together accounted for 85% of global output in. However, East and Southern Africa represent an important tea production hub in their own right, producing around 13% of world output, with other producers in the world making up the remaining 2%. Given that China and India consume a large part of their production, Kenya is the world s largest exporter, accounting for 31% of the total in, with the rest of Africa making up 7.9% of world exports. Kenya is by far the largest tea producer in Middle Africa, ranking third globally behind China and India, with production of 370,000 t in, the equivalent of 9.3% of the world s tea output. Kenyan tea is the highest quality in Africa and consistently commands higher prices than cheaper varieties from Malawi and Mozambique. However, owing to land constraints, Kenya s tea sector has struggled to expand production in recent years. Uganda and Malawi are the next most important producers, with annual output of 40 50,000 t, while other production in Middle Africa is on a small scale. The UK used to be the leading export market for Middle Africa s tea, but the country has lost importance as consumption levels have peaked, and Pakistan and Egypt have taken its place as the dominant offtakers of African tea, importing 173,000 t in. The UAE is also becoming an important trading hub for Kenyan tea. Tea production in Middle Africa (tonnes, 000s) Sources: ITC, FAO % of world exports, Sources: ITC, FAO Kenya Uganda Malawi Tanzania Rwanda Zimbabwe 9.8% 21.6% 7.9% 4.2% 0.3% 25.1% 31% Kenya China Sri Lanka India Other Africa Indonesia Others Southern Africa East Africa Central Africa Nigeria / Rest of 41

45 Soft commodity overview Cotton Cotton is the world s most important agricultural raw material, used in the textile and industrial sectors. Global production is dominated by China, India, the USA, Pakistan, and Brazil, which together account for around 80% of world output. In comparison, Middle Africa s cotton production is on a tiny scale, with output of cotton lint totaling just 1.4 mn t in 2011/12, around 5% of global production. Nonetheless, cotton provides a livelihood for an estimated 20 mn African farmers and their families. Middle Africa s cotton production is concentrated in the CFA franc zone in West and Central Africa, which account for 46% and 32% respectively of the region s cotton output. Mali and Burkina Faso are the largest producers, together producing over 360,000 t of cotton lint in 2011/12. Côte d Ivoire, Benin, and Cameroon are also important producers in the region, and are expanding strongly after years of flat output. Southern Africa is also a cotton-producing hub, led by Zimbabwe and Tanzania, with total production for the region reaching 500,000 t in 2011/12. Despite the presence of large-scale ginners across, 70% of the region s cotton is exported raw to markets in Western Europe, China, and South Asia. Middle Africa s textile sector is poorly developed, reflecting the unreliable power network, high costs, and poor logistics infrastructure, and as a result the region is heavily dependent on imports of cotton yarn, fabric, and textiles. Cotton lint production in Middle Africa (tonnes, 000s) Sources: ITC, FAO Cotton production by region, Source: ICAC Nigeria / Rest of Mali Burkina Faso Zimbabwe Tanzania Zambia Côte d Ivoire Benin Cameroon % 45.5% CFA franc zone Southern Africa North Africa EAC % Central Africa East Africa Southern Africa / / /12 42

46 Soft commodity overview Sugar Sugar cane, from which refined sugar, molasses, and ethanol are made, is produced in tropical regions, with Brazil and India dominating world production, together accounting for around 40% of it. The EU, China, Thailand, and the USA are also major producers, but their trade in sugar is closely linked to Middle Africa, which both imports sugar from these markets and exports raw sugar to the EU and the USA under preferential agreements. In Middle Africa, sugar cane is primarily cultivated in Southern and East Africa, both for domestic consumption and export. South Africa is the largest producer, with output of 1.8 mn t of refined sugar in 2011/12, down from 2.4 mn t in 2009/10, reflecting the sector s long-term decline owing to the unsuitability of the main sugar-growing region of Kwa-Zulu Natal for mechanized production. Other sugar producers in the surrounding region primarily export to the EU under preferential agreements, whereas South Africa exports to regional markets, the USA, and Asia. In, most sugar is imported raw from Brazil to be refined domestically, with Nigeria possessing the largest sugar refinery in the world in Lagos. However, major investment is under way to develop sugar-cane plantations in countries that previously ran large deficits, notably Nigeria, Mali, Angola, and Ghana. If successful, these countries could alter the region s sugar balance as well as provide power to local communities through cogeneration of waste material (bagasse). Sugar production in SSA (tonnes, 000s) Source: ISO Sugar production by region, Sources: ISO, Ecobank Research / / /12 South Africa Swaziland Kenya Zambia Mozambique Zimbabwe Tanzania 17% 6% 9% 68% Southern Africa EAC Others Southern Africa East Africa Central Africa Nigeria / Rest of 43

47 Soft commodity overview Palm oil Palm oil is a leading vegetable oil used for human consumption (in food and as cooking oil), as fuel, and for industrial purposes. Production is dominated by Indonesia, Malaysia, and Thailand, which together account for around 80% of global output owing to the region s ideal climate for oil palm cultivation. In Middle Africa, palm oil production is concentrated in (the oil palm is native to the region), where there are numerous small-scale producers supplying the local market. Nigeria is the region s largest producer, with an output of 1.1 mn t in 2011 (around 40% of African production), but the country s palm oil sector has struggled to keep up with surging domestic demand in recent years, requiring an estimated 530,000 t of imports in Côte d Ivoire, the Democratic Republic of Congo, Cameroon, and Ghana compete as middle-ranking producers, with production of 100, ,000 t per year. Côte d Ivoire is Middle Africa s only significant exporter of palm oil, with 250,000 t of exports in 2011, while all other countries consume more than they produce and require large volumes of imports from Southeast Asia. Several countries operate as palm oil re-export hubs, notably Benin and Togo in, and Kenya and Tanzania in East Africa. Major investment is under way to develop new palm oil production hubs, notably in Gabon and Liberia. Palm oil production in Middle Africa (tonnes, 000s) Sources: FAO, Ecobank Research % share of palm oil production in Middle Africa, 2011 Sources: FAO, Ecobank Research Nigeria / Rest of Nigeria Côte d'ivoire Congo, D.R. Ghana Cameroon Others 31.7% 41.1% Nigeria Côte d'ivoire Congo, D.R. Ghana Cameroon Others % Central Africa East Africa Southern Africa % 7.1% 11.4% 44

48 Soft commodity overview Natural rubber Natural rubber (NR), which is used in the automotive, surgical, and textile industries, is grown in tropical regions, with production mainly in Southeast Asia. Thailand, Indonesia, Malaysia, and Vietnam produced a combined 8.3 mn t of NR in 2011, the equivalent of 73% of world production. Given the similar climate and growing conditions required to produce palm oil and NR, both commodities are closely linked and tend to be produced by the same companies. In Middle Africa, NR production is concentrated in, which accounts for 85% of output. Côte d Ivoire is by far the largest producer, with an output of 230,000 t in 2011 around 40% of Middle Africa s total followed by Nigeria with around 140,000 t. Liberia and Cameroon are also important producers, with an output of 50,000-60,000 t per year, while other producers, such as Ghana, Guinea, and Gabon, produce less than 20,000 t per year. Côte d Ivoire and Liberia export all of their NR to Malaysia, the EU, and North America, while Nigeria s exports are modest, indicating the high proportion of production that is consumed by the domestic industrial sector. Surging international demand is driving new investment in s NR sector, but the development of new varieties of synthetic rubber (SR) poses a long-term threat to the sector s viability. NR production in Middle Africa (tonnes) Source: FAO % share of NR production in Middle Africa, 2011 Source: FAO Côte d'ivoire Nigeria Liberia Cameroon Ghana Guinea Others 11.4% 10.1% 10.6% 26% 41.9% Côte d'ivoire Nigeria Liberia Cameroon Others Southern Africa East Africa Central Africa Nigeria / Rest of 45

49 Soft commodity overview Cereals Cereals, primarily wheat, rice, and maize, are the staple food of the world s population and are produced around the globe. Wheat production is dominated by the EU, China, and India, with important production hubs in the Black Sea and North America, while maize production is dominated by the USA, in part reflecting the country s distorting biofuel regime. Rice production is largely in China, India, and Southeast Asia, which export large volumes to the global market. SSA is a major producer of cereals in its own right, with a substantial output of maize and rice for domestic consumption. The region produced 54.2 mn t of maize in 2011/12, led by South Africa, Nigeria, and Ethiopia, and 12.1 mn t of rice, led by Nigeria, Mali, and Tanzania. However, the region produces only small volumes of wheat as the crop is not well suited to its tropical climate. Owing to rapid population growth and the increasingly urbanized diet, consumption of cereals far exceeds domestic production, requiring rising volumes of imports. Total imports of grain reached 20.8 mn t in 2011/12, led by Nigeria (3.9 mn t), South Africa (2.1 mn t), and Kenya (1.5 mn t). The region is heavily dependent on rice imported from Southeast Asia, with total imports of 10.7 mn t in, the equivalent of 30% of world imports, much of which is traded informally through Benin and Togo in and Kenya and Tanzania in East and Southern Africa. Major investment is under way to boost production of cereals and reduce dependence on costly imports, but the region is likely to remain dependent on food imports for the foreseeable future. Maize production in SSA (tonnes, 000s) Source: IGC % share of grain imports to SSA, Source: IGC Nigeria / Rest of South Africa Nigeria Ethiopia Malawi Tanzania Kenya Zambia 19% Nigeria South Africa Kenya Ethiopia Côte d Ivoire Zimbabwe Others 49% 10% % Central Africa East Africa Southern Africa % 7% 7% 46

50 Soft commodity overview Nuts Groundnuts and cashew nuts are produced across the globe in tropical regions, with output spread between India, China, Middle Africa, Southeast Asia, and Brazil. China and India are the world s largest groundnut producers, with a combined production of 23 mn t in 2011 (the equivalent of 60% of world output), while Vietnam, Nigeria, India, Côte d Ivoire, and Brazil compete as the largest producers of cashew nuts, with combined production of 3.4 mn t in 2011 (the equivalent of 82% of world production). In Middle Africa, cashew nut production is concentrated in, led by Nigeria with 813,000 t of production in 2011 (around half of Africa s output). Côte d Ivoire (450,000 t) and Guinea-Bissau (130,000 t) are s other leading producers, although large volumes are traded informally across the region, distorting their market share. In East Africa, Tanzania and Mozambique, with a combined production of 150,000 t in 2011, although both countries cashew sectors have suffered from stillborn privatization initiatives. Groundnut production in Middle Africa is also important in Nigeria, which produces around 3 mn t per year (the equivalent of 30% of Africa s groundnuts), and Senegal, although production slumped to 530,000 t in 2011 following poor weather. Other significant African producers are Tanzania, Cameroon, and Ghana, which each produce over 500,000 t per year. A notable problem for Middle Africa s nut sector has been the low level of processing, with over 90% of nuts being exported raw for processing abroad. Major investment is under way to boost domestic processing in order to extract greater value from the crop through the production of cashew and groundnut paste and oil, biofuel, and cosmetics. Cashew nut (RCN) production in Middle Africa (tonnes) Source: FAO Groundnut production in Middle Africa (tonnes) Source: FAO Nigeria Côte d'ivoire Guinea-Bissau Tanzania Mozambique Benin Others Nigeria Tanzania Cameroon Senegal Congo, D.R. Ghana Niger Chad Southern Africa East Africa Central Africa Nigeria / Rest of 47

51 Soft commodity overview Nigeria / Rest of Central Africa East Africa Southern Africa Africa s external and intra-regional trade Africa is a major exporter of raw and semi-processed commodities to the global market. Total trade volumes reached an estimated USD1.1 trn in 2011, dominated by exports of crude oil, precious metals and stones, iron, manganese and copper ores, and cash crops (notably cocoa, coffee, and cotton), and imports of petroleum products, machinery, electronic equipment, food, and consumer goods. With the exception of a handful of key commodities (e.g. cocoa), the region remains a small player on the global stage, with total trade volumes amounting to just 3.1% of global trade flows in The region s leading trade partners are the EU (34.8% of total trade), reflecting long-standing historical ties, China, which has an insatiable appetite for African commodities, (17.6%), and the USA which is a key importer of crude oil and minerals, (9%). India and Brazil respectively account for just 5.6% and 2.3% of trade flows, reflecting the fact that both countries are major producers of commodities in their own right and have little need for Africa s oil or minerals. The majority of bilateral trade flows with these two countries are food sugar, meat, and soy from Brazil, and rice from India but this could change as they seek to increase exports of manufactured goods to Africa. Africa s intra-regional trade is the least developed in the world, comprising just 12% of total trade flows in 2011, compared with around 60% in the EU and Asia and 40% in North America. Re-exports of raw and semi-processed commodities to global markets, and imports of fuel and foodstuffs for domestic consumption dominate intra-regional trade flows. Trade between Africa s largest economies and trade blocks is poorly developed, with SADC-COMESA flows leading the pack with 14.9% of total flows, followed by ECOWAS-CFA franc zone, with 11.3%. However, trade between all other regional blocks does not exceed 10% of total flows, and in Central Africa it comprises less than 2% of total volumes. Nonetheless, intra-regional trade remains vital for the landlocked countries which make up 11 of the top 15 intra-regional traders by share of total trade. In 2011 an estimated 61% of Mali s trade was with its neighbors, around half for Zimbabwe and Rwanda, and around a third for Botswana, Zambia, the Central African Republic, Malawi, and the Democratic Republic of Congo. A number of other countries act as Africa s trade entrepôts, providing entry and exit points for goods into and out of the interior, including Côte d Ivoire and Senegal in, Cameroon in Central Africa, and Kenya, Tanzania, and Mozambique in East and Southern Africa. Moreover, huge unrecorded volumes of goods are traded across the region through off-the-radar informal networks. This trade extends from the sale and bartering of large volumes of agricultural commodities sorghum, cassava, maize, and pulses, none of which appear in official data to the trading of millions of tonnes of rice, crude oil, petroleum products, cash crops (such as cocoa and coffee), and consumer goods. Numerous constraints block the development of intra-regional trade. Overlapping trade blocks are a major obstacle: 27 African countries are members of at least two trade blocks, and 18 countries are members of three. High transport costs are also a burden: to export a container from a CEMAC country, in Central Africa, costs an average of USD2,809, which is more than three times the cost in East Asia and the Pacific. And poor logistics continue to hamper efforts to boost trade volumes. According to the World Bank s Logistics Performance Index, SSA scores the lowest of all regions in the world on customs, shipping, and tracking indicators, reflecting the weak capacity of the road, rail, and port networks. However, the development of trade corridors could provide the key to unlocking the region s trade potential. These efforts include bolstering existing corridors for example, along s coast or from established entrepôts on Africa s coast into the interior as well as developing new corridors. The most ambitious is the LAPSSET project, which plans to build a road, railway, and oil pipeline running from Lamu Port on the Kenyan coast to Ethiopia and South Sudan, with the potential to link into rail and road networks in Central and. 48

52 Soft commodity overview Africa s key trade partners, 2011 Country Exports to Africa (USD mn) Imports from Africa (USD mn) Bilateral trade (USD mn) EU 186, , ,512 China 85, , ,348 Africa 70,191 63, ,215 USA 32,845 68, ,367 India 23,346 39,780 63,126 Brazil 12,210 14, ,984 Others 125,231 89, ,362 World 535, ,984 1,129,406 Sources: Intracen, Ecobank Research % share of Africa s bilateral trade, % Sources: Afreximbank, Ecobank Research EU China Other Africa USA India Brazil Others % share of Africa s intra-regional trade, 2011 Sources: Afreximbank, Ecobank Research 17.8% Maghreb Central Africa EAC SADC 2.3% 34.8% 5.6% 9.0% 11.8% 17.6% Africa s top 20 intra-regional traders, 2011 (USD bn) Mali Zimbabwe Namibia Rwanda Côte d Ivoire Botswana Zambia Togo Central African Rep. Malawi Congo, D.R. Senegal 44.2% Niger Uganda 6.6% Burkina Faso 7.5% Guinea-Bissau 23.9% Other trade Mozambique Kenya Libya Source: World Bank Intra-regional trade Cameroon Burundi Ghana Southern Africa East Africa Central Africa Nigeria / Rest of 49

53 Trans-African Highways From early colonial days when a Cape-to-Cairo road was conceived, to the present, road infrastructure has been seen as an important element in developing the continent. Recently, not only have donor such as the African Development Bank, World Bank and China helped support road (and other transport) infrastructure, so too have governments and the private sector. Efforts to boost transport infrastructure over recent years have focused mainly on the road sector, although rail and waterways continue to play a role, albeit less important. Strong growth in road infrastructure, such as the recent completion of the Nairobi to Thika highway, has helped agricultural and other products move to markets within countries and regions as well as to export points. Similarly, access to imported goods has also increased reflected in greater levels of distribution of goods throughout Middle Africa s hinterland. However, further effort is required to pave unfinished trunk roads and highways, along with building and maintaining feeder roads, which will require significant funding if Africa s productive sector is to support growth fully. Rabat Algiers Tunis Tripoli 1 Cairo Nigeria / Rest of Praia Dakar Banjul Nouakchott Bissau 5 Bamako Ouagadougou Niamey N Djamena Khartoum 6 Asmara Djibouti Conakry Freetown Abuja Addis Ababa Central Africa East Africa Southern Africa Monrovia Trans-African Highways 1 Cairo Dakar 2 Algiers Lagos 3 Tripoli Windhoek (Capetown) 4 Cairo Gaborone (Capetown) 5 Dakar Ndajamena 6 Ndjamena Djibouti 7 Dakar Lagos 8 Lagos Mombasa 9 Beira Lobito Capital Railways 7 Abidjan Porto-Novo Accra Lomé São Tomé Yaoundé Bata Libreville Brazzaville Luanda Bangui Kinshasa 9 Windhoek 8 Juba Kampala Kigali Bujumbura Lilongwe Lusaka Harare 4 Gaborone Pretoria Maputo Mbabane Maseru Mogadishu Nairobi Dar-es-Salaam Antananarivo Paved Unpaved Kilometres 50

54 SSA Trade Corridors Trade corridors are the main channels linking the flow of goods between producers and consumers mainly outward flows of raw or semi-processed materials but also to a lesser extent inward flows of finished goods. Corridors in Middle Africa, as in other regions in the world, reflect mixed use of transport infrastructure to move these goods around, ranging from roads and rail, to inland waterways and ocean ports. Linked to these corridors are trade hubs, which in Middle Africa are universally located along the coast. These are the export and import points that keep the global economy supplied with African commodities and materials, and African consumers supplied with global products and merchandise. Rabat Algiers Tunis Tripoli Cairo Praia Dakar Banjul SSA Trade Corridors Map, ECOWAS source Existing road highways African Trade Hubs Ferry Connections Railways Capital Bissau Conakry Freetown Nouakchott Monrovia Bamako Ouagadougou Abidjan Niamey Abuja Accra Lomé Porto-Novo São Tomé N Djamena Bangui Yaoundé Bata Libreville Brazzaville Kinshasa Luanda Windhoek Gaborone Khartoum Asmara Djibouti Addis Ababa Juba Mogadishu Kampala Kigali Nairobi Bujumbura Dar-es-Salaam Lilongwe Lusaka Harare Antananarivo Maputo Pretoria Mbabane Maseru Southern Africa East Africa Central Africa Nigeria / Rest of 51

55 Country Profiles: Nigeria / Rest of Ecobank operates in 9 countries, running 246 branches with nearly 2,700 employees that look after 1.1 million customers. Revenue and profit growth remain strong, supported by the recovery in Côte d Ivoire in early The region is one of the most diverse regions that Ecobank operates in, ranging from Senegal and Cape Verde in the West to Niger 1,500 kilometres away in the East. Despite the many geographic differences, these countries are bound together in an economic and monetary union, underpinned by the stability provided by the currency peg to the euro. This helps support economic development and in particular a regular stream of bond issuances. Economic activity is also diverse, driven by agriculture, notably cocoa output from the world s largest cocoa producing area, mining, ranging from gold to uranium, and a wide range of services (banking, telecoms and trade-related services). Central Africa East Africa Southern Africa

56 Country Profiles: Benin profile Page Burkina Faso profile Page Cape Verde profile Page Côte d Ivoire profile Page Guinea-Bissau profile Page Mali profile Page Niger profile Page Senegal profile Page Togo profile Page Southern Africa East Africa Central Africa Nigeria / Rest of Opposite: Cocoa pods for processing

57 Benin Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP expanded by 3.8% in, led by good agricultural output, and growth in Nigeria (Benin is heavily dependent on trade and financial links with Nigeria). Growth remained relatively weak because of low public investment, despite stability provided by the March 2011 elections (President Yayi was re elected for a second five-year term), the high cost of doing business, higher fuel prices (caused by Nigeria removing 50% of its fuel subsidy in January ), and by renewed disruptions at the port of Cotonou. Moreover, implementation of structural reforms remains mixed, which is holding back growth. For example, recent efforts to liberalize the cotton sector resulted in excessive concentration, and declining cotton harvests, which led to the government to temporarily suspend the cotton sector framework in April. A new framework is being developed that boosts competition and provides a better service to farmers. Inflation accelerated to nearly 7% in, following the reduction in fuel subsidies in Nigeria early in that year (around 90% of gasoline sold in Benin is smuggled in from Nigeria); this is well above the 3% regional convergence level. Increased fuel prices pushed up transport and food prices. Excluding these items, there were minimal second-round effects. The fiscal deficit narrowed slightly in to around 4% of GDP, despite a partial reversal of the customs reforms implemented in 2011 (to strengthen revenue collection, reduce corruption, streamline trade practices, and boost port activities). This was because capital expenditure was below target (current expenditure was broadly on track). The current account deficit was largely unchanged in compared to the year before, at 10% of GDP. Import demand for goods and services remained strong, rising by 10% compared to However, despite lower international cotton prices, a higher volume of cotton exports and a recovery of non-traditional exports boosted export performance. Higher official transfers also supported the credit side. Increased FDI, project loans, and the repatriation of the banks net foreign assets improved the overall balance of payments in. Economic outlook Assuming sustained normalization of operations at the port of Cotonou, progress with customs and cotton sector reforms, and improvement of the infrastructure (albeit gradual), real GDP is expected to expand over 4% in Inflation is projected to remain below 4% in 2013 supported by the XOF peg to the euro that helps anchor fiscal policy. However, assuming Nigeria removes its remaining fuel subsidy in 2013, this will create upwards price pressures. The fiscal position is not expected to change significantly in The authorities recognize the importance of fully restoring customs reforms and resuming full activity at the port of Cotonou; however, expanding the tax base and strengthening public financial management, which are essential to access a higher level of external concessional finance, will remain challenges in an environment of higher spending pressures. Similarly, the current account deficit is unlikely to change 54

58 Benin significantly. Relatively weak domestic demand will contain import growth despite the high cost of fuel imports, but exports are likely to be constrained by uncertainties related to cotton sector reforms and prices. Although official transfer inflows are also expected to remain largely unchanged, reflecting donor concerns over reforms, remittances will probably rise as the diaspora generate higher wages from the region and Europe. The economy is exposed to risks from domestic, regional, and global developments: stalled customs and cotton sector reforms will undermine growth and fiscal revenues. Exposure and reliance on Nigeria pose a major regional risk. Meanwhile, delayed recovery of the global economy would reduce exports, and could cut public and private capital inflows. XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul FX, FI, and commodity information FX market information Monetary and exchange rate policies Oct Benin is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The XOF is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Jan 2013 Apr 2013 Jul 2013 Source: Bloomberg FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for security reasons. Southern Africa East Africa Central Africa Nigeria / Rest of 55

59 Benin Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Benin maintains an open capital account. Moreover, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management, but in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public debt (XOF bn) e Domestic External Total ,085 1,218 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 56

60 Benin Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in October ), The debt sustainability analysis (DSA) confirms a low risk of debt distress. The projected external debt indicators, despite a moderate deterioration owing to less favorable medium-term growth and export prospects, remain below the policy-dependant thresholds under the baseline scenario and stress tests. The inclusion of domestic public debt shows a gradual decrease in all debt indicators confirming the conclusion of the external DSA. This assessment, however, critically depends on the assumption that the authorities will continue to pursue prudent fiscal and debt policies and will implement structural reforms to enhance competitiveness and growth. Types of securities on offer (T-bills and bonds) Benin generally issues T-bills (all 10 issuance planned for 2013 are of 364-day maturity). Only one seven year bond has been issued since Benin is the third largest issuer in the region, with 13% of total issuance planned for Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency Money market instruments: Weekly and monthly T-bills and bonds: 10 auctions are scheduled for 2013, with one per month until October. As of April, three issuances have been made for a total of XOF55 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume: From zero to 10 bonds traded per day Limited trading value: From zero to XOF50 mn per day Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 18.8% out of 100% (this is the share of the four UEMOA countries in the MABI) Ecobank local affiliate contact details Ecobank Bénin, Rue du Gouverneur Bayol, Cotonou Tel: / Ecobank trading capabilities (FX and FI) FX Trader: Forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 57

61 Benin Nigeria / Rest of Commodity information Key commodities Agricultural cash crops Cashew nuts, cotton, and timber are the main commodities produced in Benin. Others Benin is a major trade entrepôt, re-exporting large volumes of commodities to, many of which are not captured by official data. Trade flows Exports The country s largest official exports are petroleum products, worth USD211 mn in 2011, all of which is re-exports. However, given that the volume of imported products is 15 times higher, it is likely that export volumes are many times greater and form part of the subregion s illicit trade in petroleum products. The country has a well developed agricultural cash crop sector, exporting cashew nuts (worth USD169 mn in 2011), cotton (USD148 mn), and timber (USD99 mn). Benin officially exported 55,000 tonnes (t) of cotton in 2011, to China and South East Asia, 122,000 t of cashew nuts, to India, Ghana and Singapore, and 260,000 t of wood to the UAE and India. Benin is a major re-export hub for rice, wheat, maize and palm oil into eastern Nigeria, but the vast majority of these flows is not picked up by official data. For example, Benin officially imported 369,000 t of rice in 2011, but only exported 478 t, despite having a national production of 180,000 t. Imports The country s largest imports are petroleum products and crude oil (from Nigeria), worth USD3.1 bn in 2011, much of which is re-exported to the subregion. The country is also a major importer of cotton fabric (USD989 mn), palm oil (USD391 mn), rice (USD187 mn), and meat (USD263 mn), a large proportion of which is re-exported to Nigeria. Central Africa East Africa Southern Africa 58

62 Southern Africa East Africa Central Africa Nigeria / Rest of 59

63 Burkina Faso Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (end year) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP growth doubled in to 8%, largely due to good rainfall that led to a rebound in agricultural production following a drought the previous year. However, gold production fell slightly due to a switch in efforts from mining activity to efforts that focused on expanding mining capacity. Despite the earlier effect of drought on food prices last year and a one-off increase in retail fuel prices in late March, inflation remained relatively subdued at an average of 3.6%. Nonetheless, inflationary pressures were sustained by ongoing food security issues and high global oil prices. The fiscal deficit widened somewhat, to 3.2% of GDP last year due to a combination of higher than expected revenue (reflecting tax administration efficiency, which boosted revenue performance), substantially lower than expected capital spending, and lower than expected donor support. Meanwhile, the current account deficit widened sharply in to 4.7% of GDP, largely because of higher imported food costs and international fuel prices, despite increased gold export revenues. Economic outlook Real GDP is forecast to expand by 7% in 2013 (a slightly slower pace compared to ), supported by a further expansion of gold and cotton production. Inflation is projected to slow to 2% in 2013, supported by the CFA franc (XOF) peg to the euro, which helps anchor fiscal policy, and assuming no significant global oil price rises or food security issues. However, the impact of social unrest and political turmoil in Mali could create price pressures, although these appear contained so far. In 2013, the government faces significant policy challenges, including a large number of refugees who have fled the recent political turmoil in Mali, which will add to the spending burden. Current spending is expected to rise, reflecting increases in the public wage bill, interest payments, and transfers. Retail fuel prices have not been adjusted since March, creating a need for additional subsidies in 2013 to cover losses of the state owned oil importer. The current account is expected to narrow in 2013 to around 4% of GDP because of lower food import costs and the results of the efforts of mining companies to expand gold production capacity. High global oil prices and demand for capital and public investment goods will prevent the deficit from falling further. 60

64 Burkina Faso XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Burkina Faso is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The XOF currency is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of 61

65 Burkina Faso Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Burkina Faso maintains an open capital account. Moreover, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public debt (XOF bn) e Domestic External ,158 1,502 Total 894 1,079 1,327 1,502 Public sector debt (% of GDP) Domestic n/a n/a External Total n/a n/a External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 62

66 Burkina Faso Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in December 2011), Burkina Faso s risk of debt distress is high, because the present value (PV) of debt to exports ratio is projected to breach its policy-dependent indicative threshold under the baseline scenario and under the stress tests. However, the breach is projected to occur about 10 years later than in the previous DSA, reflecting better exports prospects over the period. Other debt burden indicators remain below their policy-dependent indicative thresholds under the baseline and stress tests scenarios. In the context of the new PRSP adopted in late 2010, Burkina Faso plans to scale up investment, particularly in infrastructure, to accelerate growth and reduce poverty. The DSA results indicate that financing needs for higher public investment would have to be met mostly with grants and concessional loans to support long term debt sustainability. Types of securities on offer (T-bills and bonds) Burkina Faso generally issues T-bills and 5-year bonds. One 7-year syndicated bond was issued in 2011, with another programmed to be issued in November Burkina Faso is the sixth largest (out of eight) issuer in the region, with XOF145 trn (7.4% of the total UEMOA issuance) scheduled to be issued in Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency Money market instruments: weekly and monthly T-bills and bonds: Five auctions are scheduled for As of April, one bond has been issued for XOF25 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited volume; from zero to ten bonds traded per day Limited value: from zero to XOF50 mn per day Ecobank local affiliate contact details Ecobank Burkina Faso, 49, Rue de l Hôtel de Ville, Ouagadougou 01 Tel: / Ecobank trading capabilities (FX and FI) FX trader: Forward rates available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 63

67 Burkina Faso Nigeria / Rest of Commodity information Key commodities Burkina Faso is s second largest cotton producer, after Mali, with an estimated production of 174,000 tonnes (t) of refined cotton in 2011/12. Gold mining (and related activities) is a recently new activity but accounts for a large part of GDP. Various foodstuffs are produced, such as oil seeds, cashew nuts, and livestock, much of which is consumed domestically. Trade flows Exports Since 2009 gold has been Burkina Faso s most valuable export. Some 41 t of gold were exported in 2011 (mainly to Switzerland and South Africa), worth USD1.8 bn, thanks to recent large-scale investment in the country s mining sector. Gold exports have eclipsed the country s traditional leading export, cotton, exports of which totaled USD273 mn in Some 84,000 t of cashew nuts were exported in 2011 to South-East Asia (for processing) and the West African sub-region (for re-export). Some 160,000 t of cotton was exported to markets in Western Europe and Singapore in 2011/12. The country also exports modest volumes of oil seeds, cashew nuts, and livestock. Imports Burkina Faso has no refining capacity, therefore, is entirely reliant on imports of petroleum products. Around 600,000 t of petroleum products were imported in 2011 at a cost of USD576 mn, primarily from the UK, Côte d Ivoire, Nigeria and the Netherlands. The country also imports large volumes of rice and wheat, worth USD122 mn in 2011, along with iron and steel (USD164 mn), fertilizer (USD80 mn), and cement (USD73 mn). In terms of volumes, 320,000 t of rice was imported from South and South-East Asia in Central Africa East Africa Southern Africa 64

68 Southern Africa East Africa Central Africa Nigeria / Rest of 65

69 Cape Verde Nigeria / Rest of Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (EUR mn) Imports (EUR mn) Current Account Balance (% GDP) FX Reserves (EUR mn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP growth slowed to about 4% in owing to the effect of the eurozone crisis on the local economy (reducing FDI and other investment inflows) and of weak domestic demand. Furthermore, credit growth slowed last year, reflecting slower demand and increased credit risks. Nonetheless, remittances and tourism continued to boost activity. Given the weaker growth, inflation remained under control at around 4% in. The fiscal deficit remained large, at over 10% of GDP. There was partial success with tax reform that aimed to reverse the fall in tax revenues of recent years, while the authorities were less successful in slowing the growth of current spending. Despite tourism growth, the weak performance of fish exports and remittances along with sustained high global commodity prices led to the current account remaining in a large deficit of around 12% of GDP in. Central Africa East Africa Southern Africa Economic outlook The short-term outlook is uncertain owing to the impact of the recession in the eurozone and the likelihood of further global economic weakness. As a result, growth in 2013 is likely to remain at around 4%, driven mainly by tourism and fish production, although the public investment program will also boost domestic demand. Under the assumption of more stable global commodity prices, inflation could slow to around 3% in 2013, supported by the peg to the euro that helps anchor fiscal policy. Ongoing implementation of tax reform measures (VAT, rationalizing of exemptions, and strengthening of the tax code) should help reduce the fiscal deficit to 8.5% of GDP in 2013, although spending pressures are expected to remain high due to the ambitious upgrading of infrastructure (only partly financed by donors). Meanwhile, lower food and fuel import costs in 2013 should narrow the current account deficit to around 10%, although there remains uncertainty over export sector performance. 66

70 Cape Verde CVE Currency values versus US dollar 94 Source: Bloomberg CVE:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies The de facto and de jure exchange rate arrangement of Cape Verde is a conventional fixed peg. The escudo (CVE) has been pegged to the euro at a rate of CVE = EUR1 since 4 January Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The central bank is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The exchange arrangement is classified as a conventional peg. The central bank maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF Southern Africa East Africa Central Africa Nigeria / Rest of e e 67

71 Cape Verde Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors Cape Verde accepted the obligations of Article VIII of the Articles of Agreement effective from 1 July It maintains an exchange system that is free of restrictions on the making of payments and transfers for current international transactions. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information: Limited primary and secondary market liquidity is a concern. Public sector debt Public debt (CVE bn) e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and central bank liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in January ), Cape Verde s debt remains sustainable, but risks have increased since the previous debt sustainability analysis in November A faster accumulation of external public debt over the next few years combined with a deteriorating global economic environment accentuates macroeconomic vulnerabilities. Improvement of the debt outlook requires faster reduction of the fiscal deficit and implementation of long-standing structural reforms to boost growth. New public investment projects should directly support private sector investment and export growth. Types of securities on offer (T-bills and bonds) Cape Verde generally issues short-term instruments, such as various money market instruments and one year bonds. Some government bonds are backed by a trust fund that is managed by the Banco de Portugal. 68

72 Cape Verde Auctions Timetable/frequency Money market instruments: Monthly Bonds: Infrequently Type of auction: Not competitive Primary dealers: Yes Bid size limits: Not available Auction calendar: Yes Reopening of existing bonds: Not available FI secondary market information: Limited primary and secondary market liquidity is a concern. Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Cape Verde, Avenida Cidade de Lisboa, Praia, Santiago Tel: Ecobank trading capabilities (FX and FI) FX forward rates: Available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities As Cape Verde is an archipelago in the Atlantic spread over 4,000 km2, it produces few goods or commodities apart from fish and fish related products. Trade flows Exports The main exports are fish and seafood, worth USD44 mn in, along with small volumes of apparel and footwear (mostly re-exports). The country could start exporting pozzolana cement in the near future as a number of projects are being implemented to boost capacity well beyond the level of domestic demand. Imports Given its lack of refining capacity and erratic weather, the country is dependent on imports of petroleum products, worth USD142 mn in, and also of food (USD208 mn), which can rise sharply during periodic droughts. Cape Verde imported 145,000 tonnes (t) of petroleum oils in, and 12,000 t of bottled gas (for domestic consumption). The country imported 31,000 t of rice, 20,000 t of maize, and 18,000 t of wheat in, nearly all of which was consumed domestically. Southern Africa East Africa Central Africa Nigeria / Rest of 69

73 Côte d Ivoire Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Economic activity recovered faster than expected in following the end of the post-election conflict in April The reopening of parliament and government ministries in March, a recovery in agricultural production and mining output, and a pick-up in trade following the end of the EU embargo supported efforts to revive the economy. Overall, real GDP is estimated to have expanded by nearly 10%. However, establishing peace nationwide has been slower than expected although the restructuring of the army has made progress. Normalization of the economic situation supported a slowing of inflation from over 9% at the peak of the crisis to an average of 2% in. Meanwhile, conservative fiscal management has kept spending in line with available resources, while strong revenue growth reflected improved corporate tax performance, both of which supported efforts to reduce the fiscal deficit to around 4.3% of GDP in. With the economy normalizing, import demand increased strongly last year. However, export values contracted, which widened the current account deficit to over 3% of GDP. External arrears to multilateral institutions were cleared, and progress has been made toward regularizing relations with other external creditors such as sovereign bond holders. Economic outlook Growth prospects for 2013 are good, although there are some risks. The growth momentum of is expected to carry over into 2013, with growth of over 8% driven mainly by the agriculture and services sector, underpinned by public investment and an ever improving security environment. Stronger growth will lead to a moderate acceleration of inflation to around 3% this year, although low inflation will remain supported by the peg of the CFA franc (XOF) to the euro that helps anchor fiscal policy. Export revenues are expected to rebound strongly in 2013, but this increase will be offset by sustained, robust import demand, which is likely to leave the current account deficit unchanged at around 3% of GDP. Despite the recovery from the impact of the post-election crisis, major challenges remain, ranging from the work required to strengthen security throughout the country to increasing access to the regional financial markets. Meanwhile, progress in structural reform is likely to be mixed: while reforms in the public pension system and cocoa sector have been completed, further progress is required on debt management, restructuring public banks, and the energy sector. 70

74 Côte d Ivoire XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 XOF Currency volatility versus US dollar (standard deviations) Sources: Bloomberg, Ecobank 560 XOF:USD (lhs) Average (lhs) #SDs (rhs) Jan 2011 FX, FI, and commodity information FX market information Monetary and exchange rate policies Jan Côte d Ivoire is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The XOF is currently pegged to the euro at a rate of CFAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Jan 2013 Jul Source: Bloomberg Southern Africa East Africa Central Africa Nigeria / Rest of 71

75 Côte d Ivoire FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for restrictions maintained for security reasons. Average bank discount rate (%) 6 5 Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF, and by accepting its Articles of Agreement, particularly Articles IV and VIII, Côte d Ivoire maintains an open capital account. In addition, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies such as those for taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Central Africa East Africa Southern Africa Public sector debt (XOF bn) e Domestic 1,537 1,793 1,820 1,900 External 5,695 5,749 6,264 6,437 Total 7,232 7,542 8,084 8,337 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. 72

76 Côte d Ivoire The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November ), Côte d Ivoire remains at a moderate risk of debt distress. The baseline scenario includes almost USD250 mn of additional non-concessional borrowing over (0.57% of GDP in 2013, 0.35% of GDP in 2014), largely to finance infrastructure and energy projects. All external debt indicators remain under their indicative thresholds throughout the projection period, except the present value of debt-to-gdp, which breaches its threshold at the beginning of the projection period. The country remains vulnerable to macroeconomic shocks, including lower exports and GDP growth. The inclusion of domestic debt raises debt burden indicators somewhat, but does not alter the overall assessment. Types of securities on offer (T-bills and bonds) Côte d Ivoire is the largest issuer in the UEMOA region, with XOF743 trn planned to be issued in 2013 (38% of UEMOA issuance). Côte d Ivoire is moving towards issuing longer term instruments as the economy and fiscal financing requirement normalizes the issue of the first 7-year bond took place in March 2013, highlighting the normalization of the economic situation. Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency T-bills: weekly and monthly Bonds: 12 auctions are scheduled to be held in 2013 (one per month), ranging from XOF20 bn to XOF90 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes (published on the BCEAO website) Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited volume: Ivorian bonds are the most actively traded on the local BRVM exchange, ranging from several up to 20 bonds or more traded per day. However, illiquidity is a concern. Limited value: from zero to XOF50 mn per day Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 18.8% out of 100% (this is the share of the four UEMOA countries in the MABI). Ecobank local affiliate contact details Ecobank Côte d Ivoire, Immeuble Alliance, Avenue Terrasson de Fougères, Abidjan 01 Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 73

77 Côte d Ivoire Nigeria / Rest of Banking sector Côte d Ivoire has a competitive financial system that consists of 23 commercial banks, 72 credit unions and financial cooperatives, as well as 72 deposit-taking microfinance institutions. Most banks are subsidiaries of French and Nigerian banks while others are state owned. Côte d Ivoire is the banking hub of francophone with an asset base of XOF4,453.5 bn (USD8.61 bn) in 2011, equivalent to 27.8% of the aggregate regional banking asset base, the largest percentage share by a country in the region. However, financial intermediation remains low, partly due to political instability and low economic growth. The asset base grew by 15.4% in However, credit to the economy as a percentage of total assets fell to 46% in 2011 from 52% in 2010, mainly because of a slowing financial intermediation following the post election violence in late 2010/early 201, and the decision by the regional central bank, BCEAO, to raise the required reserve ratios to a uniform 7.0% in all countries in December 2010 (Côte d Ivoire s required reserve ratio was raised from 5.0%). The UEMOA banking sector has remained well capitalized in the past five years despite the inability of some banks to meet a new minimum capital requirement at the end of Capital adequacy progressively improved from 6.8% in 2007 to 10.6% in June. However, stress tests conducted by the IMF indicated that the region remained vulnerable to credit risk, partly due to legacy issues. The statutory reserve ratio is 5% for all UEMOA member states (since 16 March ). Political instability is the major challenge facing the banking sector and the economy generally. The most recent political instability that occurred in late 2010 was directly responsible for the collapse of the banking system in early 2011 as banks temporarily suspended their operations. This also contributed to higher NPLs. Political stability would be a key factor supporting banking sector growth in the next decade. CPI Inflation (% change) M2 (% change) Source: IMF 12 CPI inflation (lhs) M2 supply (rhs) 35 Central Africa East Africa Southern Africa Jan 2007 Commodity information Key commodities Hydrocarbons Jan 2009 Côte d Ivoire is a modest crude oil producer, with output averaging 32,000 barrels per day (bpd). Years of conflict in Côte d Ivoire have restricted onshore exploration so the country s reserves of 100 mn barrels lie mostly offshore. New discoveries in by Russian IOC Lukoil and Irish explorer Tullow Oil are expected to spur further exploration offshore and could boost production by over 100,000 bpd in five years. Côte d Ivoire s only refinery, Société Ivoirienne de Raffinage (SIR) is one of the few refineries in Africa with participation from a major oil company. The refinery is jointly owned by the Ivorian government (48%), Total Jan 2011 Jan

78 Côte d Ivoire SA (27%), Luanda Sonangol (20%) and the government of Burkina Faso (5%). Although Côte d Ivoire consumes only 28,000 bpd, it refines over 64,000 bpd; the balance is made up by imports of crude oil from Nigeria. Côte d Ivoire is a key supplier of petroleum products to Nigeria, Ghana, and other countries. SIR refines around 65,000 bpd, the balance of crude oil being imported from Nigeria. Domestic consumption is around 28,000 bpd. SIR s output continues to fall due to aging equipment and technology. Côte d Ivoire crude oil production 000 bpd Sources: EIA and ENHt e 2013f Soft commodities Côte d Ivoire is one of the largest soft commodity producers in, producing a diverse range of raw and processed products which are exported to the sub-region and global markets. The country is the world s largest cocoa producer with output totaling 1.49 mn tonnes (t) in 2011/12, around two thirds of which were exported raw to markets in the EU, USA, and Malaysia. Côte d Ivoire also exported large volumes of cocoa products in 2010/11, including 53,000 t of cocoa butter, 68,000 t of cocoa powder, 140,000 t of cocoa liquor, and 30,000 t of chocolate. Other significant soft commodity exports in 2011 included 320,000 t of bananas, 305,000 t of cashew nuts, 233,000 t of natural rubber, and 243,000 t of wood. Côte d Ivoire is s largest coffee producer, exporting 32,000 t of coffee in 2011, and the third largest cotton producer, exporting 59,000 t of cotton to markets in South East Asia. Côte d Ivoire is s largest palm oil exporter, with total exports of 254,000 t in 2011 to the sub region and the EU. Trade flows Exports Côte d Ivoire is the world s largest exporter of cocoa and cocoa products, with total exports worth USD4.2 bn in The country is a small oil producer, and exported USD1.3 bn in crude oil in The country also imports crude oil from Nigeria for refining in-country before re-exporting petroleum products back to Nigeria; exports of petroleum products totaled USD1.3 bn in Other important commodity exports include natural rubber (USD1.1 bn), gold (USD573 mn), cashew nuts (USD279 mn), and palm oil (USD264 mn) along with small volumes of timber, cotton, coffee, and tobacco. Imports Côte d Ivoire imported USD1.7 bn in crude oil in 2011, most of which came from Nigeria for refining in Abidjan; the country also imported USD85 mn in petroleum products for domestic consumption. The country is heavily dependent on food imports, importing USD568 mn in rice, USD185 mn in wheat, and USD326 mn in fish in Southern Africa East Africa Central Africa Nigeria / Rest of 75

79 Guinea-Bissau Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (XOF bn) Imports (XOF bn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Growth contracted 1.5% in, reflecting lower global cashew prices and the impact of further political instability following the most recent coup (in April). However, domestic economic activity remained supported by sustained cashew production (cashew is the major export), the public investment program, and construction activity. Meanwhile, rising food and fuel import prices pushed average inflation to 5% last year, which was above the 3% convergence criterion of the Union Economique et Monétaire Ouest-Africaine (UEMOA). The estimated fiscal deficit for is 2% of GDP, largely similar to This reflected current spending that was higher than projected owing to unanticipated spending pressures, disappointing growth in revenues, along with implicit customs subsidies and exemptions that remained in place. The deficit was financed mainly by domestic sources. Global economic weakness exacerbated the disruption to exports caused by the coup, which resulted in the current account deficit remaining relatively wide at around 6% of GDP. Economic outlook The outlook for Guinea-Bissau is uncertain largely because of ongoing political instability. Although cashew production is likely to be sustained, the effect of lower international cashew prices will probably indirectly moderate domestic economic activity, as will public investment and construction activity that have been postponed due to the coup. Meanwhile, political stability and improved security will continue to be critical for economic activity. Without improvements to stability and security, economic growth is unlikely to expand much above 4%. Meanwhile, inflation is likely to slow to around 3.5% in 2013 assuming that global commodity prices stabilize. The fiscal deficit could narrow to less than 1% if further progress is made in extending a unified public payroll system to all ministries, if tax reform to enhance revenues is implemented, and if there is no recourse to domestic financing. Assuming global commodity prices stabilize, import costs will fall in However, lower cashew export revenues are also likely, which, in combination with lower remittances, will sustain a large current account deficit of around 5-6% of GDP. Risks to the economy arise from the external environment, which if it weakened further would impact economic growth through lower exports and remittances. Political stability and improved security continue to be critical for economic activity. 76

80 Guinea-Bissau XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Guinea-Bissau is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The CFA franc currency (XOF) is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of 77

81 Guinea-Bissau Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Guinea-Bissau maintains an open capital account. Moreover, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XOF bn) e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: As Guinea-Bissau generally issues very short-term securities, the yield curve is extremely short and illiquid, and the market is very shallow. However, the BCEAO policy interest rate will continue to remain a benchmark rate that will be strongly influenced by the monetary policy stance derived from the ECB and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 78

82 Guinea-Bissau Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November 2011), Following the Heavily Indebted Poor Countries (HIPC) completion point (including topping up assistance) and the Multilateral Debt Relief Initiative (MDRI) reached in December 2010, the Paris Club agreed to provide extensive debt relief in May As a result, Guinea-Bissau s debt outlook has improved considerably. An update of the debt sustainability analysis for low-income countries confirms a moderate risk of external debt distress in Guinea-Bissau. Since the 2010 DSA the minimum concessionality requirement for foreign currency borrowing has been lowered from 50 to 35%, reflecting a moderate risk of debt distress. The macroeconomic assumptions underlying the baseline scenario envisage a gradual improvement of the external current account over the medium and long term, backed by sustained growth in the predominant export (cashew) sector. The projected debt indicators under the baseline scenario would remain well below the policy-dependent thresholds, even with a declining grant element. However under the scenario assuming a shock to exports and currency depreciation, all debt indicators deteriorate significantly and the present value of debt to export ratio breaches the corresponding threshold. The inclusion of domestic public debt confirms the conclusions of the external debt sustainability analysis. To contain debt vulnerability, the authorities should strengthen debt management capacity. Types of securities on offer (T-bills and bonds) Guinea-Bissau has previously issued short-term instruments, such as various money market instruments and one-year bonds. However, apart from ongoing, very short-duration money market instruments (daily and weekly), there were no other issuances in. However, with the economy starting to return to normal in 2013, a 2-year, XOF10 trn bond was issued in April to help meet the government s financing requirement. No other issuances are planned for the remainder of this year. As a result, Guinea-Bissau issues the smallest amount of securities in UEMOA (just 0.5% of the total). Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via BCEAO. Auctions Timetable/frequency Money market instruments: Daily and weekly. Following the April year issuance, no bond issuances are expected for the remainder of Type of auction: n/a Primary dealers: n/a Bid size limits: n/a Auction calendar: n/a Reopening of existing bonds: n/a FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Southern Africa East Africa Central Africa Nigeria / Rest of 79

83 Guinea-Bissau Nigeria / Rest of Central Africa East Africa Southern Africa Ecobank local affiliate contact details Ecobank Guinée-Bissau, Avenue Amilcar Cabral, Bissau Tel: Ecobank trading capabilities (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Guinea-Bissau s main activity is cashew nut production it is the second-largest producer of cashew nuts in Africa. Production of various foodstuffs and animal husbandry also takes place reflecting the largely agricultural level of output. Trade flows Exports Guinea-Bissau s only significant exports are cashew nuts, worth USD227 mn in 2011, equal to 140,000 tonnes (t). India and Singapore are the main export markets, where cashew is processed. However, a large part of production and exports is not captured by official data, owing to smuggling into neighboring countries. For example, it is likely that large volumes were smuggled to Senegal for re export to India. Fish (USD11 mn) is another significant export. The country s official exports also included USD44 mn of crude oil and USD21 mn of copper ore in 2011, but these appear to be re-exports from neighboring countries. Imports Given the country s limited natural resources, the main imports are food (USD80 mn in 2011), petroleum products (USD42 mn), and iron and steel (USD31 mn). Guinea-Bissau imported 42,000 t of petroleum products in 2011, mostly from Senegal, and 73,000 t of rice from Thailand and Senegal. 80

84 Southern Africa East Africa Central Africa Nigeria / Rest of 81

85 Mali Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (XOF trn) Imports (XOF trn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research In, the economy was destabilized by the political and security crisis. The rebel occupation of the North disrupted agricultural production and trade, while the unstable political and security situation in the South dampened investment. However, the /13 harvest was good, and mining sector output remained robust, which contained contraction in real GDP to around 1%. Meanwhile, inflation accelerated 5% partly because of the earlier effects on food prices arising from the poor 2011/12 harvest and also because of the disruption in the transport of goods countrywide. Owing to the developing political and security crisis throughout most of, donors suspended budget support and much of their project aid. In response, the government cut most capital spending, which helped reduce fiscal pressures. Data on current account developments are scarce owing to the disruption to trade. However, travel to Mali dropped sharply, reducing commerce and tourism activity, which, in combination with a fall in exports and a rise in some imports, probably sustained a relatively large deficit of over 3% of GDP in. Economic outlook Following recent strengthening of the security and political situation, economic prospects for 2013 are improving. Real GDP growth could rise 5%, supported by an increase in cotton and gold production and a normalization of commerce and internal trade. Assuming a swift resolution to the political instability and another good season for agriculture in 2013/14 thanks to good rains, inflation should slow to 3% or less. Meanwhile, several donors recently confirmed resumption of their financial support following the adoption by the government of a plan to re-establish the administration in the North and organize elections. The government is preparing a supplementary budget to allocate this aid, which will be used to clear private sector arrears and resume capital spending. The external sector will be influenced by the positive impact of high gold and cotton prices, although this will be offset to some degree by high transport costs arising from the earlier disruption caused by the crisis. A sustained current account deficit in 2013 will be financed almost entirely by net capital inflows, primarily through foreign aid and foreign direct investment. 82

86 Mali XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Mali is a member of the eight-country regional group, the Union Economique et Monétaire Ouest-Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The CFA franc currency (XOF) is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of 83

87 Mali Average bank discount rate (%) Source: IMF e Real GDP growth (%) Source: IMF e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors: As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Mali maintains an open capital account. In addition, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XOF bn) e Domestic External 957 1,134 1,503 1,520 Total 1,046 1,339 1,740 1,788 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 84

88 Mali Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in January 2013), Mali s risk of debt distress continues to be assessed as moderate unchanged from the previous Debt Sustainability Analysis. Debt sustainability remains mostly sensitive to a hardening of financial terms or an export shock stemming from the concentration of exports on gold. Types of securities on offer (T-bills and bonds; central bank bills and bonds) Mali generally issues short-term instruments, such as various money market instruments of up to 364-day maturity, although the yield curve has extended to 10 years. With XOF195 trn planned to be issued in 2013 (10% of total UEMOA issuance), Mali is the fourth largest issuer in the region. Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency Money market instruments: Weekly and monthly T-bills and bonds: Eight auctions are scheduled for As of April, two bonds have been issued for XOF56 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited volume: from zero to ten bonds traded per day Limited value: from zero to XOF50 mn per day Ecobank local affiliate contact details: Ecobank Mali, Place de la Nation, Quartier du Fleuve, Bamako Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 85

89 Mali Nigeria / Rest of Commodity information Key commodities Mali is the largest cotton producer in Africa, with much of the agriculture sector devoted to cotton production. Livestock and fishing are important sectors, as is food crop production (mainly rice and sorghum). Gold mining accounts for most mining sector activity. Mining occurs mostly in the north, west, and south of the country, although production has been severely disrupted by the political crisis in the north of the country. Trade flows Exports Mali s most valuable commodity export is gold, worth an estimated USD1.6 bn in Most of the gold exported, totaling 49 tonnes (t) in 2010, is destined for South Africa, Switzerland, and Italy. The other main commodity export is cotton, with exports of USD238 mn in Most refined cotton exports, totaling over 150,000 t in 2011, are exported via Senegal, although increasing volumes are going via Côte d Ivoire following the reopening of trade routes through the country. Livestock is another important export that is traded throughout the region, much of it informally by traditional herders. Imports The country is heavily reliant on imports of industrial raw materials, including cement (worth USD189 mn in 2011), petroleum products (USD168 mn), and iron and steel (USD153 mn). Despite being Africa s largest cotton producer, the country s ginning capacity is limited; it therefore imported cotton fabric worth USD133 mn in The country also imports significant volumes of food, including flour (worth USD52 mn in 2011), dairy products (USD43 mn), rice (USD40 mn), and wheat (USD33 mn). Central Africa East Africa Southern Africa 86

90 Southern Africa East Africa Central Africa Nigeria / Rest of 87

91 Niger Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (XOF bn) Imports (XOF bn) ,049 1,231 1,226 Current Account Balance (% GDP) FX Reserves (XOF trn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Niger is emerging from a prolonged period of social unrest and military rule with a democratically elected government established in April Economic activity was strong in, with real growth expanding over 11% due to increased oil sector activity linked to the start-up of production at a new oil project, ongoing investments in uranium mining, and a rebound in agricultural production following drought the previous year. Average inflation accelerated very moderately, by 0.5% in helped by low energy prices (underpinned by subsidies). However, increased inflationary pressures were driven in the first part of the year by higher food prices; these were the result of food shortages brought about by the drought the year before and the August floods. Fiscal revenues in increased compared to 2011, but were below projections due to customs and oil revenue weaknesses. Meanwhile, spending remained high owing to an increase in capital spending, and military spending following the deterioration in the regional security situation, and despite some current spending restraint. As a result, the fiscal deficit narrowed to an estimated 5% of GDP. Despite increased mining sector exports, the current account deficit remained wide in at 18% of GDP owing to a sharp rise in imports (reflecting strong demand for goods) and continued high global commodity prices. Economic outlook Niger s prospects remain good, although instability in some neighboring countries highlights the fragility of the region. Nonetheless, underpinned by ongoing investment in the natural resource sector, real growth is likely to expand over 6% in Meanwhile, inflation is projected to accelerate slightly based on the assumption of a good harvest that will boost disposable income and despite the stability provided by XOF s peg to the euro. Key fiscal goals in 2013 are to boost revenue performance by strengthening the financial position of the oil refinery and customs, and by implementing structural reforms to improve budget execution, treasury management, and domestic revenue collection. If successful, they will help contain the forecast significant widening of the fiscal deficit to around 20% of GDP due to a strong rise in projected capital spending and a new project loan (12% of GDP) guaranteed by the government to cover the costs of constructing an oil refinery. The current account deficit is likely to widen somewhat, to 19% of GDP despite a rise in oil exports and a corresponding fall in petroleum product imports. The deterioration will be driven mainly by increased import demand. Risks to the outlook remain evident given recurrent weather related food crises, global commodity price volatility, and the fragile security situation in the region. 88

92 Niger XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Niger is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The XOF currency is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for restrictions maintained for security reasons. Southern Africa East Africa Central Africa Nigeria / Rest of 89

93 Niger Average bank discount rate (%) Source: IMF e Real GDP growth (%) Source: IMF e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Niger maintains an open capital account. In addition, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XOF bn) e Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 90

94 Niger Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November 2011), Since the previous Debt Sustainability Analysis (conducted May, 2010), Niger s risk of debt distress has moved from a low to a moderate level. The medium-term economic framework underpinning the analysis has been revised to reflect new information on the financing of large oil and mining projects, including the contracting of a public guarantee on a large loan to finance the state s share in an oil refinery. While the various debt measures lie below the relevant thresholds for the baseline scenario, the present value (PV) of debt to exports, to revenue, and to GDP breach[es] the thresholds under the most extreme stress test. Types of securities on offer: T-bills and bonds Niger is the second lowest issuer in the UEMOA region, with XOF80 trn (4% of total UEMOA issuance) scheduled for All securities issued or due to be issued in 2013 are 91- and 182-day T-bills. Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3 yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency Money market instruments: Weekly and monthly Treasury bills (T-bills) and bonds: Three auctions are scheduled for 2013; as of April, one auction has been completed. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Niger, Angle Boulevard de la Liberté et Rue des Bâtisseurs, Niamey Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 91

95 Niger Nigeria / Rest of Commodity information Key commodities Food crops and livestock are the key agricultural outputs of Niger. Niger is Africa s largest producer of uranium. Other mining activity is relatively limited and centers on gold and coal. Trade flows Exports Niger s most important export is uranium, worth USD669 mn in The country also exported gold worth USD90 mn, vegetables (USD48 mn), and live animals (USD42 mn) in Imports The country s largest import is petroleum products, worth USD314 mn in 2011, along with electricity (USD25 mn). The country also imports significant volumes of iron and steel (USD132 mn), cement (USD63 mn), and rice (USD55 mn). Uranium exports were 4,500 tonnes (t) in 2011, most of which went to France, with smaller amounts to the USA, Japan, and Spain. Niger imported 265,000 t of petroleum products in 2011, mostly from the UK, Netherlands, and Côte d Ivoire, and 422,000 megawatt (MW) hours of electricity from Nigeria. Central Africa East Africa Southern Africa 92

96 Southern Africa East Africa Central Africa Nigeria / Rest of 93

97 Senegal Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (XOF trn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The economy continued to expand in but at a weak pace of around 3.5%. In the early part of the year, economic activity slowed because of political tensions ahead of the March presidential election and the crisis in Mali and Guinea-Bissau. However, the peaceful political transition following the presidential election (and legislative elections in July ), together with a rebound in agriculture after the 2011 drought, underpinned growth last year. Inflation slowed in to an average of 1.5% reflecting increased food availability following the 2011 post-drought rebound. However, subsidies prevented a full pass-through of global oil price rises. Implementation of several structural reforms, including strengthening public financial management, helped support a moderate narrowing of the fiscal deficit to 6% of GDP in. However, because of a series of external price shocks and the crisis in the energy sector, fiscal deficits in the past two years have been higher than projected. The current account deficit widened in to nearly 8% of GDP from 6.1% in 2011, mainly because of high food prices and increased imports of capital goods amid somewhat weak export performance. Economic outlook Real growth is likely to accelerate slightly in 2013 to around 4%, largely thanks to the completion of a number of large infrastructure investments (energy and transport) and mining projects offsetting to some extent the likelihood of the global economy s remaining weak in This is also based on the economy s being in the early part of the election cycle, with the corresponding policy momentum that that brings, and the assumption that sufficient electricity supplies will be maintained in Inflation is likely to remain below 2%, supported by the CFA franc (XOF) being pegged to the euro and automatic adjustments in petroleum product prices if global food prices do not rise sharply. Despite ongoing spending increases related to energy and road investments, the fiscal deficit is likely to narrow to around 5% in 2013 as revenues continue to rise and comprehensive tax reform is implemented. However, at current oil prices and in the absence of any tariff adjustments, electricity and food subsidies will remain large in 2013 (around 1% of GDP). The current account deficit could remain wide at over 7% of GDP in 2013 because of higher fuel and food imports amid weak global demand for Senegal s exports. Risks arise from regional instability: Senegal so far has been moderately affected by the situation in northern Mali, which is an underlying source of concern, but a return to normality in Mali is expected in Risks to the external sector arise from deterioration in the global economy, which should affect the balance of payments through trade, remittances, and FDI. 94

98 Senegal XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Senegal is a member of the eight-country regional group, the Union Economique et Monétaire Ouest Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The XOF currency is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August FX market structure Source: Bloomberg The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for restrictions maintained for security reasons. Southern Africa East Africa Central Africa Nigeria / Rest of 95

99 Senegal Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Senegal maintains an open capital account. In addition, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XOF bn) e Domestic External 1,622 1,751 1,964 2,363 Total 2,062 2,274 2,727 3,251 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 96

100 Senegal Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and the BCEAO liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and owing to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November ), Since the last debt sustainability analysis (DSA) was published in May 2011, Senegal s debt outlook has deteriorated. Growth in was slower than expected, due to the drought in the Sahel, and fiscal consolidation has been somewhat less than expected, reflecting the impact of exogenous shocks, the higher cost of electricity subsidies, and measures taken by the authorities to stabilize petroleum product prices. On balance, Senegal continues to face a low risk of debt distress, but risks have increased. Overall, the analysis highlights the importance of reducing fiscal deficits, improving debt management, approaching non-concessional borrowing with caution, and further developing domestic debt markets. Types of securities on offer (T-bills and bonds) Senegal is the second largest issuer in the UEMOA region after Côte d Ivoire, accounting for 19% of total UEMOA issuance (XOF368 trn) in Senegal is moving towards issuing longer term instruments in 2013 and beyond, such as 3-, 5- and 7-year securities, although the yield curve has extended to 10-years. Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. The authorities issued a second Eurobond in May 2011 (8.75%, ten-year USD500 mn) following a five-year USD200 mn Eurobond issued in The authorities announced in late-june 2013 their intention to issue another Eurobond, of around USD500 mn before year-end. Southern Africa East Africa Central Africa Nigeria / Rest of 97

101 Senegal Nigeria / Rest of Central Africa East Africa Southern Africa Auctions Timetable/frequency Money market instruments: Weekly and monthly T-bills and bonds: 15 auctions are scheduled for As of mid-april, five bonds have already been issued for XOF125 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Senegal s bonds are the second most heavily traded on the BRVM regional stock exchange. Daily turnover (volume/value) Volume traded: low but may exceed ten per day Value: low but may exceed XOF50 mn per day Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 18.8% out of 100% (this is the share of the four UEMOA countries in the MABI) Ecobank local affiliate contact details: Ecobank Sénégal, Km 5, Avenue Cheikh Anta Diop, Center Douanes, Dakar Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Banking sector Senegal s share of UEMOA s banking sector assets has gradually declined from a high of 26.9% in 2005 to 25.01% in The country s main financial system currently has 19 commercial banks with a total asset base of USD7 bn as at 2011 (including foreign assets held by commercial banks). Some of the leading commercial banks in terms of assets are: CBAO, Attijariwafa, Société Générale, BICI Senegal, and Ecobank. 98

102 Senegal Commodity information Key commodities The Senegalese economy is relatively diversified; the key commodities produced range from various food and cash crops (sugar), fish and fish products, phosphoric acid (a fertilizer input), and cement to gold. Senegal is one of s largest sugar producers, with annual output of around 100,000 tonnes (t). Trade flows Exports Senegal s key commodity exports are gold, worth USD360 mn in 2011, fish and fish products (USD296 mn), phosphoric acid (USD247 mn), and cement (USD202 mn). Senegal exported 8 t of gold to Switzerland and the USA in The country is also a major re-export hub; petroleum products worth USD326 mn were re-exported in 2011, of which USD197 mn was bunkering (selling fuel to passing ships) while the remainder was exported to the landlocked interior. Senegal exported 300,000 t of petroleum products in 2011, around two thirds of which was bunkering, with the remainder going to Mali, Burkina Faso, Guinea-Bissau, Côte d Ivoire, and Western Europe. Senegal exported 2.2 mn t of cement to the sub-region in 2011, primarily to Mali, and 317,000 t of phosphoric acid to India, where it is used for making fertilizer. Imports Senegal s largest imports are crude petroleum (USD770 mn in 2011), which is refined in-country for re export to the region, and petroleum products (USD579 mn), around half of which are re-exported. The country is heavily reliant on food imports, importing rice worth USD407 mn, wheat worth USD192 mn, and maize worth USD50 mn in The country also imports large volumes of industrial raw materials, including iron and steel (USD304 mn), and sulphur (used for making phosphoric acid, USD157 mn). Despite being a large sugar producer, Senegal needed to import 129,000 t of sugar in 2011 to meet the domestic deficit. Southern Africa East Africa Central Africa Nigeria / Rest of 99

103 Togo Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (XOF bn) Imports (XOF bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP growth remained strong in, expanding 5%, slightly faster than the year before, reflecting rising agricultural and services output and outpacing the relatively steady phosphate sector production. However, delayed implementation of the government capital budget resulted in less public spending, which in turn moderated economic activity. Average inflation in remained low at 2.6% owing to subdued prices for food products resulting from improved domestic agricultural production, the limited pass through effect of higher global oil prices on domestic prices, and the monetary policy anchor afforded by the currency peg. The fiscal deficit remained largely unchanged at around 4% of GDP last year. Despite capital spending below projections and good customs revenue performance, fuel subsidies exceeded budgeted amounts and there were shortfalls in privatization receipts and donors budget support. Meanwhile, the current account deficit also remained wide, at over 8% of GDP in, owing to higher oil prices and rising imports of intermediate and capital goods. There was only a modest increase in exports of goods owing to global economic weakness. Moreover, the normalization in Côte d Ivoire shifted transit trade back to Abidjan from Lomé, which reduced services credits arising from re-exports. Economic outlook Economic conditions in Togo remain good. Real GDP growth in 2013 could accelerate to around 5% as a result of ongoing increases in agricultural cash crop production, public works, and port activity. However, growth remains relatively modest compared to some other countries in the region. Inflation in 2013 is likely to remain contained at around 2-3%, assuming good local harvests and stability in global oil prices. Continued high levels of investment and recurrent expenditure, along with weak performance in some revenues, are likely to lead to the deficit s widening by around 5-6% in However, the 2013 budget reflects more realistic capital spending projections and the reform and reorganization of the revenue services, under which the Tax Directorate and the Customs Directorate are regrouped into a single institution, should start to pay dividends. Other spending will be largely determined by public employment policy and the policy stance on fuel prices/subsidies. The current account deficit is likely to remain unchanged at around 8% of GDP in 2013 because of persistently high global oil prices and further increases in capital goods imports linked to public investment. Uncertainties in the near term relate to more severe global price shocks that will increase risks for growth, the current account, domestic price stability, and the budget. More specifically, the structural reform agenda could experience further delay, which would slow progress on improving public financial management capacity. 100

104 Togo XOF Currency values versus US dollar 560 Source: Bloomberg XOF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Togo is a member of the eight-country regional group, the Union Economique et Monétaire Ouest-Africaine (UEMOA). The group s currency system is managed by the Banque Centrale des Etats de l Afrique de l Ouest (BCEAO). The CFA franc currency (XOF) is currently pegged to the euro at a rate of XOF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BCEAO is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August FX market structure Source: Bloomberg The BCEAO exchange arrangement is classified as a conventional peg. The BCEAO maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of 101

105 Togo Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Togo maintains an open capital account. Moreover, as the UEMOA is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XOF bn) e Domestic External Total 1, Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BCEAO liquidity management efforts. With the likelihood that the exchange rate peg remains in place for the foreseeable future, and owing to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. The UEMOA Council of Ministers of Finance recently decided to decrease the maximum authorized bank lending rate to 15% from 18% (effective 1 January 2014). This will reduce lending rates for consumers and some corporates. 102

106 Togo Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in July 2011), Togo is at moderate risk of debt distress. After full HIPC assistance, MDRI and beyond HIPC assistance, Togo s external and public debt indicators have improved significantly and are projected [to] remain below the relevant thresholds in the 20-year period under baseline assumptions, thanks to a stable economic and political climate and rehabilitation of key sectors. However, Togo remains vulnerable to certain shocks and could breach the policy-related thresholds for the PV of debt-to-gdp and the PV of debt to-revenue ratios under some alternative scenarios in the latter years. Types of securities on offer (T-bills and bonds) Togo generally issues a limited number of short-term instruments, with nearly all 2013 activity based around 182- to 364-day T-bills. However, one 5-yr, XOF35 trn bond is planned to be issued in August, although bonds of this maturity are an unusual. Given the relatively small size of the economy, Togo accounts for only 8% (XOF160 trn) of total planned UEMOA issuance in The yield curve has extended to 10-years. Across UEMOA, T-bills are issued with following tenors through the BCEAO: 28-, 91-, 182-, 364- and 728 days. Bonds are issued with 3-yrs and above tenor (mainly 5- and 7-yrs). Bonds are issued either on the regional stock exchange, the BRVM, or on the money market, via the BCEAO. Auctions Timetable/frequency Money market instruments: Weekly and monthly T-bills and bonds: as of mid-april 2013, six auctions are scheduled for 2013, with one auction already of a six-month T-bill for XOF25 bn. Type of auction: Competitive Primary dealers: Yes Bid size limits: 60% of the amount on offer Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited volume: from zero to around ten bonds traded per day Limited value: from zero to XOF50 mn per day Country ranking on Middle Africa Bond Index (MABI) criteria 18.8% out of 100% (this is the share of the four UEMOA countries in the MABI) Ecobank local affiliate contact details Ecobank Togo, 20 Avenue Sylvanus Olympio, Lomé Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of 103

107 Togo Commodity information Key commodities Like Benin, Togo is a major trade hub for the n region, reflecting the limited level of commodity or natural resource production. Togo officially produced 33,000 tonnes (t) of refined cotton in 2011/12. Togo is Africa s fifth largest cocoa producer, with an output of 35,000 t in 2011/12. Trade flows Exports Much of Togo s trade with the region is not captured by official data. Togo is a major exporter of cotton (most of which it probably re-exports from the region), worth USD272 mn in 2011, equivalent to 144,000 t in 2011, which was exported to China and Southeast Asia. Togo is a major supplier of cement to the sub-region, with exports of 1.1 mn t (equal to USD122 mn) to Burkina Faso, Ghana, Niger, Benin, and Mali in Fertilizer (USD46 mn) is another large re-export. Cocoa exports to Western Europe were 26,000 t in Imports The country s main import is petroleum products worth USD187 mn in 2011, along with cement (USD93 mn), iron and steel (USD87 mn), cereals (USD46 mn), and cotton (USD32 mn). Nigeria / Rest of Central Africa East Africa Southern Africa 104

108 Southern Africa East Africa Central Africa Nigeria / Rest of 105

109 Country Profiles: Nigeria / Rest of Nigeria / Rest of Ecobank operates in Nigeria, running 610 branches with 16,500 employees that look after 5.9 million customers. Following the acquisition of Oceanic bank in late 2011, revenue and profit growth was boosted significantly in as the integration was successfully completed. Ecobank also operates in 5 other countries in the region, running nearly 150 branches with 2,400 employees that look after 0.8 million customers. Strong revenue growth and profitability continue to be driven by affiliates in this region lending across the value-chain ranging from agricultural commodities to mineral resources and business services. Hydrocarbons are a major resource in this region, which provides employment and investment opportunities in this sector, along with large levels of fiscal and export revenues. Central Africa East Africa Southern Africa

110 Country Profiles: Nigeria / Rest of Nigeria / Rest of 10. Ghana profile Page Guinea profile Page Liberia profile Page Nigeria profile Page Sierra Leone profile Page The Gambia profile Page 140 Southern Africa East Africa Central Africa Nigeria / Rest of Opposite: Offshore oil rig

111 Ghana Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The economy expanded around 7% in largely due to robust performance in the non-oil sectors, particularly agriculture, forestry, gold, and services. Oil sector activity also picked up, but from a small base as oil production failed to reach projected output. Inflation was largely unchanged at 9.1% in from 8.7% the year before, helped by judicious implementation of the inflation-targeting monetary policy and the impact of good crop yields on food prices. However, fiscal policy weakened significantly in the run-up to the December elections. Despite solid revenue collection and further arrears clearance, the fiscal deficit widened to 12.1% of GDP; this was partly due to fuel subsidies and a public sector wage increase. Despite impressive export growth from oil, cocoa, and gold, the current account deficit remained large at around 9% of GDP, reflecting a rebound in imports driven by strong domestic demand and high global commodity prices. One major adverse development in was a further depreciation of the exchange rate that increased the cost of imports, exposed the economy to inflationary pressures, and added to concerns about economic stability. By end-, the Ghanaian cedi (GHS) had weakened by 16.2% from the start of the year, following a 10.3% depreciation the year before. Economic outlook The outlook for 2013 is good: growth of around 7% is expected, driven by strong performance in the oil and non-oil sector. However, high global commodity prices, sustained strong growth in domestic activity, and the possibility of further currency depreciation could jeopardize macroeconomic stability. While the external sector is likely to benefit from increased oil revenues from higher oil production and prices, along with solid non-oil export receipts, this will be countered to a large extent by continued strong growth in import demand (similarly, fiscal spending pressures will remain strong, so it is likely that much of the increased oil revenues will be allocated to current and capital spending). Assuming monetary policy tightness, high interest rates will draw in capital, which would help underpin the GHS and support efforts to increase foreign reserves to over USD6 bn (equivalent to 3.3 months of imports). The authorities will be keen to attain GHS stability following steady depreciation over several years. However, the GHS is likely to weaken further due to robust growth in the import bill, outstripping export revenues and portfolio inflows unless the Bank of Ghana (BoG) can reduce local liquidity successfully, and the government control spending more effectively. 108 Nigeria / Rest of

112 Ghana GHS Currency values versus US dollar and Euro 2.2 GHS:USD1 (lhs) Source: Bloomberg GHS:EUR1(rhs) Jan Apr Jul Oct Jan 2013 Apr Jul 2013 GHS Currency volatility versus US dollar (standard deviations) Sources: Bloomberg, Ecobank 2.1 GHS:USD (lhs) Average (lhs) #SDs (rhs) Jan 2011 FX, FI, and commodity information FX market information Monetary and exchange rate policies Jan Monetary policy is based on an inflation-targeting system that manages liquidity by using market-based instruments. The primary objective of monetary policy remains price stability. The BoG s inflation targeting policy currently continues to dampen inflation expectations successfully, despite the ongoing depreciation of the GHS that began late The BoG aims to keep inflation broadly stable, with the center point of the target band reduced slightly to 8.5% for The policy interest rate will continue to be adjusted to support this target, should inflationary pressures increase. The balance of payments swung into a small deficit in, which led to foreign reserves falling to less than the equivalent of three months of imports. This partly explains sustained GHS depreciation, and underscores the primacy of monetary policy over exchange rate policy. However, the cost to the BoG of sterilizing the liquidity that resulted from a large increase in private sector credit last year has been significant. More recently, lower than expected oil revenues and the unwinding of some domestic bond holdings by foreign investors has led the BoG to intervene to contain exchange rate volatility, implying a lower level of reserve accumulation than earlier anticipated. Jan 2013 Jul Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 109

113 Ghana Nigeria / Rest of Central Africa East Africa Southern Africa To reduce inflationary expectations and slow GHS depreciation, the BoG made several policy changes in : the BoG (i) raised its policy rate three times to 15.0% (where it remains as of March 2013); (ii) reduced banks maximum net open FX position (from 15 to 10% on single currency and from 30 to 20% on aggregate exposures); (iii) shifted the currency at which banks hold mandatory reserves on FX deposits from foreign currency to GHS, to raise the supply of foreign exchange in the market; (iv) reintroduced, in May, 30-, 60-, and 270-day T-bills to facilitate the mopping up of excess liquidity; and (v) regulated for 100% cover by commercial banks for all vostro accounts, to be held with the BoG in line with operational guidelines that preclude foreign investors from participating in the short end of the money market. These measures helped raise market rates and slow GHS depreciation. The exchange rate regime is classified as a managed float with no predetermined path. As a result, there are minimal interventions to limit excessive volatility. However, the BoG increased its interventions in due to the sustained depreciation of the GHS. Currency outlook: The BoG is likely to maintain the managed float regime for the foreseeable future. However, strong import demand, despite a rising level of capital inflows, has prevented a strong accumulation of FX reserves over recent years. As a result, the GHS has experienced steady depreciation since 2008, with strong periods of weakening in , and from late 2010 onwards. Further depreciation is likely due to the structural deficit on the current account, driven by the trade deficit, despite the prospect of higher hydrocarbon export revenues, and assuming robust capital inflows attracted to high yielding government securities. As of early August 2013, forward rates (which generally prove weak indicators of trends) stood at: GHS forward rates bid (to USD1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The BoG is one of the largest providers of FX in Ghana, alongside the private sector and donor organizations. The BoG is implementing the following structural improvements to the functioning of the FX market to reduce volatility and ensure convergence of official and parallel exchange rates: (i) enforcement of repatriation requirements and establishment of sunset clauses for concessions, to increase the supply of foreign exchange; (ii) strengthening of monitoring and intervention practices in the market by improving cash-flow budgeting and facilitating timely and effective intervention at market rates; and (iii) enhancing transparency and providing regular and frequent information on reserve levels and reserve management policies. The currency exchange system is free of restrictions on payments and transfers for current international transactions. However, provision of 100% GHS cover for vostro balances must be maintained at the BoG in line with the Foreign Exchange Act 2006 guidelines that preclude foreign investor participation in the short end of the money market (below three years). 110 Nigeria / Rest of

114 Ghana Average bank discount rate (%) 20 Source: IMF Real GDP growth (%) Source: IMF e e Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Ghana maintains an open capital account. Moreover, the GIPC Act 478 provides guarantees to all enterprises, including free transferability through any authorized dealer bank in freely convertible currency of dividends or net profits attributable to the investment; payments in respect of loan servicing where a foreign loan has been obtained; remittance of proceeds (net of all taxes and other obligations) in the event of sale or liquidation of the enterprise or any interest attributable to the investment. Guarantees against expropriation of private investments provided under Act 478 are underpinned by the constitution. Ghana also uses double taxation agreements to rationalize tax obligations of non-resident investors that are domiciled in recognized tax jurisdictions. However, there are varying levels of withholding taxes for both residents and non-residents. FI primary market information Public sector debt Public sector debt (GHS mn) e Domestic 6,103 12,081 14,060 15,572 External 7,153 9,218 11,647 17,551 Total 13,256 21,299 25,707 33,123 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 111

115 Ghana Nigeria / Rest of Central Africa East Africa Southern Africa Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, BoG liquidity management efforts, and exchange rate developments. With the likelihood that the managed float exchange rate regime will remain in place for the foreseeable future, the policy interest rate will be maintained around the current level in the months ahead because of inflationary pressures arising from the fiscal and external sectors. As a result, yields are not expected to change significantly, either for sub-3-year bonds (open to domestic investors only) or above-3-year bonds (open to domestic and non-resident investors). Any change to the exchange rate regime (such as moving to a free float) is likely to push up the policy interest rate by bp, assuming some immediate depreciation from the change in regime. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November 2011), The analysis shows Ghana s external debt burden indicators remaining below their respective indicative thresholds, provided the programmed fiscal consolidation is achieved. However, the risk of external debt distress remains moderate, unchanged from the May 2011 DSA. The main vulnerabilities relate to a high debt service-to-revenue ratio and continuing risks to the fiscal outlook. Indeed, while overall public sector debt is projected to remain broadly unchanged in relation to GDP, a ratio of 40% does not provide strong buffers against shocks, suggesting a case for further gradual consolidation and additional revenue mobilization over the medium term. Types of securities on offer (T-bills and bonds as well as BoG bills) T-Bills: 30-, 60-, 91-, 182-, 270-, and 364-day T-bills Bank of Ghana bills: 14-, 28-, and 56-day bills Government bonds: 3-, 5-, 7-, 10-, and 20-year bonds (7-, 10-, and 20-year bonds are rarely issued) The authorities issued a maiden 8.50%, 10-year USD750 mn Eurobond in December 2007 and are considering the benefits of reissuing in part to take advantage of lower rates in order to refinance the current Eurobond. Auctions Timetable/frequency T-bills: Weekly BoG bills/omos: Based on BoG s daily market liquidity assessment for price stability Bonds: Weekly Type of auction: Competitive and non-competitive: most transactions are undertaken competitively. Primary dealers: Yes Bid size limits: T-Bills: Average of GHS300 mn in all instruments Bonds: GHS mn in each instrument Allotment: Based on cut-off price for T-bills and bonds Auction calendar: Weekly for T-bills and quarterly for bonds Reopening of existing bonds: n/a FI secondary market information Daily turnover (volume/value) T-bills: No secondary market Bonds: Limited trading volumes and values Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 26.9% out of 100% 112 Nigeria / Rest of

116 Ghana Ecobank local affiliate contact details Ecobank Ghana, 19 Seventh Avenue, Ridge West, Accra North Tel: Ecobank trading capabilities per country (FX and FI) Primary market auction T-bills and bonds Weekly average: GHS70 mn per auction Secondary market trading (monthly average) T-bills: Weekly average: GHS mn Bonds: Weekly average: GHS0.5 mn FX: Net open position limit is 10% of shareholders funds. FX forward rates available up to one year. Project trade financing: 15% of shareholders funds Cash management: Yes Payment capabilities (e.g. payroll, SWIFT): Yes Banking sector The Ghanaian financial system consists of 26 universal banks (Royal Bank is the latest to be licensed in, 135 rural and community banks, and 49 non-banking financial institutions, including savings and loans, leasing and mortgage firms. In addition, there are over 402 credit unions and financial cooperatives as well as thousands of susu collectors who serve specific areas or organizations. The total assets were USD13.39 bn (4-year CAGR of 28.2%) in 2011, bolstered by improved economic activity and growing banking penetration, as well as the emergence of the oil and gas sector. The asset base of the banking sector constitutes 34.9% of GDP in an economy where 29.2% of adults have access to financial services, indicating that there is still a huge opportunity for penetration-driven growth in Ghana. The banking sector remained sound, stable and profitable during the past five years. Capital adequacy improved from 14.8% in 2007 to 17.4% in There was an improvement in the NPL ratio that dropped to 14.1% in 2011 from 16.2% in 2009 due to enhanced recovery and adoption of prudent risk management techniques. More recent BoG data show NPLs fell to 13.3% in April 2013 from 14.1% one year before. The authorities have started discussing an increase in the minimum capital for banks to over GHS100 mn (USD53.26 mn) prior to the end of the recent recapitalization exercise that raised the minimum capital to GHS60 mn (USD31.96 mn) by the end of December. This confirms our initial view that the Ghanaian banking sector will remain inadequately capitalized to finance capital-intensive sectors even if all the banks meet the minimum capital of GHS60 mn by the end of December. Moving to the USD100 mn capital base will better position banks to finance capital-intensive sectors such as oil and gas, and will probably lead to a consolidation of the sector, creating larger, well-capitalized banks that can effectively help support growth. One of the major challenges facing the sector is the lack of a mature credit reference bureau. We expect this constraint to ease in the future as the central bank has licensed Hudson Price Data and issued a provisional license to Dun and Bradstreet in 2011 in addition to the existing XDS Data Ghana. All banks began sharing credit data and the number of credit checks improved from 13,490 in 2010 to 79,200 in Another challenge (to consumers) is the tendency for banks to maintain high lending rates despite reductions in the central bank s policy rate, which stems from the need for banks to offset the costs arising from legacy NPLs. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 113

117 Ghana CPI Inflation (% change) CPI inflation (lhs) M2 (% change) Source: IMF M2 supply (rhs) Jan 2007 Jan 2009 Jan 2011 Jan Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Hydrocarbons Ghana started oil production in late 2010 and currently produces 110,000 barrels per day (bpd) of oil and 120 mn cubic feet of gas (all gas that is extracted is injected into the Jubilee field to enhance oil production). In, the oil sector accounted for 18% of merchandise exports and 6% of government revenue. By 2015, when production from other fields is expected to raise the country s oil output above 200,000 bpd, the oil sector could constitute over 20% of GDP. The domestic fuel market consumes above 65,000 bpd of petroleum products, 57% of which are imported. Ghana s only refinery, the 45,000 bpd Tema Oil Refinery (TOR) functions below full capacity due to major operational and financial issues. Ghana crude oil production 000 bpd e Sources: EIA and ENHt 2013f 114 Nigeria / Rest of

118 Ghana Others Historically, gold has been a valuable output (long associated with the Ashanti kingdom). Ghana is also the world s second largest producer of cocoa, after its neighbor Côte d Ivoire, with a crop of 879,000 tonnes (t) in the 2011/12 season, thanks to sound management of the sector and good weather across the region. Timber, foodstuffs, rubber, manganese and aluminum are other key commodities produced in Ghana. Trade flows Exports Gold has traditionally been an important export; exports increased to USD4.8 bn in 2011, boosted by strong global prices. Following major discoveries in Ghana s offshore area, oil and gas have become the country s leading exports, together accounting for USD7.3 bn of exports in Ghana exported USD2.3 bn worth of cocoa and cocoa products in In volumes terms, Ghana exported around 700,000 t of raw beans in 2010/11, mostly to the EU; Ghana is also a major cocoa processor, annually exporting around 35,000 t of cocoa butter, 40,000 t of powder, and 90,000 t of liquor. The country also exported various other goods in 2011: cashew nuts (USD512 mn), yams (USD422 mn), timber and wood products (USD196 mn), aluminum (USD120 mn), natural rubber (USD139 mn) and manganese (USD107 mn). Imports Ghana is heavily dependent on food imports, importing USD391 mn worth of rice, USD150 mn of wheat, and large volumes of sugar (UD206 mn), meat (USD223 mn) and fish (USD214 mn) in Ghana imported large volumes of cereals in 2011, including 543,000 t of rice, mostly from Thailand and Vietnam, and 325,000 t of wheat, mostly from Canada and France. The country s industrial sector also imports large volumes of iron and steel (USD894 mn), cement (USD308 mn) and rubber products (USD206 mn). Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 115

119 Guinea Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) 4,966 5,613 6,936 7,129 7,328 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The government made further progress in tackling some of the economic problems inherited from the military regime: in May, Parliament adopted a five-year development plan that focuses on government investment in infrastructure, mining, industry, water, energy, and tourism (however, without an agreement on holding elections, some investment inflows were withheld). Furthermore, in September, Guinea reached the enhanced heavily indebted poor countries (HIPC) completion point, following which USD2.1 bn of debt relief was provided, reducing the current value of external debt by 66% over a 40-year period. Indirectly supported by these positive developments, growth in the agricultural and mining sectors (particularly the Simandou iron ore project) pushed up real GDP to 4% in from 4% the year before. Annual inflation slowed in, due to improved food output. However, it remained high, at close to 13%, reflecting uneven implementation of fiscal and monetary policies. Revenue performed well as the impact of a tax increase on non-salary income and strong collection efforts more than offset a shortfall on fuel taxes (caused by maintaining the fuel subsidy). In addition, current and capital expenditures were lower than expected (helped by the implementation in 2011 of cash-based expenditure management). However, this was insufficient to offset a shortfall in exceptional mining revenue (of nearly 5% of GDP) and a large number of unpaid bills accrued in 2011 (caused by the delay in approving the 2011 revised budget). As a result, the fiscal deficit widened by several percentage points (pp) to 5% of GDP in. Most of the serious external sector imbalances inherited from the military regime remained in place in, reflected in the current account deficit s widening to 39% of GDP. Export values (related mainly to minerals) increased slightly, but import costs rose sharply the USD1 bn increase in the import bill was due to large-scale mining project demand. However, these capital imports will in turn raise output and exports. Economic outlook The economy will remain driven by developments in the agricultural, electricity, and mining sectors. Assuming good weather conditions and further government support for the agricultural sector, we expect an increase in agricultural production. Meanwhile, the rising level of mining sector investment will boost mineral output beyond 2013, leading to real growth in 2013 of nearly 5%. Reducing the high rate of inflation to single digits in 2013 will involve improved policy coordination, limited net domestic bank financing of the government, and enhanced central bank liquidity management. Using reserve money as the main intermediate target, the central bank will continue managing domestic liquidity through the weekly FX auctions, taking into account the target for international reserves. However, success in lowering the inflation rate is not certain due to various institutional and infrastructure challenges. Fiscal policy in 2013 remains focused on avoiding bank financing of the budget, which in turn is designed to help narrow the fiscal deficit. 116 Nigeria / Rest of

120 Guinea Moreover, the fiscal position may benefit from the review of large-scale mining contracts, but because of the revenue uncertainties involved in this process, this is not factored into the fiscal calculations. Overall spending is projected to be contained, which will help narrow the fiscal deficit to 2% of GDP. The current account deficit is likely to remain large and relatively unchanged from the position in, reflecting high levels of imports for large-scale mining projects (mineral exports are only likely to increase significantly from 2015 onwards). Risks to the outlook remain centered on increased global prices for oil and food products, although higher mineral prices would help offset some of these risks. GNF Currency values versus US dollar 7300 Source: Bloomberg GNF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies The main objective of monetary policy is to reduce inflation through an orderly absorption of above target liquidity. La Banque Centrale de la République de Guinée (BCRG, the central bank) uses a monetary targeting framework based on reserve money to pursue its objectives by implementing a policy interest rate to tighten/loosen policy as well as FX sales to absorb excess liquidity in order to achieve the inflation objective (single-digit inflation). The de facto exchange rate system is classified as other managed arrangement. Guinea is returning to a managed float system with no predetermined path after the interruption of the system during The system includes a multiple currency practice since the value of the official rate lags the weighted average commercial bank rate on which it is based by one day. Currency outlook: The BCRG is likely to continue on the path to reaching a full float of the Guinean franc (GNF) against the USD. Although this move will take time to achieve, it is underpinned by the recent rise in FX reserves. However, during the transition period, unexpected devaluations may occur owing to the influence (albeit diminishing) of the managed exchange rate regime. Meanwhile, future depreciation is also likely, given robust domestic import demand and export revenue fluctuations (reflected in the large current account deficit). There are no forward rates; these, however, generally prove weak indicators of currency trends. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 117

121 Guinea FX market structure The FX system consists of the BCRG, 13 commercial banks, and around 30 FX bureaux. The BCRG conducts the exchange transactions for the government using the daily official FX rate (called the reference rate), which is determined as the weighted average of the previous day s rates charged by commercial banks. Since March 2011, it also conducts weekly FX auctions of around USD5 mn, open to all commercial banks. The auction rate is the weighted average rate of winning bids. Commercial banks conduct FX transactions for their clients, but as banks often have insufficient resources and there is no interbank market, clients have to buy FX from FX bureaux in order for a bank to execute a foreign transfer. Commercial banks buying and selling rates are to remain within a band of 3% +/- around the auction rate. FX bureaux conduct the bulk (by volume) of the FX transactions in Guinea, although they are limited to cash transactions (they set their own buying and selling rates). Other important suppliers of FX are informal gold and diamond traders. The recently improved level of foreign reserves has increased the scope for the BCRG to use them to support monetary and exchange rate policies. In determining the size of the weekly FX auctions, the BCRG takes into account the need to offset the government s financing requirements with domestic liquidity management and meet the foreign reserve target. Average bank discount rate (%) 30 Source: IMF Real GDP growth (%) 6 Source: IMF 5 Nigeria / Rest of Central Africa East Africa Southern Africa e e Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Guinea maintains an exchange system free of restrictions, with the exception of those maintained solely for the preservation of national or international security, on the making of payments and transfers for current international transactions. FI primary market information Public sector debt Public sector debt (GNF bn) e Domestic 16,767 21,802 24,524 n/a External (USD bn) Total n/a n/a n/a n/a Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a External debt service (%) Source: IMF 118 Nigeria / Rest of

122 Guinea Yield curve outlook and debt sustainability Yield curve: Owing to the limited level of debt issuance and short maturity structure, primary market yields will remain undeveloped and will be strongly influenced by fiscal and exchange rate policies. The policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, as exchange rate policy moves towards implementation of a floating regime, any significant depreciation of the GNF would be likely to push up the policy interest rate. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in September ), The debt sustainability analysis shows that Guinea is at a moderate risk of debt distress. After full HIPC, MDRI and beyond-hipc debt relief, all external indicators remain under their indicative thresholds throughout the projection period. However, the country remains vulnerable to certain macroeconomic shocks. The public sector debt sustainability analysis indicates that Guinea s domestic debt is significant but is expected to decrease over the longer run and does not alter the assessment. The remaining vulnerability to macroeconomic shocks indicates the need for prudent fiscal policies and debt management. Types of securities on offer (T-bills and central bank bills) Guinea generally issues various short-term money market instruments such as 14- and 28-day T-bills and central bank bills (Titres de Régulation Monétaire). Issuance of securities of one-year maturity or longer is very infrequent. Auctions Timetable/frequency Money market instruments: Weekly and monthly Type of auction: Competitive Primary dealers: Yes Bid size limits: GNF 250 mn Auction calendar: No Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Guinée, Immeuble Al Iman, Avenue de la République, Conakry Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 119

123 Guinea Commodity information Key commodities Metals and minerals Mining is a major activity in Guinea. Bauxite and aluminum oxide are the main minerals produced. Small levels of copper, gold, and diamonds are also mined. The Simandou iron ore project will provide a major productive enterprise once commissioned. Others Guinea is a modest hydrocarbons producer. The country also produces various agricultural commodities, including rubber, coffee, cocoa, and cashew nuts, along with fish. Trade flows Nigeria / Rest of Central Africa East Africa Southern Africa Exports Guinea is a major exporter of bauxite and aluminum oxide, worth USD873 mn in 2011, along with small volumes of copper ore (USD71 mn), gold (USD26 mn), and diamonds (USD20 mn). In volume terms, the country exported 15.6 mn tonnes (t) of bauxite in 2011, the bulk of which went to aluminum smelters in Ukraine, and 532,000 t of aluminum oxide, most of which went to Russia and Central Asia. The country is also a modest hydrocarbons producer, exporting gas worth USD606 mn (927,000 t) and oil worth USD99 mn (112,000 t) in 2011 mainly to markets in Europe. The country exports small volumes of agricultural commodities, including rubber (USD59 mn), coffee (USD41 mn), fish (USD40 mn), cocoa (USD36 mn), and cashew nuts (USD29 mn). Imports Guinea is heavily dependent on imports of industrial raw materials, including petroleum products worth USD496 mn in 2011, iron and steel (USD202 mn), cotton (USD55 mn), and rubber (USD48 mn). The country also imports significant volumes of food, including sugar worth USD84 mn, rice worth USD68 mn, and palm oil worth USD56 mn. In volume terms, these 2011 imports were: 148,000 t of rice, 112,000 t of sugar, 48,000 t of palm oil, and 43,000 t of wheat, reflecting a large dependence on food imports. 120 Nigeria / Rest of

124 Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 121

125 Liberia Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD mn) Imports (USD mn) 674 1,010 1,347 1,565 Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The economic situation is gradually improving; however, Liberia remains a fragile state, with weak institutions, significant development challenges, widespread poverty, and dependent on UN troops and police to maintain security. Nonetheless, economic growth has averaged 7% a year since Real growth of over 8% in was driven mainly by the iron ore sector (which resumed exports in 2011 for the first time since the end of the civil war) and rising activity in construction and services. Growth in the mining sector, however, has not carried over to the non-mining economy, such as commercial rubber plantations. Following food and oil price rises in early, USD-denominated inflation declined to less than 4% by mid-year and is expected to remain in single digits by year-end. The fiscal deficit widened in 2011/12 (July-June) to 3.2% of GDP, reflecting delays in collecting large one-off payments from iron ore license holders (that more than offset strong performance in trade taxes), and higher than budgeted current and capital spending (including public wages and unplanned capital projects). This extra spending was financed domestically through drawing down government deposits and direct borrowing from the central bank. The trade deficit also widened in because of higher concession-financed capital imports and rising food and fuel import prices, offsetting the rise in iron ore exports, which resulted in the current account deficit widening to over 52% of GDP. Although FX cover remained relatively stable, at about 2½ months of imports, the deficit was financed mainly by donor inflows. The Liberian dollar (LRD) remained volatile throughout, reflecting terms-of-trade and foreign inflow uncertainties. Economic outlook The outlook is good but there are significant risks. Real GDP is likely to continue expanding by 7-8% in 2013, well above the average for sub-saharan Africa, driven by the main export sectors (iron ore and rubber), strong FDI, and large infrastructure investment (strong growth also reflects the low base from which growth stems). However, the uncertain outlook for iron ore prices may limit the impact of higher mining production on fiscal and export revenues. Developing the 2013 budget within a three-year medium term expenditure framework should help improve fiscal performance. USD-denominated inflation is expected to remain relatively stable at around 5-6%, although, if local prices remain high or rise further, LRD-denominated inflation is likely to accelerate to around 12% or more given Liberia s acute import dependency. The current account deficit is likely to widen further in 2013, owing to investment-related imports, despite rising export levels. However, external debt, which has been reduced significantly due to substantial debt relief, is expected to remain comfortable. Risks to the outlook are linked to: (i) increased volatility of international commodity prices, which could raise inflationary pressures and depress private consumption; (ii) slow job creation and the low absorption by the economy of the large number of young 122 Nigeria / Rest of

126 Liberia people and ex-combatants; (iii) constraints to private sector development due to limited access to financial services; (iv) a fall in shipping service revenues if global trade stagnates; and (v) the significant dollarization of the economy (85% of commercial bank deposits), which neutralizes monetary policy and limits the role of the government s economic management. LRD Currency values versus US dollar Source: Bloomberg LRD:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy is closely associated with exchange rate policy. The overall policy aim is to maintain price and exchange rate stability. However, in Liberia s dollarized economy, monetary policy plays a limited role focused on containing LRD-denominated inflation through the exchange rate. Overall, monetary policy will continue to aim at containing excessive volatility in the exchange rate while aiming for a modest increase in FX reserves. There is no target or band for exchange rate policy or monetary interventions to anchor market expectations on LRD-denominated inflation. At the same time, given the already high reserve requirement (22%), the Central Bank of Liberia s monetary tool to manage liquidity is limited to weekly FX auctions, but the use of this instrument is limited by FX reserve accumulation objectives. The planned launch of the local currency T-bill market will add a new liquidity management instrument. In addition, the Central Bank of Liberia (CBL) will continue to improve its liquidity forecasting in order to strengthen policy effectiveness, although capacity constraints remain an obstacle. The authorities are committed to de-dollarization, and the issuance of LRD-denominated T-bills should also help absorb excess LRD liquidity while increasing incentives for banks to hold LRD deposits. The planned issuance of T-bills will enhance liquidity management in what is an underdeveloped capital market. However, inflation is significantly influenced by structural factors and therefore is only weakly influenced by monetary policy. Exchange rate stability is consequently likely to continue to play an important role in containing inflation and inflationary expectations over the short-term. The exchange rate regime is classified as other managed. The currency of Liberia is the Liberian dollar, but the US dollar is also legal tender. However, since the beginning of 2009, the Liberian dollar has fluctuated more against the US dollar, which has led to the arrangement of other managed exchange rate classification. Currency outlook: The CBL is likely to maintain the managed exchange rate of the LRD to the USD. Meanwhile, significant volatility is also likely given robust domestic import demand and export revenue fluctuations (reflected in the large current account deficit). There are no forward rates; these, however, generally prove weak indicators of currency trends. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 123

127 Liberia FX market structure The CBL, donors, and the corporate sector are all large suppliers of FX in Liberia. However USD inflows fluctuate significantly. Average lending rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Liberia maintains an open capital account. Moreover, Liberia maintains an exchange rate system that is free of restrictions on payments for current and capital transfers. There are errors and omissions in the balance of payments, which complicates the assessment of external sustainability and the international investment position. FI primary market information Market size (central government debt stock) Public sector debt (USD bn) e Domestic External 1, Total 1, Public sector debt (% of GDP) Domestic External Total External debt service (%)* n/a *Debt service to revenue ratio Source: IMF 124 Nigeria / Rest of

128 Liberia Yield curve outlook and debt sustainability Yield curve: As Liberia does not issue T-bills or bonds, there is no yield curve. However, any change to the managed exchange rate arrangement would be likely to push up the policy interest rate. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November ), The Debt Sustainability Analysis which incorporates an increase in borrowing and public investment indicates that Liberia continues to have a low risk of debt distress. Consistent with the Government of Liberia s debt management policy, the DSA assumes a ceiling on annual foreign currency borrowing of 4% of GDP in present value terms to support public investment, particularly in energy and transportation infrastructure. The projected present value of the external debt stock would remain low and sustainable with all debt indicators below the policy-related thresholds. Types of securities on offer (T-bills and bonds) Liberia does not issue T-bills or bonds. Rather, the CBL engages in weekly USD FX auctions to achieve its monetary policy targets. Plans are being made to introduce T-bills in Auctions: FI secondary market information no information available Ecobank local affiliate contact details Ecobank Liberia, Randall and Ashmun Streets, 1000 Monrovia Tel: Ecobank trading capabilities per country FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Liberia is Africa s third largest producer of natural rubber, after Côte d Ivoire and Nigeria. Other major commodities produced include timber, cocoa, iron ore, and diamonds. Trade flows Exports Liberia s natural rubber exports were worth USD363 mn in 2011, equal to 87,000 tonnes (t) most of which went to the US and Canada. Exports of timber totaled USD39 mn, cocoa USD28 mn, iron ore USD11 mn, and diamonds USD11 mn. The country exported crude oil and petroleum products worth USD146 mn in 2011, all of which were re exports. Imports The country imported petroleum products worth USD902 mn in 2011, of which around 15% were re exported to the sub-region. The country also has significant imports of iron and steel (USD328 mn in 2010) and cement (USD16 mn), as well as food, notably rice (USD99 mn), meat (USD35 mn), and palm oil (USD21 mn). Liberia is a significant rice importer, with total imports of 213,000 t in 2011, which were required to meet surging domestic demand. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 125

129 Nigeria Recent economic developments Nigeria successfully endured the initial impact of the global crisis helped by a relatively large buffer of FX reserves and a low stock of debt. However, countercyclical polices have eroded reserves, and debt started to rise from Nonetheless, real GDP growth remained strong at over 6% in (a pace that was slightly slower than the previous year) driven by non-oil activity stemming mainly from increased agriculture and services output, along with high levels of government spending driven by oil revenues injected into the economy. Oil GDP growth was weak (at less than 2%) due to a small drop in oil production but supported by the indirect effect of slightly higher oil prices. Inflation accelerated slightly last year to an average of 12.2%, compared to 10.9% in 2011, owing to robust liquidity fueled by government spending, a 50% cut in fuel subsidies, sustained high food prices (partly caused by the destruction of some crops by flooding), and higher global food and oil prices. In response, the Central Bank of Nigeria (CBN) maintained a tight monetary policy stance with the policy interest rate held unchanged at 12.0% throughout the year. Monetary policy was also held tight in an effort to provide support to the exchange rate (the NGN appreciated 3.8% in ). The federal government fiscal deficit was largely unchanged in at 2.9% of GDP compared to the year before (as was the consolidated surplus at 0.9% of GDP), helped by expenditure restraint and the revenue-boosting effect of higher oil prices. Despite robust demand for imported goods, the current account remained in a large surplus of 4.7% of GDP in due to significant hydrocarbons export revenues (which account for around 95% of total exports). However, calculating the balance of payments is complicated due to large errors and omissions (see below). Select economic and financial indicators e Nigeria / Rest of Central Africa East Africa Southern Africa Real GDP (% change) GDP (USD bn) Inflation (end year) Fiscal Balance (% GDP, consolidated) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Economic outlook Sources: IMF, World Bank, Bloomberg, Ecobank Research The authorities are undertaking an exercise to rebase national accounts. Rebasing is expected to lead to a large increase in the size of the economy (a similar exercise in Ghana several years ago resulted in a 60% increase in GDP) as well as a slower rate of growth (due to the change in the productive base). Assuming rebasing is completed in 2014, real growth is likely to slow to a new, normal level of around 4% in 2014 from the current forecast level of around 7% in Price pressures remained elevated in early 2013 due in part to imported inflation caused by sustained high global commodity prices and moderate NGN depreciation of 1.7% in the first four months of Assuming ongoing price pressures and the possibility that the remainder of the fuel subsidy could be removed in mid-2013, inflation is likely to continue accelerating to an average of around 10% in With oil prices expected to remain above USD100/b, fiscal revenues will remain robust. As a result, and despite ongoing growth in spending, the federal fiscal deficit is likely to narrow to 2% of GDP in 2013 (the consolidated position is also likely to deteriorate). 126 Nigeria / Rest of

130 Nigeria Although import demand will remain strong, high oil prices in combination with increased oil production will support a current account surplus of around 4% of GDP. While the medium-term outlook remains favorable, it is subject to risks such as further deterioration in the global environment stemming from unresolved problems in the eurozone, and an escalation of violence in northern Nigeria. These and other issues highlight the need for prudent policies to safeguard macroeconomic stability, diversify the economy, improve public financial management, increase foreign reserves, and strengthen infrastructure. NGN Currency values versus US dollar and euro NGN:USD1 (lhs) Source: Bloomberg NGN:EUR1 (rhs) Jan Apr Jul Oct Jan 2013 Apr Jul 2013 NGN Currency volatility versus US dollar (standard deviations) Jan 2011 FX and FI Information FX market information Monetary and exchange rate policies Jan NGN:USD (lhs) Sources: Bloomberg, Ecobank Average (lhs) #SDs (rhs) 3 Monetary policy is anchored on meeting quantitative money supply growth targets, although the authorities are considering moving to an inflation targeting regime. Key parts of the policy are the Monetary Policy Rate and the Standing Lending and Deposit facilities (used to guide the level and volatility of short-term interest rates). The Cash Reserve Ratio and Liquidity Ratio are additional instruments used for managing liquidity. Monetary policy is eclectic, with the Central Bank of Nigeria (CBN) pursuing multiple objectives: price stability; exchange rate stability; and maintaining low interest rates as a tool for promoting economic growth. However, there are trade-offs involved in pursuing these competing Jan 2013 Jul Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 127

131 Nigeria Nigeria / Rest of objectives. Inflation is significantly influenced by structural factors (limited supply response, non-competitive market structures, and infrastructure impediments to productivity), and hence is only weakly influenced by monetary policy. Exchange rate stability plays an important role in containing inflation and inflationary expectations. Banking sector issues over constrained monetary policy flexibility but these problems have moderated as banks have largely returned to a healthy position (helped by AMCON support that has taken over non-performing loans). A further, positive development from October was the inclusion of Nigerian sovereign bonds in the JP Morgan Government Bond Index-Emerging Markets (phased in over three months). Barclays subsequently followed this lead by including Nigerian sovereign bonds in its Emerging Markets Local Currency Government Index at the end of Q The exchange rate regime is classified as other managed. The NGN is managed in line with the USD given oil exports, which account for over 90% of total exports, are priced in USD, as are the majority of imports. Multiple prices (such as the interbank, foreign exchange bureau, and parallel prices) are a technical characteristic of the central bank s wholesale Dutch auction system (WDAS), which can lead to multiple currency practices. The CBN increased the band of +/- 3.0% against the USD by NGN 5 to NGN155:USD1 in late-november The band was maintained in the 2013 budget but the midpoint was increased to NGN160, which is intended to anchor expectations and to enable investors to plan ahead by minimizing transaction costs, and discourage speculation. Currency outlook: The CBN is likely to maintain the NGN band of +/- 3.0% against the USD at NGN155:USD1 for the foreseeable future, a position underpinned by the recent rise in FX reserves. However, large and unexpected devaluations have occurred in the past (most recently late-november 2008), any future devaluations cannot be ruled out due to the managed exchange rate regime. As of early August 2013, forward rates (which generally prove weak indicators of trends) stood at: NGN forward rates (bid to USD1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg Central Africa East Africa Southern Africa FX market structure The CBN is the largest provider of FX in Nigeria. However, the interbank market is larger than the CBN s WDAS (two auctions are held per week). FX supplied by the CBN via the WDAS is cheaper than FX sourced via the interbank market. Average bank discount rate (%) Real GDP growth (%) e Source: IMF e 6.3 Source: IMF Nigeria / Rest of

132 Nigeria Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF, and by accepting its Articles of Agreement, particularly Articles IV and VIII, Nigeria maintains an open capital account. However, while the capital account is liberalized, the current account retains a limited level of barriers. These extend to import controls, whereby licenses are required to import specific goods (such as cement). Moreover, it is mandatory for all funds coming into Nigeria via any financial institution to be backed by a Certificate of Capital Importation. There are large errors and omissions in the balance of payments, which complicates the assessment of external sustainability and the international investment position. There is a need for improved validation of transactions reported by banks, measurement of transactions outside the banking system and the possible under-invoicing of imports, and verification of estimates of the external assets and liabilities of the banking sector (which are difficult to reconcile with other sources, such as data from the Bank for International Settlements). FI primary market information Public sector debt Federal government debt (NGN bn) e Domestic 3,228 4,552 5,623 6,618 External ,042 Total 3,817 5,323 6,494 7,660 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and central bank liquidity management efforts. With the likelihood that the policy interest rate will be maintained at the current level of 12.0% in the months ahead, yields are not expected to change significantly. However, recent NGN weakness underlines the risks stemming from the US Federal Reserve s recent decision to consider starting to taper its quantitative easing. With an expectation that US Treasury yields will continue to rise in the remainder of 2013 and into 2014, and the effect this has on the NGN, domestic interest rates in Nigeria are expected to rise somewhat. In addition, a tightening of interbank liquidity would also drive yields up. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis that was published in February, Nigeria remains at a low risk of debt distress. In the baseline scenario and in the case of the standardized stress tests, Nigeria s debt outlook remains robust. For the customized stress test, which simulates a persistent oil price shock, all indicators deteriorate when compared to the baseline results, but remain within all of the country-specific thresholds relevant for Nigeria. However, a prolonged oil price shock or permanent real GDP growth shock could undermine the recent progress in achieving macroeconomic and debt sustainability. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 129

133 Nigeria Nigeria / Rest of Central Africa East Africa Southern Africa Types of securities on offer Nigerian T-bills: 91-, 182-, and 364-day bills Open Market Operations (OMOs): 7- to 364-day instruments CBN bills were last issued in 2003 Federal Government of Nigeria (FGN) bonds: 3-, 5-, 7-, 10-, and 20-year bonds State government bonds are being issued on a more regular basis, such as by Lagos State, to help finance infrastructure. However, only a few states have the ability to raise debt financing at reasonable costs due to their more diversified economies and larger populations/tax base The authorities issued a maiden 6.75% 10-year USD500 mn Eurobond in January 2011 and there are plans to re-issue, possibly later in Auctions Timetable/frequency T-bills: Twice per month (usually 2nd and 4th week) OMOs: Daily, based on CBN s daily market liquidity assessment for price stability FGN bonds: Every third week of month Type of auction: Competitive for Deposit Money Banks and Discount Houses; non-competitive for internal customers (FGN agencies) Primary dealers: Yes, but only licensed primary market dealers and money market dealers Bid size T-Bills: Minimum of NGN15 bn to NGN75 bn in each instrument FGN Bond: NGN15 bn to NGN75 bn in each instrument Minimum amount on offer is NGN10,000 and multiple of NGN1,000 thereafter Allotment: Based on cut-off price for T-bills and FGN bonds Auction calendar: Yes Reopening of existing bonds: Yes FI secondary market information Daily turnover (volume/value) T-bills: Monthly average 1.34 bn units; 5,000 deals; NGN1.31 trn FGN bonds: Monthly average 810 mn units; 4,400 deals; NGN990 bn Project trade financing: 20% single obligor limit Payment capabilities (e.g. payroll, SWIFT) Fund transfers (weekly): 2,250 transactions worth USD30 bn Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 27.5% out of 100%. 130 Nigeria / Rest of

134 Nigeria Ecobank local affiliate contact details Ecobank Nigeria, Plot 21 Ahmadu Bello Way, Victoria Island, Lagos, Nigeria Tel: Ecobank Trading capabilities (FX and FI) Primary market auction T-bills and bonds: NGN30-50 bn Secondary market trading (monthly average) T-bills: 378 mn units, 165 deals Bonds: 125 mn units, 89 deals FX: Net open position limit is 3% of shareholders funds. FX forward rates available on request. Banking sector Following the banking crisis, the sector consolidated and has been strengthened by the authorities removing NPLs from bank balance sheets. The post-consolidation period has seen the number of commercial banks reduced to the current 21 from a high of 89 in Assets were USD122.8 bn as at FY2011 (and USD131.8 bn as at Q3 ). The largest banks controlled about 60% of market share in asset terms. Additionally, the top five banks controlled about 56% of the market share in deposit terms. The top five banks are: First Bank, Zenith, UBA, Access Bank, and GTBank. In the wake of the banking crisis that wiped out nearly of 60% of the sector s capital base, the sector has since remained well capitalized with the ratio of Tier 1 capital to total risk-weighted assets closing 2011 at 18.1% having sunk to a low of 2.4% in Q In terms of profitability, the sector has continued to grow. Meanwhile, ROE stood at 0.5% as at 2011 from sub-zero in Asset quality continues to improve, with NPLs falling to 4.9% from a high of 28% in Pension fund sector The pension fund sector has grown strongly over recent years, reaching assets of NGN3.4 trn as of March Based on current trends, assets could peak at NGN5.0 trn in The authorities are currently working with the National Assembly to secure passage of the Pension Reform bill. Key elements of the bill are: (i) the minimum paid-up capital for Pension Fund Custodians (PFC) should rise to NGN25 bn; (ii) applicants for a PFC license must be limited liability companies incorporated by financial institutions, and their sole duty must be to keep custody of pension and retirement benefits and assets; (iii) the financial institution must possess annual fidelity insurance cover for the full value of the pension and retirement benefits funds and assets in its custody; and (iv) the minimum monthly pension contributions by employees could be raised from 15% to 29% of gross salary. AMCON The CBN and Ministry of Finance established the Asset Management Corporation of Nigeria (AMCON) in 2010 to help resolve the illiquidity and solvency concerns of several banks that had arisen in AMCON raised funds via the sale of a 3-year tenured zero coupon bond with a principal amount of NGN3.9 trn and a face value of NGN5.7 trn and treasury bills, which were then injected into troubled banks. In addition, AMCON took over three banks that were declared insolvent and recapitalized them to maintain them as going concerns. These actions helped restore stability in the financial system. AMCON intends to repay all holders of Series 1-4 bonds in December 2013 through the payment of cash and liquidity status qualifying instruments held by the corporation. Following this redemption, a refinancing plan with the CBN at the same time will result in the CBN becoming the only holder of AMCON bonds. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 131

135 Nigeria CPI Inflation (% change) CPI inflation (lhs) M2 (% change) Source: IMF M2 supply (rhs) Jan 2007 Jan 2009 Jan 2011 Jan Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Hydrocarbons Nigeria is Middle Africa s largest oil producer and also holds its largest oil reserves of 37.2 bn barrels. Although oil production has faced challenges and frequent disruption in Nigeria, the country has averaged 2.2 mn barrels per day (bpd) in the past two years. Nigeria is also the largest gas producer in Middle Africa, with production of around 4 bn cubic feet per day (cu ft/d), and gas reserves estimated at 187 trn cf. Nigeria also produces on average 17.8 mn tonnes (t) of LNG per year, which is exported mostly to Asia and Europe. Downstream, Nigeria consumes an estimated 245,000 bpd of petroleum products. Although the country has four refineries with a combined capacity of 445,000 bpd, it relies on imports for over 75% of its fuel needs due to the low capacity utilization of the refineries. Nigeria is the largest consumer of gasoline in Middle Africa; gasoline represents 71% of fuel consumed in Nigeria. Nigeria crude oil production 000 bpd Sources: EIA and ENHt e 2013f 132 Nigeria / Rest of

136 Nigeria Others Nigeria is a major producer of agricultural commodities, notably maize, rice, palm oil, and cotton, but, owing to its large population, it consumes most of its agricultural output. Trade flows Exports Nigeria exported crude and petroleum products worth USD105.2 bn in Oil exports account for over 96% of total exports, and the hydrocarbons sector accounts for the majority of inward FDI. Nigeria exported 110 mn tonnes (t) of crude oil and 19.2 mn t of gas in 2011, mostly to the USA and Western Europe. The only significant agricultural exports are cocoa products (worth USD1 bn in 2011), natural rubber (USD319 mn), animal hides and skins (USD310 mn) and oilseeds (USD195 mn). Nigeria is the world s fifth largest exporter of cocoa and cocoa products, exporting an estimated 220,000 t of cocoa beans and 22,000 t of cocoa products in 2010/11 to the EU, Asia, and the Americas. However, the cocoa sector suffered badly from flooding in, leading to an expected slump in production in the /13 season. Substantial but unrecorded volumes of Nigerian oil, petroleum products, palm oil, rubber, and cotton are traded through informal regional networks. Imports Despite being SSA s largest crude oil producer, owing to limited refining capacity the country imported USD9.4 bn of petroleum products in 2011, representing 20% of its total import bill. These volumes are likely to rise over the next five years as surging domestic demand continues to pace refining capacity. Nigeria s substantial food deficit requires expensive and rising imports of cereals, meat, fish, and vegetable oils, worth an estimated USD5.9 bn in A major drive is under way by the government to boost agricultural production, notably of rice, maize, flour, and vegetable oil, and to reduce food imports, which is expected to substantially reduce the food import bill over the next five years. Food dominates import volumes, with an estimated 3.9 mn t of wheat and maize, 2.5 mn t of rice and 1.1 mn t of raw sugar imported in. Most of these imports feed the domestic processing sector, which produces flour and refined sugar for the domestic and sub-regional market. Large volumes of iron and steel (worth USD2.4 bn in 2011) are imported for use in the country s civil construction, hydrocarbon, and infrastructure sectors. Nigeria used to be SSA s largest importer of cement, but major expansion in domestic production capacity resulted in the country s becoming a net surplus producer in, with large-scale exports to the sub-region expected to start in Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 133

137 Sierra Leone Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (end-year) Fiscal balance (% GDP, consolidated) Broad money (% change, end period) Population (mn) Exports (USD mn) ,233 1,386 Imports (USD mn) ,629 1,418 1,459 Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) 3,385 3,975 4,349 4,345 4,310 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Sierra Leone s economy grew by nearly 20% in real terms in, a very strong rate that was driven by the start-up of production at two new iron ore mines (Statistics: Sierra Leone recently revised national accounts statistics for , which resulted in an approximate 30% increase in nominal GDP for the period). However, commissioning problems and the indirect effect of weaker global iron ore prices led to a moderation of the initial 50% real growth forecast. Non-iron ore activity was also robust, expanding by over 6% due to increased agriculture, construction, and services activity, which was supported by improved energy supply and infrastructure investments. Despite domestic fuel subsidies and moderate exchange rate appreciation, price pressures were sustained in because of higher imported prices for food and fuel, and the effects of an expansionary monetary policy. Election-related spending also led to increased liquidity towards the year end. Although there was some slippage in spending, the fiscal deficit narrowed to 2% of GDP in. This was largely driven by increased corporate tax, import duties, mining royalties, and trade tax revenues stemming from the iron ore projects. Despite this overall improvement in the fiscal accounts, large arrears remain outstanding. Meanwhile, the current account deficit narrowed substantially, but to a still large 15% of GDP in. Exports increased nearly fourfold, reflecting the commencement of iron ore exports that complemented a rise in diamond export revenues. However, this was smaller than the import bill, which was inflated significantly, compared to 2011, by mining and FDI-related capital goods together with higher costs for oil products. Economic outlook Real growth in 2013 is likely to slow to around 17%º largely because most of the effect of the two iron ore mines coming on stream in has passed. Nonetheless, the addition of iron ore mining to traditional mining activities will continue to boost overall sector output for years to come. Real non-iron ore GDP growth is expected to increase 6% in 2013 (and beyond) supported by investment in agriculture, infrastructure, and electricity generation. Inflation could slow to high single digits in 2013, assuming there is good food production and provided there is progress in fiscal consolidation (such as efforts to limit central bank credit to the government). However, any move to reduce or remove domestic fuel price subsidies would have a strong impact on inflation (a rise in global oil prices would add pressure on the fiscal accounts through an increase in subsidies). Moreover, with global commodity prices likely to remain high in 2013, holding inflation down will be a challenge owing to the rise in mineral resource revenues that will, in all likelihood, be reflected in higher government spending, which, if not sterilized, will increase liquidity. 134 Nigeria / Rest of

138 Sierra Leone Although demand for food and consumer imports is expected to remain strong, the external position is expected to continue to strengthen mainly because of a sustained increase in mineral exports and a fall in FDI-related imports. This will support a narrowing of the current account deficit to around 10% of GDP in Despite the improved outlook compared to recent years, there are risks to the short-term outlook: a global economic slowdown would lead to a deterioration in Sierra Leone s terms of trade, lower growth in the mining sector, and reduced fiscal revenues, amongst others. SLL Currency values versus US dollar Source: Bloomberg SLL:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy is based on meeting quantitative money supply growth targets and is aimed at containing inflation. However, inflation is significantly influenced by structural factors and the value of the Sierra Leonean leone (SLL), and therefore is only weakly influenced by monetary policy. Exchange rate stability, meanwhile, plays an important role in containing inflation and inflationary expectations. The Bank of Sierra Leone (BSL, the central bank) aims increasingly to use the monetary policy rate to signal the monetary policy stance and to contain inflation expectations. However, improved liquidity management (by increasing BSL use of repo instruments to achieve liquidity targets) and coordination between fiscal and monetary policies should prove more practical in the short-term. Following the 2011 launch of an inter-agency cash management committee and improved debt management practices, attaining low inflation will be supported in 2013 through adherence to a new regulation on the BSL that limits direct financing to the government. This should also improve liquidity forecasting and enhance the effectiveness of secondary market operations. Aware of the need to increase FX reserves to support the SLL, the BSL is also expected to maintain a careful balance between reserve accumulation and liquidity management. The increase in USD denominated government revenue and financing flows from onwards has supported this objective but is also creating challenges for liquidity management. Market-based policies will be instrumental in managing this liquidity challenge. Sierra Leone s de jure and de facto exchange rate regimes are classified as floating (effective November 2008), with the value of the SLL determined by the market. FX market interventions are guided by the need to absorb foreign-financed budget spending and to reduce short-term market volatility. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 135

139 Sierra Leone Nigeria / Rest of The BSL s FX market interventions are expected to remain limited to smoothing exchange rate volatility. To distinguish between intervention and liquidity management functions, the BSL will only increase FX sales when expected large inflows are realized and spent by the government. Close monitoring of market conditions, as well as coordination with the Ministry of Finance, remains important for ensuring that any required sterilization is carried out swiftly. Currency outlook: The BSL is likely to maintain the floating exchange rate for the foreseeable future, driven by the steady rise in FX reserves over several years and the prospect of sustained growth in export revenues. Based on this free float, and despite an expectation of further import growth, moderate appreciation of the exchange rate is likely in the remainder of 2013 owing to robust export revenue performance and capital inflows (mostly FDI). However, if there were a global price shock (such as a large jump in oil or food prices), the SLL would come under pressure; therefore, depreciation cannot be ruled out. There are no forward rates; these, however, generally prove weak indicators of currency trends. FX market structure The BSL, donors, and the corporate sector are all large suppliers of FX. For customs valuation purposes and for official transactions, the BSL calculates an official exchange rate every Thursday morning as the weighted average of the auction rate, the commercial bank mid-rate, and the bureau mid-rate of the previous week. Commercial banks may buy FX from and sell it to individual customers and may trade among themselves or with the BSL on a freely negotiable basis. Despite the recent moderate appreciation of the SLL, FX supply and demand market reflects some structural issues: the SLL tends to appreciate when selling while when buying it depreciates, which results in continuous margin compression. At the end of Q1 2013, capital inflows to the banking sector increased nearly 43% to USD179.7 mn compared to Q1. Average T-bill rate (%) 40 Source: IMF Real GDP growth (%) Source: IMF Central Africa East Africa Southern Africa e e Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Sierra Leone maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions. However, Sierra Leone maintains one multiple currency practice arising from the applied multiple-price Dutch auction system because there is no formal mechanism in place to prevent spreads of effective rates between winning bids from exceeding 2% Nigeria / Rest of

140 Sierra Leone FI primary market information Market size (central government debt issued) Public sector debt (USD mn) e Domestic n/a External n/a Total 1,261 1,224 1,193 n/a Public sector debt (% of GDP) Domestic * External * Total * External debt service (%) *Non-iron-ore GDP Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts, and the exchange rate. The policy interest rate is likely to be maintained around the current level of around 9.0% for 91 day T-Bills in the months ahead, which suggests that yields are not expected to change significantly. However, annual yields on all T-Bills have fallen significantly, for example, the yield on 91 day T-Bills fell to 8.93% in April 2013 compared to 23.3% one year before. This partly reflects the 300bp cut to the monetary policy rate to 17.0% in April Any significant strengthening of the SLL or a cut in the policy interest rate would drive primary yields down; in contrast, a tightening of interbank liquidity would drive yields up. Debt sustainability: The most recent IMF-World Bank debt sustainability analysis (published in September ) shows that the risk of debt distress continues to be moderate for Sierra Leone. Under the baseline scenario, all external debt indicators are below their policy-dependent indicative thresholds throughout the projection period ( 32). The analysis indicates that the medium- to long-term debt outlook is vulnerable to adverse shocks to several macroeconomic variables notably growth, exports, inflation, FDI inflows and the fiscal primary balance. This underscores the need to sustain fiscal consolidation efforts, remove impediments to growth, enhance export diversification, and maintain prudent borrowing policies. Types of securities on offer (T-bills and bonds) Sierra Leone generally issues short-term instruments, such as 91-, 182-, and 364-day T-bills, although one year bonds are also issued at a yield similar to that of 364-day T-bills. Auctions Timetable/frequency Money market instruments: Weekly Bonds: Monthly Type of auction: Competitive Primary dealers: Yes Bid size limits: No limits Auction calendar: Yes Reopening of existing bills: T-bills are sold by auction in weekly lots with tap issues. Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 137

141 Sierra Leone FI secondary market information No active secondary market Ecobank local affiliate contact details Ecobank Sierra Leone, 7 Lightfoot Boston Street, Freetown Tel: / Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Sierra Leone s commodity focus is on minerals, primarily diamonds, along with bauxite and iron ore. Cocoa and small quantities of coffee and timber are also produced commercially. Trade flows Exports Sierra Leone s main commodity exports are diamonds, worth USD112 mn in 2011, and bauxite and metal ores (USD125 mn). Iron ore exports are likely to become the largest export sector in the immediate period ahead. The country is also a small but important exporter of cocoa beans worth USD68 mn in As Sierra Leone has no domestic processing capacity, 10,000 tonnes (t) of raw cocoa beans were exported in 2010/11, all of which went to the US and Canada. Limited quantities of coffee and timber are also exported. Imports The country s largest imports are industrial raw materials, including iron and steel, worth USD112 mn in 2011, petroleum products (USD82 mn), and cement (USD13 mn). The country is also heavily dependent on imports of its main food staple, rice, with imports worth USD77 mn in Although the country produced 1.2 mn t of paddy rice and 52,000 t of palm oil in 2011, it still needed to import 177,000 t of rice and 13,000 t of palm oil to meet the shortfall caused by domestic demand. 138 Nigeria / Rest of

142 Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 139

143 The Gambia Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (end year) Fiscal balance (% GDP, consolidated) Broad money (% change, end period) Population (mn) Exports (USD mn) Imports (USD mn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP is likely to expand by around 4% in as the agricultural sector recovers, with rice, groundnut, and millet harvests improving compared with the previous season due to better weather. Crop production is expected to increase by 20-30% in -13, marking a solid rebound from last year s severe crop failure that led to the economy contracting. Meanwhile, tourism continues to expand somewhat despite weak conditions in Europe, which is the main source of demand for The Gambia s tourism services. Inflation accelerated slightly to 5% by end- owing to rising fuel prices throughout the year driven by high import prices, resulting in higher fuel subsidy costs to the government. Despite this subsidy, fiscal policy was strengthened by adhering to a cash budgeting system to limit spending to available resources. Fiscal strengthening was also based on tax reform, including replacement of the general sales tax with a value-added tax in January The government also made progress in gradually reducing its borrowing needs, although the deficit remained relatively wide at 4% of GDP. A lower deficit would greatly ease pressure on interest rates and reduce government crowding out of the private sector. Meanwhile, the current account deficit widened somewhat to over 15% of GDP in. The structural deficit on the current account reflects a weak export sector and strong import demand that is not offset by services earnings from tourism. This situation is unlikely to change significantly in the medium term, and the deficit will continue to be financed primarily by FDI, project grants, and concessional loans. Economic outlook Growth is expected to pick up in 2013 to around 9% following the strong rebound in. Growth will be supported by recovery in the agricultural sector, which is likely to be spread over several years, and ongoing, albeit weak, growth in tourism. Inflation is projected to remain relatively modest at around 5%, assuming fiscal restraint and the effect of continued good weather on crop production. Meanwhile, a large current account deficit will continue to be financed largely from capital inflows directed at FDI investments and donor grants/credits. There are several risks to the outlook: the heavy debt burden, particularly domestic debt, presents risks arising from high interest costs and rollover risk. External debt also presents a high risk of debt distress. Other risks include: (i) further global economic weakness, particularly in Europe, which could dampen the recovery in tourism and remittances; (ii) higher global food and oil prices; (iii) contingent liabilities; and (iv) weather-related risks to rain-fed agriculture. 140 Nigeria / Rest of

144 The Gambia GMD Currency values versus US dollar 39 Source: Bloomberg GMD:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy focuses on attaining low inflation, exchange rate stability, and a viable external position. The monetary authorities continue to use a monetary targeting framework to pursue their price stability objective. The main monetary policy tool is the policy interest rate, which is intended to signal to the market the authorities view on liquidity management. The exchange regime is classified as a floating arrangement. It was reclassified as such in February 2009 from a managed float with no predetermined path due to a change in methodology. However, an exchange rate directive issued by the authorities in led to some FX market disruptions and created uncertainty about exchange rate policy. The recent lifting of the restrictions imposed by the directive and the renewed commitment to a flexible, market-determined exchange rate policy helped the FX market to return to more normal conditions. Full market confidence will return as the Central Bank of The Gambia (CBG) continues to implement this policy framework. Currency outlook: The CBG is expected to continue with its implementation of the floating exchange rate regime against the USD for the foreseeable future. This policy will be supported by rising FX reserves based on the assumption of no further weather-related shocks and a slow recovery in tourism. However, strong import demand will continue to drive exchange rate volatility (the Gambian dalasi or GMD is one of Africa s most volatile currencies) and this is likely to result in a steady depreciation of the GMD over the remainder of the year (and beyond). Large depreciations have occurred in the past (most recently in mid- and late-); therefore, significant weakening is possible in the months ahead. There are no forward rates (which, however, generally prove weak indicators of currency trends). FX market structure The monetary authorities maintain a floating exchange rate policy, intervening only to maintain orderly market conditions. Whenever required, the CBG may purchase foreign exchange from the domestic interbank market to meet its target for international reserves (equivalent to around five months of imports). Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 141

145 The Gambia Average bank discount rate (%) Source: IMF e Real GDP growth (%) e Source: IMF Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, The Gambia maintains an exchange system free of restrictions, with the exception of those maintained solely for the preservation of national or international security, on the making of payments and transfers for current international transactions. FI primary market information Public sector debt Federal government debt (GMD bn) e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts, and exchange rate changes. With the likelihood that the policy interest rate will be maintained at the current level in the months ahead, yields are not expected to change significantly. However, a cut in the policy interest rate would drive primary yields down; in contrast, substantial weakening of the GMD would require an interest rate rise, which would drive yields up (as would a tightening of interbank liquidity). 142 Nigeria / Rest of

146 The Gambia Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in May ), the indications would suggest that The Gambia remains at high risk of debt distress. In particular, the ratio of the present value of external debt to exports breaches its threshold over a protracted period, while other indicators are vulnerable to adverse shocks. Still, based on current projections, The Gambia s external debt is on a sustainable path. Moreover, there is scope for moderate amounts of additional external borrowing on concessional terms for productive investments. Domestic debt, which has grown substantially in recent years, is costly and poses high rollover risks. Interest on domestic debt consumes nearly one-fifth of government revenues and far exceeds the cost of interest on external debt. The IMF recommends that the authorities restrict external financing to grants and highly concessional loans with a grant element of at least 35% and reduce new domestic borrowing. Types of securities on offer (T-bills and bonds) The Gambia generally issues short-term instruments, 91-, 182-, and 364-day T bills and 91-day Sukuk bills, although the yield curve extends to three years. Auctions Timetable/frequency Money market instruments: Weekly Bonds: Infrequent and ad hoc issuance Type of auction: Competitive from GMD25,000 to GMD1 mn; non-competitive below GMD1 mn Primary dealers: Yes Bid size limits: GMD5 mn Auction calendar: A tentative calendar is available at the Banking Services Department of the central bank. Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Very limited trading volume and value due to restricted market; buyers/sellers can only deal with CBG as counterparty. Ecobank local affiliate contact details Ecobank The Gambia, 42 Kairaba Avenue, Serrekunda Tel: Ecobank Trading capabilities (FX and FI) FX forward rates available up to one month Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 143

147 The Gambia Nigeria / Rest of Commodity information Key commodities Given The Gambia s relatively small size, production of various goods is limited to timber, textiles, sugar, cashew nuts and tea. Trade flows Exports The Gambia s key commodity export is unprocessed wood, worth USD78 mn in, most of which goes to China. The country also exports significant quantities of cashew nuts, worth USD25 mn in (most are re exports of cashews produced in Senegal and Guinea-Bissau), as well as groundnuts and groundnut oil (USD10 mn), fish (USD8 mn) and titanium ore (USD7 mn). The Gambia produced 84,000 tonnes of groundnuts in 2011, the bulk of which were exported to the UK. Imports The country s main commodity imports are cotton, worth USD140 mn in, nearly all of which comprise Chinese-manufactured cotton fabric. The country also imports significant volumes of food products, notably sugar (USD52 mn), rice (USD44 mn) and palm oil (USD43 mn), as well as petroleum products (USD35 mn). The country imported 64,000 tonnes of flour, 31,000 tonnes of rice, 41,000 tonnes of vegetable oil and 70,000 tonnes of sugar products in 2011, mostly for domestic consumption. Central Africa East Africa Southern Africa 144 Nigeria / Rest of

148 Southern Africa East Africa Central Africa Nigeria / Rest of Nigeria / Rest of 145

149 Country Profiles: Central Africa Nigeria / Rest of Ecobank operates in 7 countries, running 76 branches with almost 1,000 employees that look after 0.3 million customers. Assets, revenue and profit growth remain strong, supported by robust regional demand for banking services. The Central Africa region is also diverse with various prominent defining features. Countries range from the Sahel to the tropics, while some are land-locked and others share ocean-access. As with the n region, these countries are also bound together in an economic and monetary union, underpinned by the stability provided by the currency peg to the euro. Economic diversification is more pronounced in the larger economies, however, the start of oil production several years ago in some of the smaller economies added to their largely agrarian focus. The region is less active in issuing bonds compared to, however, all economies benefit from the stability provided by the currency peg to the euro. Central Africa East Africa Southern Africa

150 Country Profiles: Central Africa Central Africa 16. Cameroon profile Page Central African Republic profile Page Chad profile Page Congo profile Page Equatorial Guinea profile Page Gabon profile Page São Tomé and Príncipe profile Page Southern Africa East Africa Central Africa Nigeria / Rest of Opposite: Timber cut for processing

151 Cameroon Nigeria / Rest of Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP increased by an estimated 4.7% in, slightly faster than the year before, driven by stronger oil and non-oil GDP. Oil sector activity was boosted by several new oil projects coming on-stream while non oil growth was supported by spending associated with high oil prices last year. Average annual inflation was contained at 3%, unchanged from 2011; this was helped by relative food price stability (due to subsidies on food imports) and administered fuel prices. High oil prices and increased oil production underpinned an improvement in exports. However, import bill growth was stronger, reflecting robust domestic demand. As a result, the current account deficit widened to nearly 5% of GDP, almost one percentage point higher than in Meanwhile, the fiscal deficit is also estimated to have widened, to 4% of GDP, despite higher than projected revenues generated by high oil prices last year: this is due to sustained spending pressures. Central Africa East Africa Southern Africa Economic outlook Although the economy continued to expand in, growth performance remains weak, and the economy is vulnerable to external shocks. Per capita growth has stagnated over the last five years despite a relatively diversified economy. Growth has been constrained by underinvestment in infrastructure, an adverse business climate, poor public financial management, a shallow financial sector, and weak regional trade integration. In addition, the outlook for the oil sector, which provides 25 to 30% of total fiscal revenues, is weak given a gradual decline in output due to aging fields and equipment. While the economy is expected to continue expanding at around 4-5% in real terms, this moderate growth rate will reflect the effect of the above challenges. 148 Central Africa

152 Cameroon XAF Currency values versus US dollar 560 Source: Bloomberg XAF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 XAF Currency volatility versus US dollar (standard deviations) Sources: Bloomberg, Ecobank 560 XAF:USD (lhs) Average (lhs) #SDs (rhs) Jan 2011 FX, FI, and commodity information FX market information Monetary and exchange rate policies Jan Cameroon is a member of the six-country regional group, the Communauté Économique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des États de l Afrique Centrale (BEAC). The CFA franc (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy it is derived from the European Central Bank s (ECB s) policy stance. However, following any change in ECB monetary policy, changes to BEAC monetary policy can be delayed by up to three months because the monetary policy committee (MPC) of the BEAC only meet once per quarter. Currency outlook: The BEAC is likely to maintain the exchange rate peg to the EUR for the foreseeable future. As of early August 2013, forward rates for the EUR (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Jan 2013 Jul Source: Bloomberg Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 149

153 Cameroon FX market structure The CEMAC exchange arrangement is classified as a conventional peg. The CEMAC maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions, except for restrictions maintained for security reasons. Average bank discount rate (%) 6 5 Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF, having accepted its Articles of Agreement, particularly Articles IV and VIII, Cameroon maintains an open capital account. Moreover, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management, but in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Limited primary and secondary market liquidity is a concern. Public sector debt Public sector debt (XAF bn) e Domestic External Total 1,114 1,349 1,633 1,751 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and central bank liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will likely be maintained around the current level of 4.0% in the months ahead; therefore yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. 150 Central Africa

154 Cameroon Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in June ), Cameroon continues to face a low risk of debt distress insofar as all external debt ratios remain well below the policy-dependent indicative thresholds under the baseline scenario, as well as under all stress tests. However, total public debt indicators are markedly higher than in the 2011 DSA, largely because of the impact of the projected accumulation of payment arrears on domestic debt, and higher issuance of government securities to cover part of the fiscal deficit. The projected large increase in domestic debt calls for the reform of the fuel subsidy mechanism and a strengthening of commitment controls to limit the accumulation of domestic arrears. Enhancing non-oil revenue mobilization and widening the export base in light of the anticipated long-run decline of oil revenues would help mitigate the projected increase in debt service. Types of securities on offer (T-bills and bonds) Cameroon is the largest issuer in the CEMAC region and generally issues short-term instruments such as various T-bills and 1-yr bonds. The authorities aim to extend the yield curve up to 5 yrs. T-bills and bonds: Around 10 auctions are expected in 2013 as set out in the issuance calendar. Auctions Timetable/frequency: Usually monthly Type of auction: Competitive Primary dealers: Yes Bid size limits: Not available Auction calendar: Yes Reopening of existing bonds: No FI secondary market information: Liquidity remains a concern for both primary and secondary markets. Daily turnover (volume/value): Limited trading volume and limited trading value. Ecobank local affiliate contact details Ecobank Cameroun, Boulevard de la Liberté, Douala Tel: Ecobank trading capabilities (FX and FI) FX trader (forward rates available on request) Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Banking sector Cameroon s financial sector is comprised of 13 licensed commercial banks (the majority of these banks are owned by non-nationals subsidiaries of European and other African countries); five financial non deposit institutions; 500 microfinance institutions; 28 insurance companies; and four specialized financial institutions. The sector is dominated by Afriland First Bank, Banque Internationale du Cameroun pour l Epargne et le Crédit (BICEC) and Société Générale des Banques au Cameroun (SGBC), which in aggregate accounted for 50.8% of loans and 52.9% of deposits (in July ). Aggregate deposits posted a 5-year compound annual growth rate (CAGR) of 13.1% to USD6.11 bn at end 2011, largely reflecting an improvement in economic activity. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 151

155 Cameroon The sector recorded high liquidity levels, reflected by the liquid assets ratio, which remained above 35% between 2007 and However, non-performing loans (NPLs) remain high, increasing from 12.5% in 2007 to 14.8% in 2011, mainly due to weak risk management. The banking sector is in a fragile state as compliance with prudential regulations is weak. In 2011 nine banks were in violation of the limits on large exposures; a significant increase from two and four non compliant banks in 2009 and 2010, respectively. CPI Inflation (% change) 7 CPI inflation (lhs) M2 (% change) M2 supply (rhs) Source: IMF Nigeria / Rest of Central Africa East Africa Southern Africa -2 Jan 2007 Commodity information Key commodities Hydrocarbons Jan 2009 Cameroon produces an average of 65,000 barrels per day (bpd) of crude oil, mostly from the Rio del Rey and Douala/Kribi Basins. There are several new fields that are expected to start production in 2013 and could see production rise to 75,000 bpd. The country exports its oil mostly to France and the US. Although Cameroon has gas reserves estimated at 4.7 trn cubic feet, it produces less than 10 mn standard cubic feet of gas per day. UK independents Victoria Oil & Gas and Perenco are the major gas producers in Cameroon. Cameroon s refinery, the 42,000 bpd Sonara refinery, utilizes light sweet crude from Nigeria and Equatorial Guinea. The refinery s output sufficiently covers the country s 27,000 bpd demand for petroleum products and plays a key role in meeting fuel needs of other CEMAC countries. However, fuel consumption is subsidized by the government. Subsidies stood at USD847 mn in. Jan 2011 Jan Central Africa

156 Cameroon Cameroon crude oil production 000 bpd 100 Source: US EIA Others e 2013f Cameroon produces a diverse range of soft commodities, such as cocoa, coffee, cotton, timber, bananas, rubber, and cement many of which are traded with the sub-region and internationally. The country produced 1.6 mn tonnes (t) of cement in 2011 but imported 1.2 mn t to meet domestic demand. However, this could change with large-scale investment in the country s cement production capacity. Trade flows Exports Cameroon is one of the largest oil exporters in sub-saharan Africa, exporting USD2 bn worth of crude oil and USD245 mn of petroleum products in 2011, around half of its total exports. Cameroon is the fourth largest cocoa exporter in Africa (and fifth largest in the world), exporting 204,000 t of raw beans in 2010/11 to the EU, Asia, and the US, and 25,000 t of cocoa butter, powder and liquor. In terms of values, USD668 mn worth of exports of cocoa and cocoa products were exported in However, concerns over the quality of Cameroonian beans have disrupted the marketing of the /13 season, which could lead to a drop in exports in Timber and wood products are also important exports, officially totaling USD735 mn in 2011; however, the actual level is probably higher given widespread illegal logging in the region. Cameroon also exports significant volumes of bananas (300,000 t worth USD255 mn), natural rubber (445,000 t worth USD241 mn), raw cotton (USD133 mn) and coffee (USD118 mn). Cameroon also exported 240,000 t of rubber in 2011, however, coffee and cotton exports are on a smaller scale, with 29,000 t of coffee and 48,500 t of cotton exported in 2011/12. Imports Cameroon is heavily dependent on food imports (it runs a large food deficit), with imports in 2011 of 390,000 t of wheat worth USD131 mn, 104,000 t of fish (USD131 mn), 270,000 t of rice (USD126 mn), and 130,000 t of sugar (USD92 mn). Cameroon s imports of oil along the Chad-Cameroon pipeline (which are immediately re-exported to international markets) have fluctuated over the past five years, reflecting production challenges in Chad. Cameroon also imports large volumes of industrial raw materials, including USD262 mn worth of iron and steel, USD66 mn of cement and USD47 mn worth of petroleum products in Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 153

157 Central African Republic Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD mn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP expanded by around 4% in, slightly faster than the year before. It was driven by what appeared earlier in the year to be a gradually improving political and security situation, which in turn helped support increased output from the agricultural (particularly cotton) and services sector. However, a rebellion in the north and center of the country started in November, underlining the fragility of the country s post-conflict situation (President Bozize was subsequently overthrown in March 2013). Meanwhile, inflation accelerated slightly to an annual average of nearly 3% last year, mainly because of supply disruptions at the beginning of the year. At this level, inflation was at the top end of the CEMAC convergence rate of 3%. A low inflationary environment was supported by the fiscal anchor provided by the exchange rate peg. Prior to the late- political instability, the fiscal balance appeared to be improving thanks to efforts made towards improving public financial management and because domestic revenue collection increased, with the deficit (including grants) narrowing to 1% of GDP. However, expenditure controls remained weak, with continued recourse to exceptional payment procedures. Although export volumes increased sharply in, helped by exports of timber and precious minerals, export values rose less strongly because of lower global cotton prices. Moreover, oil and food import prices remained high. Nonetheless, the current account deficit narrowed slightly to just under 6% of GDP because of increased official transfers. Economic outlook The outlook is uncertain due to the effects of the March 2013 coup. Economic activity could slow considerably or even contract, depending on the policies of the new military junta. However, assuming implementation of sound policies and necessary reforms, growth could expand around 4% in Meanwhile, inflation is expected to remain low due to the exchange rate peg, assuming no significant spending increases. Irrespective of the country s leadership, there is a pressing need to strengthen public financial management, which is necessary to attract donor support in order to address the large infrastructure needs and bolster public spending. There is also a need to implement structural reform to improve the business environment and strengthen the banking sector. With import demand remaining strong, and the uncertain outlook for the export sector, the current account deficit is likely to widen to high single digits in Central Africa

158 Central African Republic XAF Currency values versus US dollar 560 Source: Bloomberg XAF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies The Central African Republic is a member of the six country regional group, the Communauté Economique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des Etats de l Afrique Centrale (BEAC). The CFA franc (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BEAC is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August FX market structure Source: Bloomberg The CEMAC exchange arrangement is classified as a conventional peg. CEMAC maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 155

159 Central African Republic Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, the country maintains an open capital account. Moreover, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XAF bn) e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BEAC liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in August ), Debt relief under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI) at the completion point in June 2009 has alleviated CAR s debt burden and the economy continues to face a moderate risk of debt distress. 156 Central Africa

160 Central African Republic Types of securities on offer (T-bills and bonds) The Central African Republic generally issues short-term instruments, such as various money market instruments and one-year bonds. Auctions Timetable/frequency Money market instruments: Generally monthly T-bills and bonds: three auctions are scheduled for Type of auction: Not competitive Primary dealers: Yes Bid size limits: Not available Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Central African Republic, Place de la République, Bangui Tel: Ecobank trading capabilities (FX and FI) FX forward rates: Available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities The main commodities produced by CAR are agricultural and mineral: cotton, timber, diamonds and gold. However, given the country s prolonged political instability, large volumes of its commodity production (and exports) are not captured by official data. Trade flows Exports The country s main export is diamonds, worth USD63 mn in 2011, followed by wood (USD26 mn), cotton (USD6 mn) and gold (USD3 mn). CAR exported 323,000 carats of diamonds in 2011, mostly to Western Europe, Japan and China, and 21 tonnes (t) of gold, to France, Denmark, Japan and Malaysia. Agricultural exports included 168,000 t of wood and 3,000 t of cotton in Imports The country is heavily dependent on food imports, led by flour (USD26 mn in 2011) sugar (USD12 mn) and palm oil (USD4 mn). CAR is also dependent on imports of refined petroleum products given there is no local refining capacity. The country also imported USD7 mn of cement in Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 157

161 Chad Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (XAF trn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP rebounded in, rising by 5%, an increase driven by the first full year of production of the new Djermaya oil refinery and related industrial projects, along with improved weather conditions that led to a recovery in agricultural output (following drought in the Sahel region in 2011). In addition, Chad s internal security situation has improved since the end of the conflict in Libya in late 2011/early. Inflation slowed to 5% at end- because of lower food prices, although the higher level of domestic activity pushed up prices throughout the year. The fiscal position was characterized by a lower than expected collection of non-oil tax revenues and a higher than budgeted level of spending, which required a supplementary budget be adopted in September. Around one quarter of domestically financed spending was made without prior authorization, highlighting weak public financial management (PFM). The overall deficit exceeded 8% of non-oil GDP, which was financed mainly by drawing down savings made in Following the high level of imports destined for the industrial projects in 2011, and increased export earnings from the oil sector, the current account deficit narrowed significantly, to 2% of GDP, in. However, food import costs remained high, which prevented the deficit from being eliminated. Economic outlook The effect of several industrial projects coming on-stream in will carry over into 2013, and real growth is likely to accelerate to around 8%. We assume a moderate decline in oil production although oil prices are likely to remain elevated. Although the oil sector has driven most of the recent economic development, there is an ambitious public investment program to support non-oil growth and stem the impact of declining oil reserves on exports and fiscal revenues. However, due to ongoing PFM challenges, achievements are likely to be less than expected. Looking further ahead, as new oil fields come on-stream, oil production is expected to increase substantially, from 0.12 mn barrels a day (bpd) in to 0.16 mn bpd between 2013 and 2017, which will have a positive effect on fiscal revenues and the current account. Based on the assumption that oil prices and production will both remain at current levels, a fiscal surplus of around 1% is forecast for Meanwhile, the current account deficit will narrow somewhat to around 1% of GDP as the level of infrastructure and industrial project imports will fall in 2013 (most of the projects have been constructed) and the Djermaya refinery output supplements crude oil exports. Despite the positive outlook, the government faces considerable challenges: fiscal policy is adversely affected by serious deficiencies, such as the overexposure of public finances and the financial sector to oil market risk. Furthermore, since the beginning of oil production in 2003, Chad has pursued an expansionary and pro-cyclical fiscal policy. 158 Central Africa

162 Chad While high oil prices have eased the government s short-term financing constraint, public financial management capacity has been strained because of the significant extra-budgetary spending, and budgetary discipline is needed to make efficient use of finite oil resources. Furthermore, while the health of the banking sector has improved with the recapitalization of troubled bank, the high exposure of banks to government and its suppliers represents a significant risk for the banks. XAF Currency values versus US dollar Source: Bloomberg XAF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Chad is a member of the six country regional group, the Communauté Economique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des Etats de l Afrique Centrale (BEAC). The CFA franc (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BEAC is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The CEMAC exchange arrangement is classified as a conventional peg. CEMAC maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 159

163 Chad Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Chad maintains an open capital account. Moreover, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (XAF bn) e Domestic External 769 1,058 1,065 1,080 Total 929 1,254 1,231 1,208 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BEAC liquidity management efforts. With the exchange rate peg is likely to remain in place for the foreseeable future, and because of the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead; therefore, yields are not expected to change significantly. However, any change to the exchange rate peg arrangement is likely to push up the policy interest rate. 160 Central Africa

164 Chad Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in August 2011), Chad s debt vulnerability and risk of debt distress, which remains moderate, has not changed since the 2010 debt sustainability analysis (DSA). The assumptions underpinning the DSA are also quite similar, except for an upward revision of current and projected oil prices. Public and publicly-guaranteed external debt and debt service indicators remain well below the indicative thresholds through the projection horizon. However, Chad s debt sustainability outlook remains highly sensitive to an oil price shock. Should a decline in oil price similar to that experienced in 2009 reoccur, all debt and debt service ratios would be breached and remain persistently above most debt indicator thresholds. Furthermore, borrowing to finance contemplated major projects would also jeopardize sustainability. Types of securities on offer (T-bills and bonds) Chad generally issues short-term bonds of up to 2-years. Auctions Type of auction: Competitive Primary dealers: Yes Bid size limits: Not available Auction calendar: Yes Reopening of existing bonds: No FI secondary market information: Liquidity remains a concern for both primary and secondary markets. Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Tchad, Avenue Charles de Gaulle, N Djaména Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Hydrocarbons Crude oil production started in 2003 in Chad. The country produced about 115,000 bpd of crude oil in and exported over 90% due to its own limited consumption. Crude oil revenues account for about 75% of government revenue. Chad is home to the 20,000 bpd N Djamena refinery, built in 2011 by the China National Petroleum Corporation (CNPC). The bulk of the refinery s output is exported as domestic consumption is limited. The refinery is however closed due to a dispute between the government and CNPC over prices. Chad pays Cameroon under USD1 per barrel to transport crude oil from its Doba oil fields to Cameroon s Atlantic coast pumping stations through the USD4.2 bn Chad-Cameroon oil pipeline. The project was sponsored by ExxonMobil, Royal Dutch Shell and Total, with the support of the World Bank. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 161

165 Chad Chad crude oil production 000 bpd Sources: EIA and Global Data e 2013f Nigeria / Rest of Central Africa East Africa Southern Africa Trade flows Exports Chad is a major exporter of crude oil worth USD3.7 bn in 2011, all of which is exported via the Chad Cameroon pipeline to the port of Kribi due to its own limited consumption (although domestic gasoline consumption has increased to 34,000 t p.a. from 17,000 t p.a. in 2010). Oil exports have overshadowed the country s previously dominant agricultural exports, led by cotton (USD49 mn) and gum Arabic (USD19 mn) in Chad used to be a major cotton producer, but due to instability, exports have fallen from 58,000 t in 2008 to 15,000 t in 2011, most of which went to China. Chad exported 4.9 mn tonnes (t) of crude oil in which, after transit through Cameroon, went to markets in the USA and East Asia. Imports Following the construction of a refinery in Djarmaya, north of the capital N Djamena, the country has become self-sufficient in petroleum products, with imports slumping from USD290 mn in 2010 to just USD5 mn in The country s largest commodity imports are iron and steel (USD29 mn) and flour (USD29 mn). 162 Central Africa

166 Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 163

167 Republic of Congo Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (XAF trn) Imports (XAF trn) Current Account Balance (% GDP) FX Reserves (XAF trn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The Republic of Congo s economic performance improved in, reflected in its real growth expanding by nearly 4% (compared to around 3% in 2011). Although oil production in maturing oil fields declined last year (the oil sector accounts for over 60% of GDP), non-oil growth strengthened, mainly in the non traded services, commerce, and construction sectors. Inflation accelerated to 5% last year from 2% in 2011, reflecting an increase in domestically financed government spending and global commodity price rises. However, inflationary pressures were moderated by robust agricultural output and fixed domestic fuel prices. The large increase in spending resulted in the fiscal surplus narrowing sharply to 10% of non-oil GDP (the surplus was 54% in 2011). Fiscal surpluses reflect robust oil revenues and progress on key structural reforms that have strengthened resilience to shocks, although spending pressures remain significant (such as those related to fuel price subsidies). The current account weakened further in, despite high oil prices, because of the lower level of oil output and strong import demand, which narrowed the surplus to 0.2% of GDP. Income debits also increased strongly last year as investment income was repatriated overseas. Economic outlook The Republic of Congo s prospects for 2013 appear generally good. Growth is likely to increase by 6%, mainly driven by ongoing robust non-oil activity (construction, telecoms, forestry). Although oil production is likely to have peaked in, new fields could come on-stream starting in 2015, following ongoing negotiations to change the oil taxation regime, which would boost oil output in the years ahead. Inflation should slow to around 3-4%, despite an increase in investment and related demand. Low inflation will remain underpinned by the XAF peg to the euro that helps anchor fiscal policy. The fiscal and external positions should remain comfortable given the cushion provided by hydrocarbon revenues. A new fiscal rule introduced in 2013 should help reduce the effects on the budget of oil revenue volatility and support fiscal sustainability. Moreover, assuming oil prices remain elevated, the current account should remain in surplus. The economy faces risks, however, stemming from exposure to oil price shocks. In addition, to place the economy on a stronger growth path requires greater efforts to strengthen economic governance and improve the business environment. 164 Central Africa

168 Republic of Congo XAF Currency values versus US dollar 560 Source: Bloomberg XAF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies: The Republic of Congo is a member of the six country regional group, the Communauté Economique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des Etats de l Afrique Centrale (BEAC). The CFA franc (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BEAC is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The CEMAC exchange arrangement is classified as a conventional peg. CEMAC maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 165

169 Republic of Congo Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, the Republic of Congo maintains an open capital account. Moreover, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (net) (XAF bn) e Domestic n/a n/a n/a n/a External 2,473 1,201 1,232 1,641 Total 2,473 1,201 1,232 1,641 Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: As the Republic of Congo does not issue T-bills or bonds, there is no yield curve. However, the BEAC policy interest rate will continue to remain a benchmark rate that will be strongly influenced by the monetary policy stance derived from the ECB and BEAC liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Any change to the exchange rate peg could push up the policy interest rate. 166 Central Africa

170 Republic of Congo Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in July 2011), The rating for the Republic of Congo shifts to low from moderate risk of debt distress. Under the baseline, none of the indicative thresholds are breached. There is one brief and small breach of the PV of debt-to-gdp threshold when stress tested, which could however be financed from accumulated deposits rather than external debt. Considering accumulated liquid assets, external debt is resilient to shocks, but public finances remain vulnerable to oil price volatility and the maturing of wells over the longer run. Consequently, consolidation is still required to ensure fiscal sustainability and strengthen external stability fiscal discipline, pro-growth structural reforms and efficient public investment are key to keeping the overall balance in surplus while raising growth. Continued improvements in debt management and development of an oil wealth management strategy would further reduce risks. Types of securities on offer (T-bills and bonds) Currently, the Republic of Congo does not issue T-bills or bonds. FI secondary market information: Due to a lack of issuance, primary and secondary markets are illiquid. Ecobank local affiliate contact details Ecobank République du Congo, Immeuble de l ARC, Avenue du Camp, Brazzaville Tel: Ecobank trading capabilities (FX and FI) FX forward rates available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Hydrocarbons The Republic of Congo is Middle Africa s third largest oil producer, with production of 292,000 barrels per day (bpd). Production has been declining due to maturing fields. However, major oil companies Total and Chevron have projects that could boost production by 170,000 bpd from The Republic of Congo is also set to be one of the first African countries where unconventional oil production will start with Italian firm Eni s oil sands project to exploit 2.5 bn barrels of unconventional oil. A small pilot feasibility study was initiated in, ahead of a USD7.5 bn investment, which would enable production to start in Total expects to invest USD10 bn to complete the extension of the Moho-Bilondo field, which currently produces about 90,000 bpd but could produce up to 120,000 bpd. The main export markets are: US (49%), China (31%), and France (10%). The Republic of Congo s only refinery, the Congolaise de Raffinage (CORAF), operates at 50% capacity (10,500 bpd) and thus meets less than half of the country s needs. The balance is imported. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 167

171 Republic of Congo Republic of Congo crude oil production 000 bpd Sources: EIA and Global Data Nigeria / Rest of Central Africa East Africa Southern Africa 0 Others Timber is an important area of productive activity and provides a significant level of employment. However, in value and volume terms timber output is dwarfed by the oil sector. Trade flows Exports The Republic of Congo s single most important commodity export is oil, worth USD12.4 bn in 2011, which accounts for around 80% of total exports. The country exported 23.8 mn tonnes (t) of oil and 416,000 t of gas in 2011, to China, the US, Taiwan, and Western European markets. The Republic of Congo also exported USD116 mn worth of timber in 2011 (580,000 t), most of which went to China, although large volumes are not captured by official data. Imports The country imports modest volumes of industrial raw materials and food, notably petroleum products (worth USD225 mn in 2011), iron and steel (USD175 mn), cereals (USD112 mn), and cement (USD88 mn). 168 Central Africa

172 Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 169

173 Equatorial Guinea Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (end period) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP in is likely to have expanded by about 2%, driven by oil and liquefied natural gas (LNG) activity. Although oil production has been falling as a result of maturing oil fields, expanding output of gas derivatives since 2007 has largely compensated for this (oil production peaked in 2008 at 0.35 mn barrels per day or bpd). Economic developments continue to be underpinned by hydrocarbon sector activity (which accounts for around 75% of GDP) and public investment in utilities and housing. Due to data deficiencies, it is not possible to assess the non-hydrocarbon economy; however, it appears to have grown strongly based on demand for and supply of goods and services (such as distribution, telecoms, finance, housing, and construction). Annual inflation continued to accelerate, to nearly 6% in (above the 3% CEMAC convergence criterion) due to rising global food and oil prices, a lack of competition in the retail sector, rising public sector wages, and strong domestic demand. Meanwhile, the fiscal position deteriorated last year, moving to a deficit of nearly 3% of GDP from a small surplus of about 1% in Although oil revenues were higher than budget projections, spending on public wages and infrastructure projects remained high (the hydrocarbon sector accounts for over 90% of government revenue and about 98% of export earnings). The external position also weakened in. The current account deficit widened to 15% of GDP from 9% the year before. Hydrocarbon revenues increased moderately in but this was more than offset by a large rise in the import bill, reflecting strong demand for consumer goods, and goods from the hydrocarbon and public investment sectors. This led to a corresponding rise in net services outflows. Net income debits also increased, reflecting the repatriation of higher oil company profits due to increased revenues. Economic outlook The 2013 outlook for Equatorial Guinea is mixed. Real GDP could contract by 2%, reflecting the effect of declining oil production. Non-oil activity is unlikely to counter this downturn given that hydrocarbon revenues provide the financing for much of this non-oil activity. However, the Ministry of Planning, Economic Development and Public Investment is undertaking an exercise to rebase national accounts and improve the coordination of economic data within government; both of these measures should help improve analysis and forecasting of aggregate demand. Without a clear fiscal anchor to help insulate the economy from oil price volatility and improve the allocation and efficiency of expenditure over time, inflation is likely to remain above the 3% CEMAC convergence criterion. With global oil price uncertainty (prices could fall below USD90 per barrel), fiscal revenues could be reduced below projections, although provision for capital spending is likely to be cut due to the advanced level of public investment work so far completed. As a result, a small fiscal surplus of around 0.5% of GDP could be achieved in Central Africa

174 Equatorial Guinea Meanwhile, the external sector will remain a potential source of risk as long as the public sector continues to account for a large import bill. In terms of risks to the economy, outside of an oil price shock, there is a need for both expenditure rationalization and non-resource revenue mobilization over the medium term to create a more sustainable fiscal position. Furthermore, the business climate is challenging, which does not support an inclusive, diversified growth strategy. XAF Currency values versus US dollar Source: Bloomberg XAF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Equatorial Guinea is a member of the six country regional group, the Communauté Economique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des Etats de l Afrique Centrale (BEAC). The CFA franc (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the European Central Bank s (ECB s) policy stance. Currency outlook: The BEAC is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 171

175 Equatorial Guinea FX market structure The CEMAC exchange arrangement is classified as a conventional peg. CEMAC maintains an exchange system free of restrictions on the making of payments and transfers, with the exception of those maintained for security reasons, for current international transactions. A large proportion of Equatorial Guinea s external financial assets are held in foreign commercial banks rather than the BEAC. This contravenes the CEMAC s foreign currency surrender requirements and reserve pooling arrangements. However, other oil-producing countries in the region also hold assets outside the BEAC. Average bank discount rate (%) 6 Source: IMF Real GDP growth (%) Source: IMF Nigeria / Rest of Central Africa East Africa Southern Africa e e Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Equatorial Guinea maintains an open capital account. Moreover, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information: Due to a lack of issuance, primary and secondary markets are illiquid. Public sector debt Public sector debt (XAF bn) e Domestic n/a n/a n/a n/a External n/a n/a n/a n/a Total n/a n/a n/a n/a Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External n/a n/a n/a n/a Total External debt service (%) Source: IMF 172 Central Africa

176 Equatorial Guinea Yield curve outlook and debt sustainability Yield curve: As Equatorial Guinea does not issue T-bills or bonds, there is no yield curve. However, the BEAC policy interest rate will continue to remain strongly influenced by the monetary policy stance derived from the ECB and BEAC liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and because of the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Any change to the exchange rate peg arrangement is likely to push up the policy interest rate. Debt sustainability: There is no debt sustainability report available. Based on the most recent IMF Article IV consultation report (published in March 2013), the IMF observed that macroeconomic and socio demographic statistics are still deficient and hamper surveillance. Progress toward the Millennium Development Goals cannot be effectively monitored. Statistical capacity is very low. Deficiencies are manifold and deep-rooted and the most basic data are very hard for the public to access. The IMF suggests that a clear publication timetable for critical macroeconomic and socio-demographic data would both assist transparency and act as a powerful incentive to improve statistical capacity. Types of securities on offer (T-bills and bonds) Currently, Equatorial Guinea does not issue T-bills or bonds. FI secondary market information Due to a lack of issuance, primary and secondary markets are illiquid. Ecobank local affiliate contact details Ecobank Equatorial Guinea, Avenida de la Independencia, Apdo 268, Malabo Tel: / Ecobank trading capabilities per country (FX and FI) FX forward rates available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Hydrocarbons Equatorial Guinea is Middle Africa s fourth largest producer of oil, with current production of around 318,000 bpd. Production is entirely from offshore fields. Equatorial Guinea is also one of two LNG producing countries in Middle Africa. The USD1.4 bn Punta Europa LNG plant situated on Bioko Island exports nearly all of the country s gas production, at 3.7 mn t of LNG p.a. At the cost of another USD4 bn, a second LNG train is expected to start operations in 2016, which would increase LNG production to 7.4 mn t p.a. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 173

177 Equatorial Guinea Equatorial Guinea crude oil production 000 bpd Sources: EIA and Global Data e 2013f Nigeria / Rest of Central Africa East Africa Southern Africa Trade flows Exports Oil exports were worth USD9.41 bn and gas USD2.7 bn in Oil exports of 11.7 mn tonnes (t) in 2011 were sent primarily to France, US and China. Some 3.3 mn t of gas was exported mostly to Japan, South Korea and Taiwan. The country also exported USD146 mn worth of wood (255,000 t), all of which came from the mainland area of the country. The country exported of wood in 2011, nearly all of which went to China. Imports Given the country s rising refining capacity, imports of petroleum products have fallen from USD3.5 bn in 2009 to USD193 mn in The country consumes nearly 5,000 bpd of petroleum products, made up entirely of imports through the Luba and Malabo seaports. Petroleum products are distributed by Getotal, a jointly owned venture by Total and the government of Equatorial Guinea. Other significant imports include iron and steel (USD281 mn) and cement (USD45 mn), which are needed for large-scale infrastructure development. 174 Central Africa

178 Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 175

179 Gabon Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Gabon s oil revenue, which is channeled through government spending, is an important driver of economic activity. Despite a weak rebound in oil sector activity, economic performance remained strong in, driven by non-oil activity related to a long-term development plan (Gabon Emergent), which boosted real GDP growth 6%. The plan envisages large-scale public investment in mining, wood processing, and construction (specifically to develop infrastructure for the African Cup of Nations football tournament and for the construction of special economic zones), but major efforts to strengthen public financial management (PFM) are necessary if the aims are to be achieved. Inflation remained contained at under 4% in, despite a sharp increase in food prices, reflecting the stability of administered prices and the recent decision to eliminate indirect taxes on certain basic products. The fiscal stance remained expansionary in reflecting higher capital spending underpinned by expanding oil revenues, which resulted in the first fiscal deficit (of 1% of GDP) since The surge in capital spending reflected public investment associated with the development strategy and infrastructure for hosting the football tournament, while current expenditures were boosted by a 39% increase in the public wage bill and increased subsidies. Mainly due to strong oil and manganese export revenues, the current account surplus remained large at over 12% of GDP in, despite rapid import growth linked to the large public investment projects and the football tournament. Economic outlook The oil sector is projected to decline over the medium term, owing to maturing oil fields, and until new fields can be exploited in the longer term. With oil sector performance likely to stagnate in 2013, real growth will probably remain at around 6%. Non-oil GDP performance (manganese mining, wood processing, and public investment), is likely to remain strong, supported by public spending. The currency peg will continue to anchor inflation expectations, but inflation is forecast to accelerate 3% in 2013, mostly driven by higher food and energy prices. Diminishing oil reserves will lead to a decline in fiscal revenues in 2013, assuming oil prices remain stable. Meanwhile, spending will rise, reflecting ongoing public investment and rising subsidies and public wages. As a result, the fiscal deficit will widen to around 3% of GDP. Oil price volatility is a risk to the economy, which in the past has caused boom and bust cycles. In turn, these economic up/downturns have often been worsened by rapidly rising wages in the context of a fixed exchange rate regime. High oil prices are likely to help maintain a current account surplus of over 10% of GDP in However, relatively weak growth in hydrocarbons and manganese exports in 2013 highlight lower prices and logistical difficulties in getting manganese output to export markets. 176 Central Africa

180 Gabon Meanwhile, imports will continue to rise as the rapid public investment expansion reaches a plateau. A major risk to the external sector (and the economy) is a fall in the prices of oil and manganese since these commodities account for about 90% of total export earnings. Moreover, while Gabon is in the upper middle income countries category, the economy remains heavily dependent on oil 45% of GDP and 55% of fiscal revenues in highlighting the risk of an oil price shock. Furthermore, institutions and governance remain weak, which underlines PFM challenges in utilizing hydrocarbons revenues effectively. Other challenges include the efforts necessary to improve the business climate to support higher non-oil growth, which in turn will help to diversify the economy. XAF Currency values versus US dollar 560 Source: Bloomberg XAF:USD Jan Apr Jul FX, FI, and commodity information FX market information Monetary and exchange rate policies Oct Gabon is a member of the six-country regional group, the Communauté Economique et Monétaire de l Afrique Centrale (CEMAC). The group s currency system is managed by the Banque des Etats de l Afrique Centrale (BEAC). The Central African franc BEAC currency (XAF) is currently pegged to the euro at a rate of XAF = EUR1 (effective 1 January 1999). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). Currency outlook: The BEAC is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Jan 2013 Apr 2013 Jul 2013 Source: Bloomberg FX market structure The CEMAC exchange arrangement is classified as a conventional peg. CEMAC maintains an exchange system free of restrictions, with the exception of those maintained for security reasons, on the making of payments and transfers for current international transactions. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 177

181 Gabon Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Gabon maintains an open capital account. However, Gabon maintains a tax on wire transfers, including for the making of payments and transfers for current international transactions. This gives rise to an exchange restriction, which is inconsistent with its obligations under Article VIII. Meanwhile, as the CEMAC is an economic union, there is a single market with a common external tariff and a number of harmonized policies for matters such as taxation and public financial management. However, in practice there are still a number of non-tariff barriers to regional trade and investment. FI primary market information Public sector debt Public sector debt (net) (XAF bn) e Domestic External 1,015 1,138 1,312 1,477 Total 1,363 1,469 1,614 1,791 Public sector debt (% of GDP) Domestic External Total External debt service (%) n/a n/a n/a n/a Source: IMF Yield curve outlook and debt sustainability Yield curve: As Gabon only issues limited levels of debt that is short-term in maturity, the yield curve is undeveloped and the market shallow. However, the BEAC policy interest rate will continue to remain a benchmark rate that will be strongly influenced by the monetary policy stance derived from the ECB and BEAC liquidity management efforts. With the likelihood that the exchange rate peg remains in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. 178 Central Africa

182 Gabon Debt sustainability: The most recent IMF debt sustainability analysis was published in March 2013 and is summary in content. The main points included in the summary are that the debt sustainability scenarios based on historical averages and the standard stress tests confirm the declining and benign profile of debt for the forecast period. Even under standard stress tests, the projected level of public debt would remain well below 40 60% of GDP, the range that is often deemed too high for an emerging market. Types of securities on offer (T-bills and bonds) Gabon generally issues a limited amount of short-term bonds. The authorities issued a maiden 8.20%, ten-year USD1 bn Eurobond in December Auctions Timetable/frequency Money market instruments: Monthly Bonds: Monthly Type of auction: Competitive Primary dealers: Yes Bid size limits: Not available Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Liquidity remains a concern for both primary and secondary markets. Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Gabon, 214, Avenue Bouët, 9 Etages, Montagne Sainte, Libreville Tel: Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Hydrocarbons Gabon is a relatively large hydrocarbons producer in Middle Africa. Current production is around 244,000 barrels per day (bpd) of oil and 210 mn cubic feet (cu ft) of gas per day. The country s only refinery, the Société Gabonaise de Raffinage (SOGARA), has the capacity to process only 10% of its crude production but functions at less than 90% capacity. SOGARA is reliant on subsidies from the government since it sells its output below market prices. There are plans to establish a new 100,000 bpd refinery in Gabon. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 179

183 Gabon Gabon crude oil production 000 bpd Sources: EIA and Global Data e 2013f Others Gabon produces various minerals, the most important of which is manganese. Output of soft commodities ranges from foodstuffs for the domestic market to timber and rubber for export. Trade flows Nigeria / Rest of Central Africa East Africa Southern Africa Exports Hydrocarbons account for approximately 75% of total export revenues. Gabon exported oil and petroleum products worth USD8 bn in 2011, equal to 9.4 mn tonnes (t) of crude oil. Some 187,000 t of petroleum products were also exported, primarily to the sub-region. With increased hydrocarbons production in the US, Gabon s export markets have diversified. In 2011, hydrocarbons exports to the US fell to 15% of total exports with the remainder going to India, Europe, Indonesia, Australia, and others. The country is also an important exporter of manganese concentrate and ore, with exports worth USD819 mn in Around 2.8 mn t of manganese ore was exported to China, Norway, the US, and East Asia in Wood (USD361 mn) and rubber (USD89 mn) were the other significant commodity exports in Imports The country s imports are dominated by food (meat, cereals, and vegetable oils), worth USD471 mn in 2011, and iron and steel (USD278 mn). In volume terms, Gabon imported 94,000 t of wheat, 63,000 t of rice, and 23,000 t of palm oil in 2011, all of which was for domestic consumption. 180 Central Africa

184 Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 181

185 São Tomé and Príncipe Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD mn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD mn) Imports (USD mn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) 16,189 18,514 17,741 18,894 20,123 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP growth in São Tomé and Príncipe accelerated 4% in despite global economic weakness, particularly in Europe. Growth was broad-based, led by the construction, tourism, and agriculture sectors, although some large-scale projects have been postponed because of difficulties in securing external financing. As was the case in most of Middle Africa, increases in global food and fuel prices pushed inflation up to 10.5% at end-. However, the pace of inflation continued to slow (to its lowest end-year level in nine years) following the adoption of the fixed exchange rate regime in The fiscal deficit narrowed to around 7% of GDP owing to increased domestic revenues stemming from enforced tax law compliance, improved customs and tax administration efficiency, and controlled spending by keeping the public wage bill stable in real terms. However, the fiscal deficit has fluctuated widely recently, reflecting volatility in project grants, along with periodic build-up and clearance of arrears. Negotiations between the government, the water and electricity utility, and the national fuel company on a plan to clear arrears are ongoing and are expected to be completed by September In recent years, FDI, oil signature bonuses, and concessional loans have helped finance a major increase in the current account deficit, which remained large at around 22% of GDP in. Economic outlook The 2013 economic outlook is challenging. Economic growth is likely to remain around 4-5% as a result of global economic uncertainties and relatively weak external financing prospects for private and public sector investment projects. Meanwhile, inflation by end-2013 is likely to accelerate around 10%, reflecting vulnerabilities to supply shocks arising from global commodity price rises. With the adoption of a fixed exchange rate regime, fiscal policy has become the authorities principal instrument for achieving sustainable macroeconomic balances. Fiscal policy will aim to support growth and slow inflation to low single digits by ongoing efforts in revenue mobilization through improved tax and customs administration and a widening of the tax base. Nonetheless, a large fiscal deficit is likely, reflecting spending pressures and limited scope to boost revenues further. A narrow export base and high import dependency make the country vulnerable to external shocks. Furthermore, lower external borrowing (despite having received substantial assistance through the HIPC heavily indebted poor countries initiative and the MDRI multilateral debt relief initiative) and reforms to expand exports would support external sustainability; but without oil (oil production is likely to start in 2015 in the Joint Development Zone shared with Nigeria), São Tomé and Príncipe s large current account deficit is unsustainable. 182 Central Africa

186 São Tomé and Príncipe STD Currency values versus US dollar Source: Bloomberg STD:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Although São Tomé and Príncipe is not a member of either the XAF or the XOF currency regions, the São Tomean dobra (STD) is currently pegged to the euro at a rate of STD24,500 = EUR1 (effective January 2010). Due to the exchange rate peg, there is no independent monetary policy; it is determined by the policy stance of the European Central Bank (ECB). However, given the limited scope for monetary policy and rapid credit growth, the authorities are taking steps to strengthen monetary management and the supervision of banks. Moreover, the central bank is taking measures to de-dollarize the financial system by phasing out its role in clearing foreign currency checks and by changing regulations governing commercial banks reserve requirements. Currency outlook: The central bank is likely to maintain the exchange rate peg to the euro for the foreseeable future. As of early August 2013, forward rates for the euro (which generally prove weak indicators of trends) stood at: EUR forward rates (bid USD to EUR1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The exchange arrangement is classified as a conventional peg and is aimed at anchoring inflation expectations and boosting investment and growth. A credit line agreement with Portugal provides a framework for implementing policies to maintain the credibility of the peg. Commercial banks buy FX directly from the central bank, which can charge a commission of up to 1.5% on all FX transactions. Any FX commission that banks may decide to charge cannot exceed 2% for transactions in euro and 4% for transactions in other currencies. The new exchange rate system has eliminated the multiple currency practice relating to the existence of numerous exchange rate markets with differing effective exchange rates for spot transactions that existed in previous years. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 183

187 São Tomé and Príncipe Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors São Tomé and Príncipe continues to make use of the transitional arrangements under the IMFG s Article XIV but does not maintain restrictions under this article. However, under Article VIII, there is an exchange restriction arising from the investment law regarding limitations on the transferability of net income from investment. The restriction results from the requirement that taxes and other obligations to the government have to be paid/fulfilled as a condition for transfer to the extent that the requirement includes the payment of taxes and the fulfillment of obligations unrelated to the net income to be transferred. FI primary market information Public sector debt Public sector debt (net) (XAF bn) e Domestic External 1,015 1,138 1,312 1,477 Total 1,363 1,469 1,614 1,791 Public sector debt (% of GDP) Domestic External Total External debt service (%) n/a n/a n/a n/a Source: IMF Yield curve outlook and debt sustainability Yield curve: As São Tomé and Príncipe does not issue T-bills or bonds, there is no yield curve. Therefore, the central bank s policy interest rate will continue to remain the benchmark rate, which will be strongly influenced by the monetary policy stance derived from the ECB and local liquidity management efforts. With the likelihood that the exchange rate peg will remain in place for the foreseeable future, and due to the fiscal and inflation anchor provided by the peg, the policy interest rate will be maintained around the current level in the months ahead. Any change to the exchange rate peg arrangement would be likely to push up the policy interest rate. 184 Central Africa

188 São Tomé and Príncipe Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in July ), São Tomé and Príncipe is at a high risk of debt distress. The assessment of high risk of debt distress is unchanged from the DSA published in February. Under the baseline scenario, the PV (present value) of debt-to-exports ratio remains above the country-specific indicative threshold for an extended period due to the country s narrow export base. Taking into account expected commercial oil production, beginning in 2015, and associated foreign direct investment, the projected debt profile is consistent with manageable if high risk debt dynamics. Stress scenarios show that reduced availability of concessional financing could undermine debt sustainability. Under an alternative, non-oil scenario, all indicators deteriorate when compared to the baseline results, and reaching a sustainable debt level would require an additional fiscal adjustment of 1% of GDP by 2015 and further efforts to diversify the economy and expand the export base over the medium term. Types of securities on offer (T-bills and bonds) Currently, São Tomé and Príncipe does not issue T-bills or bonds. FI secondary market information Due to a lack of issuance, primary and secondary markets are illiquid. Ecobank local affiliate contact details Ecobank São Tomé and Príncipe, Edifício HB, Travessa do Pelourinho, São Tomé Tel: / Ecobank trading capabilities per country (FX and FI) FX forward rates available on request Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Commodity information Key commodities Cocoa is the archipelago s only notable cash crop activity, given there are very limited natural resources. Trade flows Exports The main export is cocoa, worth just USD7 mn in 2011, equal to 2,200 tonnes (t), nearly all of which went to markets in Western Europe. The country also re-exports small quantities of consumer goods to the sub-region, including watches, jewelry and refrigerators. Imports The country s main commodity imports are food products, worth USD32 mn in 2011, followed by iron and steel (USD4 mn) and petroleum products (USD2 mn). In 2011, the country s food imports included 8,000 t of flour, 3,000 t of rice and 1,500 t of soybeans. Southern Africa East Africa Central Africa Nigeria / Rest of Central Africa 185

189 Country Profiles: East Africa Central Africa East Africa Southern Africa Nigeria / Rest of Ecobank operates in 6 countries, running 76 branches with over 1,200 employees that look after 0.2 million customers. Revenue and profit growth remain robust in Burundi, Tanzania and Uganda, with good prospects for growth in this dynamic region. East Africa represents a dynamic set of countries that share a growing commitment towards further economic and financial integration. This should help the region develop its markets by reducing transaction costs and increasing its attractiveness to portfolio, FDI and other investors. The recent discovery of commercial quantities of hydrocarbons adds to the already vibrant activity in the manufacturing, mining and services sectors. Tourism, banking and mobile telecoms/payments in particular highlight some of the widely recognized services on offer. High quality agricultural goods are another characteristic of these diversified economies.

190 Country Profiles: East Africa 24 East Africa 23. Burundi profile Page Ethiopia profile* Page Kenya profile Page Rwanda profile Page Tanzania profile Page Uganda profile Page 218 * Not present yet in Ethiopia. Ecobank South Sudan country office opened in late July Southern Africa East Africa Central Africa Nigeria / Rest of Opposite: Ugandan tea field

191 Burundi Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD mn) Imports (USD mn) Current Account Balance (% GDP) FX Reserves (USD mn, end period) Exchange Rate (average) 1, , , , ,551 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Burundi remains in a fragile, post-conflict condition. Real GDP expanded around 4% in, a rate similar to the year before, due to relatively weak aggregate demand related to food and fuel price shocks, persistent power shortages, and a fall in donor support. In addition, a tighter monetary stance by the central bank contributed to a deceleration in growth of credit to the private sector, which reduced planned investment. Due to moderate demand, annual inflation slowed to 12% at the end of from an earlier peak of over 25%; this was due to tight monetary policy and the temporary removal of taxes on food products. However, controlling inflation, which stood at an average of 18% last year, remains a challenge. Meanwhile, the fiscal deficit narrowed in to around 2% of GDP, despite a fall in donor support. Revenue performance as a percentage of GDP fell, mainly because of the economic slowdown and lower fuel-related excise taxes. However, this was compensated by lower than expected recurrent and capital spending. The external sector weakened: the current account deficit widened to over 16% of GDP (from around 14.8% in 2011), largely because of a sustained large import bill driven by high global oil and commodity prices, and falling coffee prices. Weak remittance inflows partly reflected the economic problems faced by migrants in the eurozone. Economic outlook The 2013 outlook will be influenced by global commodity price uncertainties and unpredictable donor inflows. Economic growth is expected to accelerate slightly to 4.5%, boosted by improved productivity, diversification of agricultural activity and increased investment in the electricity and tourism sectors. Inflation is expected to slow to around 10% on average in 2013 as global oil prices moderate and domestic food production improves (as well as tight monetary policy). Coffee and other agricultural exports are likely to increase moderately, offsetting to some degree the expected increase in imports. However, without any significant improvement in the trade account, the current account deficit is likely to remain wide, at over 16% of GDP. The eurozone crisis also threatens the aim of increasing export volumes and values; it also creates uncertainty relating to donors budget and balance of payments support. Other risks to the outlook include managing refugees from the conflict in eastern Congo and reintegrating the recently repatriated 30,000 refugees from Tanzania. 188 East Africa

192 Burundi BIF Currency values versus US dollar 1750 Source: Bloomberg BIF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Burundi operates a monetary policy that is based on a quantitative target system founded on managing money supply growth. Monetary policy aims to manage inflation expectations and reduce inflation. Close collaboration between the central bank and the Ministry of Finance is essential to improving liquidity management and achieving the inflation target. Meanwhile, the autonomy of the central bank has been strengthened and monetary policy modernized by bringing the reserve requirement system in line with best practices and reforming liquidity auctions by lifting the interest rate ceiling. While the de jure exchange rate arrangement is floating, the de facto exchange rate arrangement is classified as a stabilized arrangement against the USD. The USD is the intervention currency. Currency outlook: The central bank is likely to maintain the current exchange rate regime for the foreseeable future, supported by the relatively stable level of import cover (around four months). However, depreciation has been a key characteristic since mid-2011, largely due to strong import demand, and the Burundian franc (BIF) is likely to continue to depreciate despite the de facto stabilization of the exchange rate by the authorities. There are no forward rates (these, however, generally prove weak indicators of currency trends). FX market structure The central bank is a major FX supplier. In June 2010, the government introduced the 2010 FX regulation, which aims to promote greater exchange rate flexibility. The authorities also aim to strengthen FX operations by: (i) changing the periodicity of FX auctions from daily to weekly to allow the development of an interbank market, and (ii) improving the organization of the FX market and the calculation of the reference exchange rate to better reflect market conditions. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 189

193 Burundi Central bank cash advance rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Existence of any capital account controls/withholding taxes on foreign investors Burundi continues to benefit from the transitional arrangements of Article XIV since it joined the IMF, but no longer maintains any exchange restrictions or multiple currency practices. It does have one multiple currency practice that is inconsistent with Article VIII: the exchange rate used for government transactions differs by more than 2% from market exchange rates. Burundi also maintains certain FX restrictions for security reasons. Moreover, Burundi modified the 2010 FX regulation in March 2011; this removed the following two FX restrictions: (i) a tax clearance requirement for certain current international transactions, such as payments of moderate amounts for amortization of loans or for depreciation of direct investments by non-residents, and (ii) the limitations on the availability of FX for the making of payments and transfers for current international transactions based on non-compliance with obligations unrelated to such transactions. Despite there no longer being any exchange restrictions, shortages of FX remain in Burundi, which in turn makes it difficult to repatriate profits in major currencies from Burundi. FI primary market information Central Africa East Africa Southern Africa Public sector debt Public debt (net) (BIF bn) e Domestic External Total ,180 1,255 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 190 East Africa

194 Burundi Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the fiscal policy stance and central bank liquidity management efforts. The policy interest rate will be maintained around the current level in the months ahead; therefore yields are not expected to change significantly. However, any change to exchange rate policy is likely to push up the policy interest rate given the influence of changes in the value of the BIF on local liquidity. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in January 2013), Burundi s risk of debt distress remains high, unchanged from the 2011 assessment. Debt sustainability remains highly sensitive to shocks, due mainly to the narrow export base. Debt sustainability indicators have somewhat worsened as Burundi s terms of trade have substantially deteriorated in recent years, economic activities are hindered by external shocks, the discount rate has been revised downward, and new loans have been contracted. The public DSA suggests that Burundi s overall public sector debt sustainability indicators are projected to improve in the medium and long run. However, the large downside risks and the vulnerability of the indicators to shocks point to the need for prudent fiscal and debt policies, and for structural reforms to promote private sector-led growth and exports diversification. Types of securities on offer (T-bills and bonds) Burundi generally issues various short-term money market instruments. Bonds are rarely issued. Auctions Timetable/frequency Money market instruments: Monthly Bonds: Infrequent issuance based on fiscal financing requirement Type of auction: Uncompetitive Primary dealers: Yes Bid size limits: No official limit communicated to participants Auction calendar: Yes, for T-bills Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) No active secondary market Ecobank local affiliate contact details Ecobank Burundi, 6, Rue de la Science, Bujumbura Tel: Ecobank trading capabilities (FX and FI) FX forward rates: Available on request. Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 191

195 Burundi Commodity information Key commodities Burundi produces a limited number of soft commodities, ranging from coffee and tea to foodstuffs and tobacco. Gold is the main mineral produced, although there are various other ores exploited on a smaller scale. Trade flows Exports Gold became Burundi s most important export in, worth USD111 mn, overtaking its traditional exports of coffee (USD67 mn) and tea (USD15 mn). Burundi exported 2 tonnes (t) of gold to the UAE in. Burundi exported 22,000 t of coffee in, the bulk of which went to Western Europe, and 10,000 t of tea, most of which went to Kenya prior to re-export to global markets. The country also exports small volumes of mineral ores, animal skins and tobacco. Imports Given Burundi s limited mineral resources and lack of refining capacity, it is heavily dependent on imports of petroleum products (USD171 mn in ), iron and steel (USD67 mn), and cement (USD31 mn). The country also imports large volumes of food, including soy beans (worth USD113 mn in ), cereals (USD54 mn), and flour (USD52 mn). Nigeria / Rest of Central Africa East Africa Southern Africa 192 East Africa

196 Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 193

197 Ethiopia Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP, consolidated) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Growth in Ethiopia remained robust at 7% in 2011/12 (July-July). Strong contributions came from mining, services, and manufacturing sectors, reflecting government investment, global commodity demand, and incentives for specific export sectors. However, high interest rates on private sector activity remain a drag on growth as does stagnation in Europe, an important source of export demand. Inflation slowed to 15% in December, helped by stabilizing food prices following the impact of drought the year before. Although inflation was still high, it is an improvement from rates driven as high as 40% in mid-2011 because of the food price shock. Inflation rates remain elevated largely due to a highly distorted monetary policy, driven by heavy monetary financing of the public sector. Fiscal policy aims to help achieve lower inflation through tight spending execution. Although revenues increased strongly by around 50% in 2011/12, spending in support of the public sector-led development program increased by around 30% in 2011/12, which resulted in the fiscal deficit widening to an estimated 2.3% of GDP. The external position remains weak. Progress in export diversification was limited, which moderated export value growth in the last fiscal year compared to the previous one. Meanwhile, the government s ambitious public investment program led to a surge in imports of capital and intermediate goods. In combination with high global food and fuel prices, this led to the current account moving into a large deficit of over 6% of GDP (compared to the small surplus of just under 1% of GDP in 2010/11). Economic outlook Real GDP growth is likely to slow slightly, to around 6.5%, in /13; this is partly due to the restrictive business environment and the limited opportunities for the private sector to take advantage of the large investment made in public infrastructure. Moreover, private sector activity will be constrained by high inflation and inflation expectations caused by ongoing, large-scale domestic financing for public investment projects. There is also a risk of inflationary pressures stemming from a resumption of robust monetary expansion, given the limited use of monetary instruments to manage liquidity. On the external side, progress in export diversification remains limited, and achieving export targets for agriculture, manufacturing, and services (particularly electricity) will remain a challenge. The ambitious public investment program will continue to draw in a rising level of imports of capital and other goods, which, in combination with sustained high global food and fuel prices, will widen the current account deficit to over 7% of GDP in /13. Key risks to the economy stem from global economic uncertainties that could lower export prices and remittances, from shortfalls in donor support, and from weather-related shocks, particularly the late onset of the rainy season and possibly droughts returning to the Horn of Africa. 194 East Africa

198 Ethiopia ETB Currency values versus US dollar 19 Source: Bloomberg ETB:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy recently implemented base money as a nominal money anchor. This helped contain the previous heavy use of base money for fiscal purposes, which contributed to a misallocation of resources and use of inflation hedges such as real estate and commodities. A change in policy in 2011/12 resulted in the National Bank of Ethiopia (NBE, the central bank) no longer being able to finance the government, which helped slow inflation. However, this policy was reversed in /13; this, given the lack of other active monetary policy instruments such as market-priced securities, is creating inflationary pressures once again. Without the active use of other monetary policy instruments, FX sales are the only active instrument for liquidity management. In this context, the low level of FX reserves (around two months of import cover) makes the monetary policy stance less credible, especially in the context of changing conditions for money demand. Significant interventions by the NBE to direct credit to the public sector have weakened the financial sector s intermediation role. Raising interest rates on government securities and reducing official involvement in the financial system would help reverse this trend. The exchange rate regime is classified by the IMF as a crawling peg arrangement, although the authorities describe their exchange rate regime as a managed float with no predetermined path for the exchange rate. Maintaining a competitive exchange rate is a challenge in the context of high inflation. Greater market based flexibility in the nominal exchange rate would help allocate resources more efficiently and promote inward investment. Currency outlook: The NBE is likely to maintain the crawling peg regime against the USD for the foreseeable future. Steady devaluations are a feature of the exchange rate regime and further devaluations should be expected. There are no forward rates (these, however, generally prove weak indicators of currency trends). Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 195

199 Ethiopia FX market structure The NBE is the largest provider of FX in Ethiopia. The NBE supplies FX to the market according to plans established at the beginning of each fiscal year that take into account estimates of likely supply and demand. CPI inflation (% change) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any current/capital account controls/withholding taxes on foreign investors Ethiopia is still under the IMF s Article XIV regime and maintains several exchange restrictions on payments and transfers for current international transactions that are not consistent with Article VIII. Despite being a member of the IMF, Ethiopia does not appear to adhere fully to the Articles of Agreement. Ethiopia currently maintains four restrictions on the payments and transfers for current international transactions relating to (i) tax certification requirements for repatriation of dividend and other investment income, (ii) restrictions on repayment of legal external loans and supplies and foreign partner credits, (iii) rules for issuance of import permits by commercial banks, and (iv) requirement to provide a clearance certificate from the NBE to obtain import permits. These restrictions do not comply with Article VIII. FI primary market information Public sector debt Public sector debt (net) (ETB bn) e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 196 East Africa

200 Ethiopia Yield curve outlook and debt sustainability Yield curve: As the authorities do not issue fixed income securities, there is no yield curve. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November ), Ethiopia s risk of external debt distress remains low. Overall public sector debt dynamics are sustainable under the baseline scenario but vulnerable under several alternative scenarios. Public sector debt ratios are projected to rise in the medium term, suggesting that close monitoring of borrowing by public enterprises remains a necessity. Maintaining the growth of exports through diversification of the export sector, developing a medium-term debt strategy for the public sector, and limiting non-concessional borrowing remain keys to maintaining a low risk of external debt distress. Types of securities on offer The government does not issue fixed income securities. Fiscal deficit financing is accommodated by domestic (banks and non-bank sources) and external borrowing (donor and private sector sources). Ecobank local affiliate contact details Ecobank Ethiopia: Presence being established. Ecobank trading capabilities (FX and FI) None at present Commodity information Key commodities Coffee Ethiopia is Africa s largest coffee producer. It produced 360,000 tonnes (t) of coffee in 2011/12 but officially exported only 170,000 t to markets in Europe, Saudi Arabia, and the USA. The relatively low level of exports reflects not only high levels of domestic consumption but also high levels of smuggling, both internally and across the region, in order to avoid high taxes. Others There is a well developed horticultural and livestock sector with exports to Western Europe and the Middle East. Gold is a relatively small but increasingly import sector. Trade flows Exports Ethiopia is Africa s largest coffee exporter, exporting USD1.2 bn worth of coffee (mostly Arabica) in, to the EU, Saudi Arabia, Japan and the USA. Horticultural exports (vegetables and fruit) were worth USD1.4 bn in. The country exported 260,000 t of vegetables and fruit in, mostly to neighboring countries, and 126,000 t of cut flowers by air to Western Europe. There were also significant exports of live animals (USD324 mn) and gold (USD177 mn) in. Imports The country is heavily dependent on petroleum product imports, which totaled USD2.4 bn in, mostly from Saudi Arabia and Kuwait. Large volumes of food are imported, including palm oil (USD391 mn), wheat (USD349 mn) and sugar (USD181 mn), as well as industrial raw materials, notably iron and steel (USD1.2 bn), and fertilizer (USD630 mn) in. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 197

201 Kenya Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Reserve Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Economic growth accelerated last fiscal year (/13, July-June) thanks to a rebound from drought and improved economic stability. The economy is expected to expand around 5% in following growth of 4.4% in 2011, supported by renewed investment inflows following the peaceful election and results, as well as increased agricultural output, hydropower generation, and services activity. Meanwhile, after accelerating to almost 20% in November 2011, annual inflation slowed steadily to 3.2% in December, helped by tight monetary policy, currency appreciation, and normal rainfall that boosted food production (lowering food prices). However, despite the impact of a sharp rise in drought-related oil and food imports having passed, the current account deficit is likely to remain large at around 9% of GDP in /13 due to high global commodity prices and robust demand for imports (particularly of oil/gas exploration equipment). Eurozone demand for Kenya s agriculture, floriculture, and tourism services exports is also weak and will remain so in the medium term. Nonetheless capital inflows have remained impressive, supported by continuing high interest rates, and this has allowed the Central Bank of Kenya (CBK) to accumulate foreign reserves reserves increased to USD6.05 bn by end-, although, at equivalent to 3.7 months of imports, this was little changed from the year before. In 2011/12, fiscal policy remained on track, but revenues were below target mainly because of the elimination of withholding VAT. Despite revenue shortfalls, cuts in non priority current and capital spending helped moderate the widening of the fiscal deficit to 5.6% of GDP. Economic outlook With the early March 2013 election having passed smoothly, investment is starting to flow back into the economy. Not only are the agricultural and manufacturing sectors benefiting from these inflows, but so too is the nascent oil and gas industry. Services activity will continue to grow strongly, reflecting robust demand for telecoms, financial, and trade-related services, which will support real growth of around 6.0% in The CBK is expected to continue its aggressive liquidity management operations to reduce liquidity, which, in onjunction with a relatively tight monetary policy, should help contain most inflationary pressure and result in inflation in high single digits in the year ahead. Election-related spending, along with sustained current and capital spending pressures and revenue shortfalls, posed risks to fiscal stability this year. The authorities aimed to reduce the fiscal deficit in /13 by addressing VAT revenue shortfalls by strengthening compliance and enforcing sanctions, and progressing with structural fiscal reforms. The main risks to the external outlook are associated with a further deepening of the eurozone crisis, which would widen the current account deficit beyond the expected 8% of GDP. Lower demand from Europe would adversely affect horticulture and floriculture exports as well as tourism earnings and remittances. Moreover, external supply 198 East Africa

202 Kenya or price shocks would put pressure on import prices. However, external pressures are likely to moderate as food imports decrease, owing to continued normal weather, and fuel imports fall as hydropower-electricity generation resumes dominance over thermal power generation. KES Currency values versus US dollar and euro Source: Bloomberg KES:USD1 (lhs) KES:EUR1 (rhs) Jan Apr Jul Oct Jan 2013 Apr Jul 2013 KES Currency volatility versus US dollar (standard deviations) Sources: Bloomberg, Ecobank Jan 2011 FX, FI, and commodity information FX market information Monetary and exchange rate policies: Jan KES:USD (lhs) Average (lhs) Standard Deviations (rhs) Monetary policy is based on a quantitative target regime, with net domestic assets (NDA) as an intermediate target. The monetary policy objective is to attain price stability, with annual inflation of 5% by end-/13, and to sustain the value of the Kenyan shilling (KES). There are three main monetary policy tools: Open Market Operations, Discount Window Operations, and Reserve Requirements. In October 2011, the CBK modified the monetary policy framework to give more prominence to the Central Bank Rate (CBR) to help contain inflation expectations. Under the new framework, monetary operations continue to drain liquidity (repos) as well as inject liquidity (reverse repos), and are conducted using the CBR to guide interbank rates to a level consistent with the monetary policy stance (to achieve the NDA target). Jan 2013 Jul Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 199

203 Kenya Nigeria / Rest of Central Africa East Africa Southern Africa The CBK aims to continue to use its monetary operations to guide inflation expectations by maintaining a tight stance so as to absorb surplus liquidity promptly in order to slow credit growth and FX demand. Lower credit expansion and a switch of commercial bank investments to longer maturities boosted liquidity in the money market in, reducing the interbank rate below the CBR. In response, the CBK increased efforts to drain liquidity, which resulted in commercial banks excess reserves at the CBK declining to historical lows and the interbank interest rate rising sharply. In the remainder of /13, the CBK is expected to continue with its efforts to shift the interbank rate to within the predetermined corridor around its policy rate through increased liquidity absorption. This would help enhance the effectiveness of the monetary policy framework that assigns a key role to the policy rate. The exchange rate regime is classified as a floating exchange rate regime, with the US dollar as the principal intervention currency. The official exchange rate, which is set at the previous day s average market rate, applies only to government and government-guaranteed external debt-service payments and to government imports for which a specific budget is allocated. Currency outlook: The CBK is likely to maintain the floating exchange rate regime for the foreseeable future. The KES has been on a weakening trend since the start of the global crisis, although a sharp appreciation in late-2011 was supported by a major rise in the policy interest rate. More recently, depreciation was sustained prior to the March 2013 elections as investment was put on hold and capital inflows diminished, following which the KES has appreciated noticeably. However, while investment and capital inflows have resumed, accumulation of FX reserves remains slow. Moreover, the structural deficit on the current account is unlikely to improve in the year ahead, which, along with robust domestic demand, suggests further weakening is likely. As of early August 2013, forward rates (which generally prove weak indicators of trends) stood at: KES forward rates (bid to USD1) 3 months 6 months 9 months 12 months 1 August Source: Bloomberg FX market structure The CBK is one of several large providers of FX in Kenya. Moreover, the CBK remains committed to raising its accumulation of foreign reserves, partly by regular purchases of FX from the interbank market, so as to create a buffer for the KES in periods of high USD demand and to increase import cover to the equivalent of four months. Intervention is occasionally used to smooth excess exchange rate volatility. Average T-bill rate (%) e Source: IMF Real GDP growth (%) e Source: IMF 200 East Africa

204 Kenya Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Kenya maintains an open capital account and an exchange system free of restrictions on payments and transfers for current international transactions. To mitigate pressures on the KES, the CBK recently implemented several measures to limit the scope for non-resident banks to take positions against the KES that include: (i) one-year minimum period to borrow or lend in Kenyan shillings from/to non-resident banks and (ii) restriction on the use of non-resident KES accounts for purposes not justified by customers underlying transactions. In addition, local/foreign currency purchases require various supporting documents. Investors face a 15% withholding tax. Withholding tax exemptions are made upon presentation of a Kenya Revenue Authority Tax Exemption Certificate. FI primary market information Public sector debt Public sector debt (net) (KES bn) e Domestic External Total 1,100 1,275 1,462 1,659 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts, and exchange rate developments. Assuming that the floating exchange rate regime remains in place for the foreseeable future, inflation and currency developments will remain the key drivers of changes in the policy interest rate. With fiscal spending likely to remain high, liquidity management efforts will aim to reduce the level of money in circulation but with limited effect. In addition, imported inflation will remain a challenge for as long as global commodity prices remain high and domestic demand remains robust. While there is pressure on the CBK to lower the policy interest rate below the current level of 8.5% to enable greater private sector borrowing (and to reduce the government s borrowing costs), further large cuts to the CBR such as those seen from the first quarter (Q1) of are unlikely to materialize in the remainder of Depending on CBK liquidity management efforts, yields could start to rise slowly from the second half (H2) of 2013 onwards particularly if the KES continues to weaken. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in November 2011), Compared to the January 2011 analysis, overall debt sustainability indicators have not changed significantly. Lower than anticipated fiscal deficit in 2010 was offset by an increase in external debt-to-gdp ratio due to exchange rate depreciation and increased IMF financing. Risks are somewhat greater for external debt, particularly in the historical scenario, as the current account deficit has widened in Nevertheless, Kenya remains at low risk of external and domestic debt distress. Strategies to guard against shocks could include a build-up in international reserves. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 201

205 Kenya Nigeria / Rest of Central Africa East Africa Southern Africa Types of securities on offer (T-bills and bonds) T-bills: 91-, 182-, and 364-day T-bills Government bonds: 2-, 3-, 5-, 7-, 10-, 15-, and 20-year bonds Repos: Seven- to 15-day instruments The authorities have discussed issuing a maiden Eurobond for several years. Plans were initially disrupted by the impact of the global crisis, but a USD1 bn bond is now planned for issue in September 2013 (which would comfortably exceed the USD500 mn minimum required for inclusion in various global bond indices). Auctions Timetable/frequency T-bills: Weekly Repos: Based on the CBK s daily market liquidity assessment for price stability Bonds: Weekly Type of auction: Competitive and non-competitive: In competitive tenders, successful participants are allocated securities at prices quoted; in non-competitive tenders, participants are price takers (i.e., tenders are allocated at a pre-determined price). Primary dealers: No Bid size limits T-bills: KES100,000 minimum for non-competitive Bonds: KES50,000 for each instrument Allotment: Based on cut-off price for T-bills and bonds Auction calendar: Monthly Reopening of existing bonds: Yes FI secondary market information Daily turnover (volume/value) T-bills: No secondary market Bonds: Monthly average 400 to 620 units ranging from KES20-45 bn Country ranking on MABI (Ecobank Middle Africa Bond Index) criteria 26.7% out of 100% Ecobank local affiliate contact details Ecobank Kenya, Ecobank Towers, Muindi Mbingu Street, Nairobi Tel: Ecobank trading capabilities (FX and FI) Primary market auction of T-bills and bonds: Weekly auction range KES10 15 mn Secondary market trading (monthly average) T-bills: Weekly range KES mn Bonds: Weekly range KES mn FX: Net open position limit: USD2 mn Project trade financing: 20% of shareholders funds Cash management: Yes Payment capabilities (e.g. payroll, SWIFT): Yes 202 East Africa

206 Kenya Banking sector There are 44 commercial banks (with 1,300 branches), suggesting the economy is overbanked. However, it remains a highly segmented market with a significant number of niche commercial banks. At end, the country s banking system had assets worth USD27 bn (nearly 75% of GDP), of which the top five banks held 54% market share in net asset terms; in deposit terms, the top five banks held 53% of market share. Capital adequacy remains solid, with core capital to total risk-weighted assets closing at 23%, compared to the 12% regulatory minimum (it has averaged at 18.7% over ). ROE averaged 31% between 2005 and. Interest margins on the sector s earning assets have remained resilient, averaging 7% over the same period. Mobile banking innovation has been led by Safaricom s flagship MPesa brand. The value of mobile banking transactions grew 91.5% between 2008 and 2011 to USD13.4 bn and is set to further revolutionize banking in the next decade. CPI Inflation (% change) Jan 2007 Commodity information Key commodities Soft commodities Jan 2009 Jan 2011 CPI inflation (lhs) M2 (% change) M2 supply (rhs) Source: IMF Kenya produces a wide variety of foodstuffs and related goods, with the most well known being tea and coffee. Other goods range from maize largely for domestic consumption to horticultural goods that are produced for export to Europe and the Middle East. Cut flowers are another important product processed for export. Others Tobacco and sugar, along with cement and steel products, are some of the other goods that are produced domestically to meet local and regional demand. Jan Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 203

207 Kenya Nigeria / Rest of Central Africa East Africa Southern Africa Trade flows Exports Kenya is one of Africa s leading tea and coffee exporters, exporting tea worth USD1.2 bn and coffee worth USD224 mn in 2011, most of which was produced domestically. Given the high levels of tea consumption in the world s two largest producers China and India Kenya is the second largest tea exporter in the world, after Sri Lanka. Kenya is the largest tea exporter in Africa, with total exports of 388,000 tonnes (t) in 2011, mostly to markets in the UK, Pakistan, and Egypt. Large volumes of tea (around 50,000 t per year) are exported to Afghanistan for immediate re-export to Pakistan in order to avoid import taxes. Kenya exported 40,000 t of coffee in 2011 to markets in Europe and the USA. The horticultural sector exported cut flowers worth USD454 mn and vegetables worth USD246 mn in Other agricultural exports include tobacco (USD216 mn) and sugar (USD77 mn). The country is also an exporter of raw industrial materials to the sub-region, with significant exports of petroleum products (USD239 mn), cement (USD117 mn), and iron and steel (US 182 mn). Kenya is also a cement-producing and re-export hub. Domestic production totaled an estimated 4 mn t of cement in 2011, but, given high domestic demand, a total of 1.1 mn t was imported, of which 885,000 t was re-exported to the sub-region. Imports Kenya imported oil for refining worth USD1.4 bn and petroleum products worth USD2.6 bn, both for domestic consumption and re-export to the sub-region. The country is heavily dependent on food imports, importing palm oil worth USD590 mn, wheat worth USD357 mn, rice worth USD142 mn, and maize worth USD125 mn) as well as on industrial raw materials such as iron and steel (USD878 mn) and fertilizer (USD274 mn) in The country runs a large sugar deficit; despite producing an estimated 595,000 t of sugar in 2011/12, it still needed to import 174,000 t in order to meet domestic demand. Kenya is a leading processing and re-export hub for palm oil, importing 500,000 t of crude palm oil in 2011, most of which was processed in-country into palm oil and its derivatives. 73,000 t of palm oil was then re-exported to the sub-region. 204 East Africa

208 Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 205

209 Rwanda Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP, consolidated) Broad money (% change, end period) Population (mn) Exports (USD mn) Imports (USD mn) 999 1,084 1,565 1,881 2,028 Current account balance (% GDP) FX reserves (USD mn, end period) ,051 1, Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real GDP expanded by nearly 8% in, supporting a strong growth trend that has seen the economy expand over 8% on average in the last ten years. Growth last year was driven mainly by the construction and services sectors. Inflation accelerated to an average of 10.3% in, partly in response to the near 5% depreciation of the Rwandan franc (RWF), which pushed up import prices for food and petroleum products. Fiscal consolidation continued in the 2011/12 (July-June) fiscal year. The fiscal deficit narrowed to 1.2% of GDP owing to higher-than-expected revenue, caused by higher income and trade taxes, and lower spending because of delays in the implementation of domestically financed capital projects. Exports of goods and services remained strong in, as rising mineral exports and higher tea prices more than offset lower prices for a number of traditional exports, including coffee. However, this was more than offset by strong import growth driven by higher imports of capital goods and materials for construction projects as well as by delays in donor disbursements that resulted in lower official transfers. As a result, the current account deficit widened to 11.3% of GDP last year. The authorities successfully issued a maiden 6.875%, ten-year USD400 mn Eurobond in late-april 2013, with proceeds used to retire some debt and build infrastructure. However, greater recourse to lower cost concessional financing would be appropriate. Economic outlook The economic outlook for Rwanda remains good. The government has an ambitious target of 11.5% real growth in a five-year plan that starts in June; however, growth is likely to be somewhat slower (but still impressive) at 7-8% in 2013, driven by an expansion in services, construction, and agriculture, assuming that budget support disbursements restart soon. The authorities medium-term inflation target is 5%, but domestic price pressures are likely to remain strong (reflecting robust domestic demand) and global commodity prices high, meaning that the target will prove difficult to meet. Inflation, therefore, is unlikely to slow below high single digits in Strong domestic demand, ongoing construction-related imports, and continued high commodity prices are likely to maintain a large current account deficit of around 10% in Meanwhile, risks to the outlook arise mainly from: the impact on the economy of weaker global demand and higher oil prices; the narrow export base; and the dependence on donors, which has highlighted possible cutbacks in donor support. If such support is not forthcoming, the authorities have identified contingent spending cuts, and will prioritize spending and minimize recourse to domestic bank financing in order to keep the fiscal position manageable. However, the recent issuance of a USD400 mn Eurobond (see below) reduces the authorities reliance on donors in the short-term. 206 East Africa

210 Rwanda RWF Currency values versus US dollar 660 Source: Bloomberg RWF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy is based on meeting quantitative money supply growth targets and aims to maintain price and exchange rate stability while supporting economic growth. Reserve money remains the nominal anchor, although the National Bank of Rwanda (NBR, the central bank) recently adopted a more flexible reserve-money-targeting framework to improve liquidity management and the effectiveness of monetary policy. In 2013, reserve money is expected to grow at a slightly faster level (17%) than nominal GDP. The NBR uses the policy interest rate (the Key Repo Rate; KRR) as the main monetary policy instrument, although open market operations and reserve requirements are also used. The monetary policy stance was tightened in May when the NBR raised the KRR 50 basis points (bps) to 7.5%. This followed an extended period of looseness that saw rapid growth in broad money supply and credit to the private sector. The NBR also increased the use of repo operations to mop up above-target liquidity. However, on 18 June, the NBR cut the KRR 50bp to 7.0% given its aim to provide a more accommodative policy environment and due to slowing inflation. Effective May 2011, the de facto exchange rate arrangement was reclassified by the IMF to a stabilized arrangement from a crawl-like arrangement. The de jure exchange rate arrangement is classified as floating. Efforts continue to improve the functioning of the FX and money markets, although greater exchange rate flexibility is necessary to protect against external shocks. Currency outlook: The NBR is likely to maintain the de facto stabilized exchange rate regime for the foreseeable future. However, under this regime the sustained depreciation that has been going on since early 2010 is likely to continue, given our expectation of ongoing robust import demand, relatively weak export revenue performance, and limited capital inflows. There are no forward rates; these, however, generally prove weak indicators of currency trends. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 207

211 Rwanda FX market structure In order to introduce more flexibility in its exchange rate policy, the NBR introduced an exchange rate corridor framework in March In effect since December 2010, the official exchange rate has been the weighted average calculated from a previous FX interbank market transaction and an intervention transaction by the NBR. The NBR applies a margin of +/-0.8% to the official rate to derive a customer rate. The NBR continued to maintain a flexible exchange rate regime in 2011, only intervening at the margins of the market to smooth temporary volatility in the FX market. While the exchange rate corridor framework has worked relatively well, exchange rates have been slow to move in line with macroeconomic fundamentals owing to the dominant role of the NBR s prices and the quantity of FX supplied to the market, which discourages interbank trading. CPI inflation (% change) 25 Source: IMF Real GDP growth (%) 10 Source: IMF Nigeria / Rest of Central Africa East Africa Southern Africa e e Existence of any current/capital account controls/withholding taxes on foreign investors In December 1998, Rwanda accepted the obligations under Article VIII and maintains a system free of restrictions on the making of payments and transfers for current international transactions. However, there exist some restrictions on the import and export of capital, and there remain shortages of FX, which in turn makes it difficult to repatriate profits in major currencies from Rwanda. FI primary market information Public sector debt Public sector debt (RWF bn) 2008/ / / /12e Domestic External Total ,163 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 208 East Africa

212 Rwanda Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts, and exchange rate developments. With the likelihood that the policy interest rate will be maintained at the current level in the months ahead, yields are not expected to change significantly, reflecting the somewhat static nature of the policy interest rate. However, a cut in the policy interest rate would drive primary yields down; in contrast, a tightening of interbank liquidity would drive yields up. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in May ), Rwanda continues to be assessed at moderate risk of external debt distress unchanged from the last debt sustainability analysis (DSA). As in the previous assessment, the moderate rating is due to Rwanda s continuing vulnerability to adverse shocks to exports, underscoring the need to fully implement the authorities National Export Strategy, which aims to expand the export base. The last DSA provides a more detailed background on this point. The analysis also underscores that there is room to access some additional non-concessional borrowing, as proposed by the authorities, without unduly affecting debt sustainability. Types of securities on offer (T-bills and bonds) Rwanda generally issues short-term instruments, such as various money market instruments and one- to two-year bonds, although the yield curve extends to five years. The authorities successfully issued a maiden 6.875% ten-year USD400 mn Eurobond in late-april Auctions Timetable/frequency Money market instruments: Weekly and monthly Bonds: Infrequent basis: the last bond issuance was October 2011 (five-year, 11.25% yield). Type of auction: Competitive and non-competitive Primary dealers: Yes Bid size limits: Competitive bids (banks) RWF50 mn; non-competitive bids (individuals) RWF0.1 mn Auction calendar: No Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details: Ecobank Rwanda, Plot 314 Avenue de la Paix, Kigali Tel: Ecobank trading capabilities (FX and FI) FX forwards up to six months Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 209

213 Rwanda Nigeria / Rest of Commodity information Key commodities There are limited natural resources to exploit in Rwanda, therefore, agricultural commodities are the main goods produced, including coffee, tea, food crops, and livestock. Some minerals are exploited, including cassiterite (tin ore), coltan, and gold. Trade flows Exports Rwanda s commodity exports are divided between minerals and agricultural commodities. Rwanda exported 23,000 tonnes of tea and 20,000 t of coffee in 2011 to markets in the East African Community (EAC), all of which was re-exported to global markets. The country exported tin and mineral ores worth USD136 mn in 2011, as well as tea (USD87 mn) and coffee (USD71 mn). Imports Rwanda is heavily dependent on imports of industrial raw materials, including iron and steel (USD145 mn), petroleum products (USD116 mn in 2011), and cement (USD67 mn). The country also imported significant amounts of food in 2011, including vegetable oils worth USD73 mn and cereals worth USD69 mn. Rwanda imported 275,000 t of cereals, 66,000 t of sugar and 50,000 t of vegetable oil in 2011, all for domestic consumption. Central Africa East Africa Southern Africa 210 East Africa

214 Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 211

215 Tanzania Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators 2009/ / /12 / /14f Real GDP (% change) GDP (USD bn) Inflation (end-year) Fiscal balance (% GDP, consolidated) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) 1,326 1,441 1,585 1,589 1,684 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Tanzania continued to grow strongly in 2011/12 (July-June), with GDP increasing around 6.4% in real terms, a similar rate to the year before. Growth was driven mainly by increased activity in transport and communication, financial services, manufacturing, and trade. Power shortages in late 2011 and early, caused by the impact of drought on hydropower generation, were a constraint on growth, although diesel generators replaced some capacity. Inflation accelerated to nearly 18% in 2011/12, from 7% the year before largely due to the lagged effect of food price rises in 2011, caused by drought-induced crop failure. However, inflation slowed throughout, from a high of 20% in December 2011 to 12% in December, reflecting tight monetary and fiscal policies as well as currency stability. The tight 2011/12 fiscal stance helped narrow the fiscal deficit to 5% of GDP. Tax revenue was slightly above projections and significant savings were made in non-priority expenditures (particularly spending on general goods and services). The strengthening of the fiscal position allowed for an increase in domestically financed public investments and helped clear some domestic arrears. In contrast to the improved fiscal performance, the current account deficit widened significantly in 2011/12, increasing by seven percentage points (pp) of GDP to 16% driven mainly by the large oil import bill that was required to power thermal electricity producers. Imports jumped strongly owing to robust domestic demand, FDI-related demand, and higher demand for fuel to power generators. Although exports also increased, this was by a smaller amount and despite increased gold prices (gold accounts for the largest share of exports). Economic outlook In 2013, strong real GDP growth is likely to be sustained at around 6-7%, given robust domestic demand, improved power supply, and ongoing robust activity in the transport and communications sector, the construction sector, and the financial services sector. Owing to this brisk level of growth, inflation is likely to remain elevated at around 10%. Not only will sustained, strong domestic demand maintain inflationary pressures, but so too will the expectation of high global food and oil prices, along with the likelihood of the pass-through effect from depreciation of the Tanzanian shilling (TZS). Based on robust private sector activity that will increase corporate tax revenues, reducing exemptions (that should raise revenues) and ongoing donor support, the fiscal deficit is likely to narrow, albeit only moderately, to around 5.0% of GDP. Although the authorities will seek further fiscal consolidation to narrow the deficit, recurrent and capital expenditure pressures will remain acute, which will hinder efforts to reduce the deficit further. Despite ongoing weak demand from Europe for Tanzanian exports, traditional and manufacturing exports are expected to perform reasonably in 2013, which will help to offset the rise in import costs to some degree. 212 East Africa

216 Tanzania However, import demand for consumer, capital and FDI-related goods will remain strong. As a result, the current account deficit is unlikely to narrow to less than 14% of GDP. It will continue to be financed by FDI and donor capital inflows. In the medium term, the deficit is likely to narrow as natural gas from domestic fields reduces demand for expensive, imported liquid fuels. In general, risks to the outlook relate to weak global growth prospects and to developments in Europe. More specifically, risks arise from a large level of arrears in the domestic power sector that could have an adverse impact on power provision and the fiscal balance, both of which events could undermine growth. External shocks could arise from a global economic slowdown that could adversely affect exports, FDI, and donor financing; meanwhile, a deterioration in the weather might lead to another drought and increased fuel imports. TZS Currency values versus US dollar Source: Bloomberg 1650 TZS:USD Jan Apr Jul FX, FI, and commodity information FX market information Monetary and exchange rate policies Oct Monetary policy is based on a reserve-money-targeting framework that aims to slow inflation to single digits by the end of /13. Annual growth of reserve money is projected to slow to 15.7% in the year ending June 2013 compared with 18% for the year ending June. The Bank of Tanzania (BoT, the central bank) will continue to manage liquidity under its reserve-money-targeting framework through a combination of open market operations, the recent increase in the minimum reserve requirement on government deposits in the banking system from 30% to 40%, a strengthening of enforcement of existing restrictions on lending to non-residents, a reduction of the limit on banks net open foreign exchange positions to 7.5% of core capital from 10%, and regular FX sales while allowing the exchange rate to remain market-determined (the latter two are explicitly aimed at alleviating downward speculative pressures on the exchange rate). Looking ahead, the BoT intends to improve its inflation forecasting capacity and gradually move to using interest rates as a key monetary policy tool. Tanzania has a floating exchange rate arrangement. The official exchange rate is determined by the rate established in the FX interbank market. The authorities FX market interventions remain limited to smoothing short-term TZS fluctuations. Jan 2013 Apr 2013 Jul 2013 Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 213

217 Tanzania Currency outlook: The BoT is expected to maintain the floating exchange rate for the foreseeable future, underpinned by the steady rise in FX reserves over several years and the prospect of sustained growth in export revenues. However, with import demand likely to remain strong, and import values significantly above export revenues (reflected in a large current account deficit in the medium term), further, steady depreciation of the TZS is likely in the remainder of this year. FDI inflows will help moderate this weakening, but the structural deficit on the current account highlights the exchange rate challenges that the authorities face. If there were a global price shock (such as a large jump in oil or food prices), the TZS would come under additional pressure. As of early August 2013, forward rates (which generally prove weak indicators of trends) stood at: TZS forward rates (bid to USD1) 3 months 6 months 9 months 12 months 1 August ,653 1,673 1,693 1,713 Source: Bloomberg FX market structure The exchange rate will remain market-determined, and the BoT continues to participate in the FX market both for liquidity management purposes and to smooth out short-term fluctuations in the exchange rate while maintaining an adequate level of foreign reserves. Average bank discount rate (%) Real GDP growth (%) Source: IMF Source: IMF 20 8 Nigeria / Rest of Central Africa East Africa Southern Africa e e Existence of any current/capital account controls/withholding taxes on foreign investors: As a member of the IMF, Tanzania accepts its obligations under Articles IV and VIII. The exchange system is free of restrictions on the making of payments and transfers for current international transactions. However, purchase of local and/or foreign currencies requires supporting documents that are officially recorded. Moreover, despite there no longer being any exchange restrictions, there are periodic shortages of FX, which in turn makes it difficult to repatriate profits in major currencies from Tanzania. 214 East Africa

218 Tanzania FI primary market information Public sector debt Public debt (TZS bn) 2009/ / /12 /13e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts and exchange rate movements. Assuming that the TZS will depreciate over the remainder of 2013, and with the likelihood that the policy interest rate will be maintained at the current level in the months ahead (to help support the TZS), yields are not expected to change significantly. However, a cut in the policy interest rate or an unexpected strengthening of the TZS would help drive primary yields down. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in June ), Tanzania s risk of debt distress remains low even when taking into account government borrowing from both domestic and external sources, including on non-concessional terms. While the planned contracted external non-concessional borrowing (USD1.77 bn) increases the present value (PV) of debt-to-gdp and other indicators, it is not projected to jeopardize long-term debt sustainability. Alternative scenarios continue to suggest that debt indicators are sensitive to further borrowing on expensive terms. In addition, public debt sustainability analysis (DSA) raises some concern under an alternative scenario of persistently large primary deficits. This highlights that a sound debt management strategy, a conservative approach to non-concessional borrowing, and commitment to fiscal discipline are important factors for maintaining debt and fiscal sustainability. On the positive side, debt and debt service indicators could be substantially more favorable than in the current DSA if recent favorable deep water gas exploration results were to result in successful commercialization of new large scale reserves over the coming decade with a rise in natural gas exports and associated government revenues. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 215

219 Tanzania Types of securities on offer (T-bills and bonds) Tanzania issues short-term instruments, ranging from 35- to 364-day T-bills to two-, five-, seven-, and 10 year bonds. Auctions Timetable/frequency Money market instruments: Fortnightly Bonds: Generally fortnightly but sometimes monthly Type of auction: Competitive; the authorities upgraded the bidding system from manual to a web-based system in August. Primary dealers: Yes Bid size limits: No limits Auction calendar: Yes Reopening of existing bonds: Yes, but rarely FI secondary market information Daily turnover (volume/value) Limited trading volume: from zero to seven bonds traded per day Limited trading value Nigeria / Rest of Central Africa East Africa Southern Africa Ecobank local affiliate contact details Ecobank Tanzania, Karimjee Jivanjee Building, Plot No 19, Sokoine Drive, Dar es Salaam Tel: Ecobank trading capabilities per country (FX and FI) FX forwards up to one year Project trade financing: No Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Banking sector Tanzania had 47 financial institutions as at 2011 and may appear to be overbanked. However, of the 47 financial institutions, only 32 were commercial banks while the remainder were non-bank financial institutions. Banking system assets were USD9.16 bn as at 2011 with the top five leading banks, in asset terms, controlling 45% of market share. In deposit terms, the top five leading banks controlled 54% of the market. The top five banks are: National MicroFinance Bank, NBC Bank, Standard Chartered, EXIM Bank, and Stanbic. From a capital adequacy point of view, the country s banking system remained well capitalized, with core regulatory capital to the industry s total risk-weighted assets standing at 17% compared to the regulatory threshold of 8% (and having averaged at 17.1% between 2007 and 2011). However, profitability of the country s banking sector has been volatile over the last five years with ROE in 2011 at 14.47%, from a high of 28.99% in Asset quality has also remained a challenge, especially after non-performing loans (NPLs) remained above the 5% threshold; the ratio averaged at 7.1% between 2007 and East Africa

220 Tanzania Commodity information Key commodities Tanzania is a major metals and minerals producer, along with precious stones. The country is also a major agricultural commodities producer, with most efforts focused on producing maize, sugar, coffee, tea, cashew nuts, tobacco, cloves, cotton, and fish. Tanzania is East Africa s most important cotton producer, with output of refined cotton estimated at 120,000 tonnes (t) in 2010/11. Tanzania is also East Africa s largest producer of cashew nuts. Trade flows Exports Tanzania exported gold worth USD1.7 bn, equal to 43 t, most of which went to Switzerland and South Africa. Tanzania exported 98,000 t of manganese and precious metal ores in 2011 worth USD1 bn, which mostly went to China, Japan, and Germany. Precious stones worth USD35 mn were exported in The country also exported fish (USD149 mn), coffee (USD147 mn), tobacco (USD123 mn), tea (USD47 mn), and cloves (USD31 mn) in In volume terms, 40,000 t of coffee was exported to Japan, the EU, and the US, and 27,000 t of tea to Kenya (for re-export), the UK, South Africa, and Pakistan. Tanzania exported 44,000 t of cotton and 2,000 t of clothing in Tanzania exported of 117,000 t (USD129 mn) of cashew nuts in 2011, most of which was exported raw to India for processing. Imports Given the country s lack of refining capacity, its largest commodity import is petroleum products (worth USD3.6 bn in 2011). Although an important producer of maize, the country relies heavily on imports of wheat (worth USD404 mn in 2011) as well as of palm oil (USD275 mn). The country s key industrial raw material imports are iron and steel (USD646 mn), fertilizer (USD204 mn), and rubber (USD194 mn). Despite being one of East Africa s largest sugar producers, with an output of 335,000 t of sugar in 2011/12, the country exports less than 50,000 t to the region, reflecting high domestic demand. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 217

221 Uganda Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators 2009/ / /12 / /14f Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP, consolidated) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) 2,031 2,178 2,523 2,448 2,594 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real economic growth slowed significantly in to just below 3%, largely owing to the effects on the economy of tight fiscal and monetary policies. Fiscal policy tightness slowed growth in government spending while monetary-policy tightening significantly slowed private sector credit growth and raised financing costs. Meanwhile, average annual inflation accelerated sharply to nearly 24%. The main driving force was food price increases, which rose 44% over the previous year, partly due to dry weather conditions and strong food demand from neighboring countries. Moreover, the strong depreciation of the Ugandan shilling (UGX) in late 2011 significantly increased the cost of imported goods (particularly refined oil products). Revenues and current expenditure performed broadly as projected in the 2011/12 (July-June) budget, helped by the non-recurrence of the previous year s exceptional oil revenue and security spending, as well as a drop in the wage bill in real terms. Tax collection was aided by currency depreciation (50% of tax revenues are collected from imports, which became increasingly more valuable in shilling terms). However, spending pressures were sustained by high non-wage recurrent expenditure. Overall, the fiscal deficit narrowed to 3% of GDP, compared to 4.3% the year before, on account of lower capital spending due to the delays in completing the large Karuma hydropower project. Deficit financing was raised mainly from external sources. Despite a deteriorating trade balance, the current account deficit was largely unchanged in 2011/12 at 11% of GDP owing to a strong performance by remittances and tourism services. Portfolio flows, attracted by high interest rates (although these were cut steadily throughout the year), and large FDI inflows helped finance the deficit and supported a rise in FX reserves up to the equivalent of four months of imports. Economic outlook The economic outlook for 2013 is for a slow recovery in real growth to around 5%. Relatively weak growth reflects various factors. Donor support is unlikely to resume in the remainder of this fiscal year owing to the recent suspension of funding linked to the theft of donors budget support funds, which will hit spending plans. Private investment is likely to remain somewhat low, partly because of continuing high borrowing costs. And demand for Uganda s exports will go on being undermined by the weak recovery in the global economy. Achieving faster growth will be underpinned by increased public investment in infrastructure and efforts to improve productivity in tourism and agriculture. Oil production is set to be an important element of future growth, but its timing and impact depend on whether a projected refinery is to be complemented by a pipeline to export crude oil. Inflation is expected to remain low and in single digits as food price rises remain contained, assuming there is no spike in global oil prices. However, meeting the Bank of Uganda s target of 5% for core inflation by June 2013 will remain a challenge. Restoring and maintaining low inflation will require ongoing tight monetary and fiscal policies. Meanwhile, if fiscal revenues can be increased 218 East Africa

222 Uganda (Uganda has a relatively low tax to GDP ratio) and various tax exemptions and incentives reduced, the deficit could remain somewhat low at around 3% in /13 despite high spending pressures. The current account deficit is likely to remain broadly unchanged at 11% of GDP. A probable improved trade balance arising from export strengthening will be offset by lower budget support grants and remittances. The drop in external financing will lead to a slowdown in FX reserve accumulation, reducing import cover to less than four months. There are several risks to the outlook: a failure to agree on actions to restore budget support would weaken fiscal and current account balances, with lower spending further setting back the recovery in growth. Macroeconomic stability could be jeopardized by potential spending pressures leading to lumpy domestic borrowing. Finally, regional security and political concerns in neighboring countries have the potential to disrupt supply, and a deepening of the eurozone crisis could reduce aid and export receipts. UGX Currency values versus US dollar Jan Apr Jul FX, FI, and commodity information FX market information Monetary and exchange rate policies Oct Jan 2013 Apr 2013 Source: Bloomberg UGX:USD1 The Bank of Uganda (BoU) recently moved its operational target away from base money to short-term interest rates (a simple form of inflation targeting). However, monetary policy remains focused on keeping core inflation in single digits and attaining the medium-term inflation goal of 5%. The new inflation targeting light (ITL) framework has improved liquidity management and monetary modeling and forecasting capacity. However, monetary policy management has continued to face challenges stemming from unpredictable shifts in short-term fiscal policy, leading to periods of unintended tightening or loosening of liquidity conditions, and unexpected shifts in money demand. The BoU used its new central bank rate to raise market interest rates in the latter part of Subsequent monetary easing in, through sharp cuts in the policy rate from 23-12%, has so far produced only a small decline in lending costs, revealing asymmetries in the monetary policy transmission mechanism. Currently, space for further monetary easing in the remainder of 2013 is restricted by the need to maintain positive risk-adjusted real returns on domestic assets to promote saving and avoid a disruptive exit of foreign portfolio flows. However, the BoU aims to refine its ITL policy framework by improving the inflation target definition, modeling capacity, and the policy communication strategy. Uganda has a floating exchange rate arrangement. The official exchange rate is determined by the interbank FX market. Jul 2013 Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 219

223 Uganda Nigeria / Rest of Central Africa East Africa Southern Africa Currency outlook: The BoU is expected to maintain the floating exchange rate for the foreseeable future, underpinned by the moderate but steady rise in FX reserves in recent years and the prospect of sustained growth in export revenues. However, with import demand likely to remain strong and import values significantly above export revenues (reflected in a large and structural current account deficit over the medium term), depreciation of the UGX is likely in the remainder of this year following 5.9% appreciation in the year to date up to mid-april. Appreciation was driven by fiscal and monetary policy tightness last year, which is unlikely to be repeated in FDI inflows will help moderate this weakening, but the structural deficit on the current account highlights the exchange rate challenges the authorities face. If there were a global price shock (such as a large jump in oil or food prices), the UGX would come under additional pressure. As of early August 2013, forward rates (which generally prove weak indicators of trends) stood at: UGX forward rates (bid to USD1) 3 months 6 months 9 months 12 months 1 August ,578 2,677 2,728 2,791 Source: Bloomberg FX market structure The exchange rate will remain market-determined, and the BoU continues to participate in the FX market in order to manage liquidity and smooth excess volatility in exchange rate movements, while seeking to maintain an adequate level of foreign reserves. FX reserve accumulation benefited from tight monetary policy and strong private capital flows in Average bank discount rate (%) e Source: IMF Real GDP growth (%) e Existence of any current/capital account controls/withholding taxes on foreign investors: As a member of the IMF, Uganda accepts its obligations under Articles IV and VIII. The exchange system is free of restrictions on the making of payments and transfers for current international transactions Source: IMF 220 East Africa

224 Uganda FI primary market information Public sector debt Public debt (UGX bn) 2009/ / /12 /13e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance, central bank liquidity management efforts, and exchange rate movements. Assuming that the UGX will depreciate over the remainder of 2013, and with the likelihood that the policy interest rate will be maintained at around the current level in the months ahead (to help support the UGX and slow inflation), yields are not expected to change significantly, unless local liquidity conditions tighten unexpectedly. However, a cut in the policy interest rate or an unexpected strengthening of the UGX would help drive primary yields down. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in May ), Uganda continues to be assessed at a low risk of debt distress based on the low-income country debt sustainability analysis (DSA) despite recent challenges to the economy from high inflation, weakening external demand, and slower growth. Both baseline public and external DSA suggest Uganda s public sector debt is sustainable given the current size and evolution of the debt stock. Compared to the 2011 DSA assessment, overall public debt sustainability deteriorates modestly, because of a much tighter monetary policy in FY 2011/12 and lower-than-expected growth. While the authorities will continue to rely primarily on highly concessional financing to fund their infrastructure investment needs, they are planning to scale up non-concessional sources for several critical infrastructure projects. The DSA hence includes an increase in the non-concessional borrowing to USD1 bn from USD800 mn. In addition, it incorporates an envisaged oil sector scenario that suggests external financing needs for oil sector development and deterioration of current account could add to medium-term debt vulnerabilities before production comes on stream in full capacity. Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 221

225 Uganda Types of securities on offer (T-bills and bonds) Uganda generally issues short-term instruments, ranging from 91- to 364-day T bills and two-, three-, five-, to ten-year bonds. Auctions Timetable/frequency: Money market instruments: Fortnightly Bonds: Monthly Type of auction: Competitive and non-competitive Primary dealers: Yes Bid size limits: Maximum of four bids per bank; total bid value per bank should not exceed 40% of total offer value. Auction calendar: Yes Reopening of existing bonds: Yes FI secondary market information Daily turnover (volume/value) Limited volume: from zero to 15 bonds traded per day Limited value: from zero to UGX39 bn per day Nigeria / Rest of Central Africa East Africa Southern Africa Ecobank local affiliate contact details Ecobank Uganda, Plot 4 Parliament Avenue, Kampala Tel: Ecobank trading capabilities per country (FX and FI) FX forwards available up to one year Project trade financing: Yes, but for no longer than one year Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Banking sector Uganda s financial system has 24 licensed commercial banks with a distribution channel that comprised 455 commercial bank branches as at Banking system assets stood at USD4.91 bn in 2011, with the top five banks comprising Stanbic, Standard Chartered, Barclays Bank, Centenary Rural Development Bank, and Crane Bank. As at 2011, the country s banks remained adequately capitalized with capital to risk-weighted assets of 20.3% (above the regulatory threshold of 8%). Profitability continued to grow over the last decade with ROE standing at 27.3% in 2011, having averaged at 25.2% between 2005 and Additionally, net interest margins remained healthy after averaging at 10.5% over the same period. 222 East Africa

226 Uganda Commodity information Key commodities Uganda is a major producer of Robusta coffee and a relatively large producer of tea. The country is also a major sugar producer with an estimated output of 330,000 t in 2011/12. Uganda is a cement production (and trading) hub, producing an estimated 1.9 mn tonnes (t) of cement in Trade flows Exports Uganda is a major exporter of agricultural commodities: the country is Africa s largest exporter of Robusta coffee, with coffee exports (mostly Robusta) of 200,000 t worth USD467 mn in 2011, mostly to Switzerland, Sudan, and the EU. The country exported 55,000 t (USD72 mn) of tea in 2011, all of which went to Kenya for re-export to international markets. Fish (USD136 mn), cotton (USD87 mn), and tobacco (USD55 mn) were other major exports in The country is also a re-export hub for petroleum products (USD108 mn), and palm oil (USD43 mn). Uganda is a cement trading hub. In addition to local production, the country imported 960,000 t (mostly from Kenya) and re-exported 504,000 t (USD94 mn) to the sub-region. Owing to high domestic demand for sugar, only 114,000 t of the estimated 330,000 t of sugar produced was exported to the sub-region in Imports Given Uganda s lack of refining capacity, the country s main commodity import is petroleum products, worth USD1.3 bn in 2011, some of which are re-exported to the sub-region. The country also imports large volumes of iron and steel (USD336 mn), palm oil (USD225 mn), wheat (USD159 mn), and cement (USD106 mn). Southern Africa East Africa Central Africa Nigeria / Rest of East Africa 223

227 Country Profiles: Southern Africa Nigeria / Rest of Ecobank operates in 5 countries, running 44 branches with close to 520 employees that look after 0.1 million customers. Progress remains solid, particularly in DRC and Malawi, with further good prospects due to the start up of operations in Zimbabwe in early Followed by the opening of the Angola Representative Office in July Countries in the region continue to offer interesting investment prospects in the agriculture and mining sectors specifically which Ecobank seeks to support via its footprint that offers economies of scale and scope. Despite the relative disadvantage of several countries being land locked and accompanying high trade costs, Southern Africa will remain an increasingly important investment destination for the development of both physical and financial resources. And while the size of the population is smaller than in, the large endowment of resources ensures the importance of countries in the region. Central Africa East Africa Southern Africa

228 Country Profiles: Southern Africa Southern Africa 29. Angola profile Page Democratic Republic of Congo profile Page Malawi profile Page Mozambique profile* Page Zambia profile Page Zimbabwe profile Page 258 * Ecobank evaluating market entry in Mozambique Southern Africa East Africa Central Africa Nigeria / Rest of Opposite: Wheat ears for harvesting

229 Angola Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (end year) Fiscal Balance (% GDP) Broad Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Angola has weathered the global crisis, overcoming most of the effects of the sharp fall in oil prices in late Real GDP growth accelerated to over 8% in (from 3.9% in 2011) because of stronger oil and non-oil GDP. Oil GDP increased due to an 8% rise in hydrocarbon production, and non-oil GDP expanded by around 6%, supported by agriculture and robust domestic demand. The authorities adjustment program in response to the crisis was supported by an IMF Stand-By Arrangement that ended in. The program was relatively successful in restoring macroeconomic stability. The fiscal position remained robust in, with a surplus of over 6% of GDP and the government settled some of its domestic payments arrears. However, the windfall from high oil prices in 2011 was not repeated in : oil export revenues were largely flat at USD64.8 bn despite higher production. This, in combination with strong growth in imports, led to the current account surplus narrowing by over two percentage points (pp) of GDP to 7.3% of GDP (USD8 bn). Meanwhile, foreign reserves continued to rise to USD31 bn at end-. Economic outlook With stability continuing to be entrenched, the authorities face several challenges in 2013: to increase investment spending, enhance public financial management by improving management of oil revenues and cash management, increase further foreign reserves, and slow inflation to single digits. There will be some success in meeting these challenges, reflected in strong real growth of over 6%, another large current account surplus of around 4% of GDP, and a fiscal surplus of 2% of GDP. However, significant reform is required throughout the economy to help unlock the country s potential. While some reforms will be successful, others are likely to be less so. 226 Southern Africa

230 Angola AOA Currency values versus US dollar 98 Source: Bloomberg AOA:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies The authorities monetary policy objective is to slow inflation to 10% by end- and to single digits the following year. The exchange rate is the main anchor for monetary policy and the key instrument for achieving slower inflation. As a further tool to manage inflation, the Banco Nacional de Angola (BNA; the central bank) manages liquidity broadly in line with real growth projections and the inflation target. The BNA concentrates its liquidity management operations on short-term maturities (generally less than 91 days), while the treasury is active in issuing longer maturities for budget financing (up to 364 days). The exchange rate regime is classified as a pegged exchange within horizontal bands, reflecting the BNA s strong control over the exchange rate. The BNA intervenes in the FX market mainly to manage excess short-term exchange rate volatility (largely by sterilizing FX inflows in the form of taxes paid by oil companies) and to achieve foreign reserve objectives. The BNA publishes a daily reference rate, which is calculated as the transaction-weighted average of the previous day s rates negotiated with commercial banks. Due to concerns over the stability of the Angolan kwanza (AOA), the BNA rejects bids that are significantly above the previous day s rate. Banks and exchange bureaus may deal among themselves and with their customers at rates that can be freely negotiated, provided they do not exceed the reference rate by more than 4%. Currency outlook: The BNA is likely to maintain the peg against the USD for the foreseeable future, a position supported by the steady rise in FX reserves over recent years. However, as with all pegged regimes, large and unexpected devaluations can occur; therefore, any future devaluation such as those of March and September 2010 cannot be ruled out. There are no forward rates (these, however, generally prove weak indicators of currency trends). Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 227

231 Angola FX market structure The central bank is the largest provider of FX in Angola. FX is currently auctioned to banks that bid for FX quantities according to a predefined auction calendar. The BNA aims to increase FX auction flexibility by easing access to a wider range of bids and accepting them and by eventually eliminating outlier bids because of prudential or regulatory compliance concerns. Angola maintains two multiple currency practices arising from the Dutch FX auction and the discriminatory application of a 0.015% tax on FX operations. Average bank discount rate (%) 30 Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any current/capital account controls/withholding taxes on foreign investors Angola continues to use the transitional arrangements stipulated in the IMF s Article XIV and maintains two exchange measures: (i) limits on the availability of FX for invisible transactions (such as travel or medical allowances) and (ii) limits on unrequited transfers to non-resident individuals and organizations. Angola also maintains two exchange restrictions resulting from limits on the remittances of dividends and profits from foreign investments that do not exceed USD1 mn and the discriminatory application of a 0.015% tax on FX operations that are subject to approval under Article VIII. FI primary market information Public sector debt Public sector debt (AOA bn) e Domestic 976 1,211 1, External 1,207 1,641 1,922 2,123 Total 2,183 2,852 3,078 3,106 Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 228 Southern Africa

232 Angola Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by exchange rate policy and, to a lesser extent, by central bank liquidity management efforts. With the likelihood that the exchange rate peg will be maintained at around current levels in the months ahead, albeit with some slight depreciation, yields are not expected to change significantly. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis, (published in June ), Angola s external debt position appears sustainable. Under the baseline scenario, external debt increases moderately from 20% of GDP in 2011 to 23% in The most damaging shock is a current account shock (proxy for a decline in oil exports). Under that scenario the external-debt-to-gdp ratio would increase to 46% by Interest rate, output and depreciation shocks have less pronounced effects. The authorities so far do not have private sector debt statistics, and thus the analysis is based solely on public sector external debt. The authorities have stepped up efforts to gather information on external private sector debt. Types of securities on offer (T-bills and bonds) Treasury bills: Generally less than 91 days Government bonds: Ad hoc issuance of up to 364 days The authorities recently re-initiated plans to issue a maiden Eurobond later in 2013 of around USD1 bn, following aborted plans in 2009 and 2011 (Angola issued a USD1 bn seven-year private placement in August ). Auctions Timetable/frequency: T-bills: Weekly Bonds: Ad hoc depending on fiscal financing requirement Type of auction: Competitive Primary dealers: Yes Bid size limits: n/a Allotment: Based on cut-off price for T-bills Auction calendar: No Reopening of existing bonds: n/a FI secondary market information Daily turnover (volume/value): Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Angola Representative Office, Rue Joaquim Kapango No 31, Ingombota-Luanda Tel: Ecobank trading capabilities (FX and FI) None at present Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 229

233 Angola Commodity information Key commodities Hydrocarbons Around 1.9 m bpd of oil was produced in ; most of which was exported to China (38%), the USA (14%), and India (11%). Angola produces about 98% of its crude oil from offshore fields. Another 3 bn barrels are likely to be added to the country s oil reserves following discoveries beneath the offshore pre-salt layer. Domestic consumption of petroleum products in Angola is around 88,000 bpd and larger than the capacity of its 39,000 bpd Fina Petroleos de Angola refinery. The country is thus reliant on imports to meet the shortfall. Pump prices are subsidized to reduce the impact of high oil prices and weak exchange rates. However, this has resulted in fuel subsidies rising to 10% of the fiscal budget in. Angola s first liquefied natural gas (LNG) plant, a joint venture between Angola s Sonangol, and international oil companies (IOCs) Total, BP, Chevron and ENI is expected to come on-stream before the end of The LNG plant, which will be located in the Soyo region, will process about 1.1 bn cubic feet of gas per day and produce about 5.2 mn metric t of LNG per year. The hydrocarbon sector accounts for the majority of inward FDI. Angola crude oil production 000 bpd 2000 Sources: EIA and Global Data Nigeria / Rest of Central Africa East Africa Southern Africa 0 Others e 2013f Angola is a large diamond producer: 8.3 mn carats of diamonds were produced in 2011, worth an estimated USD1.2 bn, a large proportion of which came from the world s largest kimberlite mine in Catoca. The country produced 2.5 mn t of cement in 2011 but needed to import 3.6 mn t to meet domestic construction demand. The country started producing sugar for the first time in decades, with estimated production of 100,000 t in 2011/12, all of which was consumed domestically; the country imported 225,000 t in 2011/12. There is huge potential to develop mineral ores such as copper, bauxite, and gold, along with various agricultural products. 230 Southern Africa

234 Angola Trade flows Exports Angola is sub-saharan Africa s second largest crude oil exporter, with exports worth USD64.4 bn in Oil exports account for over 97% of total exports. Angola exported 80.3 mn tonnes (t) of crude oil and 417,000 t of gas in 2011, to China, the USA, Taiwan, South Africa, Canada and the EU. Angola is also a major exporter of diamonds, worth USD499 mn in All other exports are on a small scale, reflecting the dominance of the hydrocarbon and mining sectors. Imports Given the scale of the country s reconstruction efforts, imports of iron, steel and cement dominate, reaching USD1.8 bn in These are likely to rise further as the country undertakes an ambitious infrastructure expansion program, including social housing, roads, bridges, railways, and airports. Angola is heavily dependent on food imports, which totaled USD2.9 bn in 2011, reflecting the collapse of the agro-industrial sector during the country s lengthy civil war. Angola imported USD922 mn worth of petroleum products in 2011, reflecting the low level of local refining capacity. However, this could change once the Lobito refinery, where construction began in, starts operating. Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 231

235 Democratic Republic of Congo Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD bn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Real economic growth in the Democratic Republic of Congo (DRC) remained strong in at over 7%, maintaining a strong trend since the early 2000s (bar 2009). The DRC s weak financial links with the eurozone have largely shielded it from its turmoil and despite the weak global economy, economic activity was supported by robust commodity prices for DRC s mineral exports and robust domestic demand. High global food and fuel prices in contributed to an acceleration of average inflation to 10%, which was above the central bank s single-digit target, but lower than the previous year. Slower inflation reflected some of the gains from implementing prudent macroeconomic policies, particularly in the fiscal space. Some fiscal expenditure control was carried over into ; this, along with a strengthening of revenues through administrative reforms and domestic fuel price increases, helped stabilize the fiscal deficit at around 2% of GDP. Public financial management (PFM) has improved over the recent years due to expenditure discipline and the government s commitment not to finance the budget by central bank borrowing. This has helped break a strong inflation-exchange rate depreciation cycle. Despite increased mineral production and prices in, the current account deficit remained large at over 12% of GDP. The deficit is a structural problem, reflecting robust import demand and sustained high global oil and commodity prices. Economic outlook Strong trade and investment inflows, driven mainly by the mining sector, will continue to provide the main source of growth in 2013, with the economy expected to continue growing around 7-8% in real terms. However, efforts to improve governance and transparency in the extractive industries, and the business climate more generally, are necessary if double digit growth is to be achieved. Inflation is unlikely to slow significantly below 10%, despite the improvement in the fiscal situation and increased central bank efforts to control liquidity, because of robust domestic demand and high global commodity prices. Although the central bank aims to contain inflation through the issuance of central bank bills, data and capacity problems, amongst others, have been challenges to proactive monetary tightening. Meanwhile, the fiscal position is expected to improve, assuming further revenue mobilization reform and adherence to cash-based budgeting, although efforts to strengthen PFM remain work in progress. The current account deficit is likely to remain wide as export revenues fail to match the value of imports, especially for food, fuel, and capital goods. Some of the risks to the outlook relate to the high level of dollarization in the economy and the central bank s limited ability to act as lender of last resort in the event of a deposit run, which warrants a greater level of FX reserves. Also, the DRC remains vulnerable to external shocks because of its narrow export base and lack of access to international capital markets. 232 Southern Africa

236 Democratic Republic of Congo CDF Currency values versus US dollar 930 Source: Bloomberg CDF:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Monetary policy is based on a quantitative target system anchored on base money whereby broad money demand is managed in line with nominal GDP growth. Monetary policy aims to achieve price and exchange rate stability. The currency of the DRC is the franc congolais (CDF). The de facto exchange rate arrangement is classified as floating. Exchange rate policy has two goals: to improve the level of foreign reserves and to smooth exchange rate volatility. Currency outlook: The central bank, the Banque Centrale du Congo (BCC), is likely to maintain the floating exchange rate regime for the foreseeable future. Based on this assumption, a steady depreciation of the CDF is likely over the remainder of 2013, driven by strong import demand, uncertain export revenues and ongoing capital flight. There are no forward rates (these, however, generally prove weak indicators of currency trends). FX market structure The BCC is one of the major suppliers of FX to the economy, although mining sector firms are also a major source of FX. The BCC limits its intervention in the FX market to smoothing exchange rate volatility and to helping achieve foreign reserve targets. FX purchases follow the single-rate auction method while FX sales are conducted according to a variable-rate tender procedure. Only commercial banks can participate in these auctions. Around 70% of foreign reserves are held in euros. However, the BCC remains under-capitalized, and further recapitalization is necessary to establish its independence from the executive branch of government and increase its ability to intervene at effective levels in the FX market over time. Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 233

237 Democratic Republic of Congo Average bank discount rate (%) Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, the DRC maintains an open capital account. However, the DRC maintains measures that give rise to one restriction (an outstanding net debt position against other contracting members under the inoperative regional payments agreement with the Economic Community of the Great Lakes Countries) and one multiple currency practice (a fixed exchange rate set quarterly applying to transactions through the bilateral payments agreement with Zimbabwe). FI primary market information Public sector debt Public sector debt (USD bn) e Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a External debt service (%) Source: IMF 234 Southern Africa

238 Democratic Republic of Congo Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and liquidity management efforts of the BCC, which in turn will be driven by the government s short-term financing requirement. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in September ), DRC is still considered at high risk of debt distress with weaknesses in debt management adding to vulnerabilities. Based on developments over the last two years and more detailed information for the mining sector on prospective investment and production, the projections for exports over the medium to long term have been revised upward substantially relative to the previous DSA in June The mining investment for the Sino-Congolese (Sicomines) has been rephased and the expected disbursement of the related public infrastructure loans has also been reprofiled. The rephasing of the disbursements for the SCCA infrastructure loans and the delay in the mining project affect the evolution of the public debt stock and repayments. In the previous DSA the DRC was rated as at high risk of external debt distress; this conclusion is maintained in this updated DSA. This is largely a reflection of its poor CPIA rating and the application of the lowest present value (PV) debt ratio threshold levels. Types of securities on offer (T-bills) The DRC generally issues short-term instruments, such as weekly and monthly money market instruments. Auctions: Timetable/frequency Money market instruments: Weekly and monthly Type of auction: Competitive Primary dealers: Yes Bid size limits: Generally CDF1 mn Auction calendar: No Reopening of existing bonds: No bonds are issued. FI secondary market information In general, there is no daily volume and value turnover. Ecobank local affiliate contact details Ecobank Congo (République Démocratique), Avenue Ngongo Lutete 47, Commune de Gombe, Kinshasa Tel: Ecobank trading capabilities (FX and FI) Project trade financing: Yes Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 235

239 Democratic Republic of Congo Nigeria / Rest of Commodity information Key commodities The DRC is one of Africa s leading producers of metals and minerals, including copper, cobalt, diamonds, and gold. Hydrocarbons are produced mainly in the north west of the country bordering Angola s Cabinda enclave; and in the south west. Various soft commodities are produced nationwide ranging from foodstuffs to timber. Trade flows Exports The DRC s main recorded exports are metals and minerals, but owing to chronic instability in the east of the country, large volumes are smuggled out of the country to neighboring countries, distorting trade statistics. The country s leading export is copper; 240,000 tonnes (t) were exported in 2011 officially worth USD2.6 bn in 2011, followed by cobalt and copper ore (USD1.8 bn, 600,000 t), and cobalt (USD683 mn, 78,000 t). The DRC is the world s third largest producer of rough diamonds, and in 2011 exported 18.8 mn carats of diamonds worth USD228 mn to the US and South Africa, although it is likely that large unrecorded volumes entered Central and East African markets. The DRC also exported USD1.1 bn worth of crude oil, as well as large unrecorded volumes of agricultural goods, including 168,000 t of wood, which went mostly to China. Imports The DRC imported USD239 mn worth of petroleum products in 2011, reflecting the country s limited refining capacity. The country also imported USD830 mn of food (cereals, flour and meat), USD385 mn worth of iron and steel, and USD90 mn of cement in The DRC imported 150,000 t of sugar in 2011, mostly from Zambia and Brazil. Central Africa East Africa Southern Africa 236 Southern Africa

240 Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 237

241 Malawi Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average) Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research The change in President in early April led to the implementation of reforms aimed at addressing Malawi s chronic FX shortage. There are encouraging signs of economic recovery, supported by increased availability of FX, with agriculture remaining the main driver of growth (supported by government inputs and good weather conditions). Real growth expanded nearly 2% in supported by an initial 33% devaluation of the Malawian kwacha (MWK) it weakened 101% by year-end, together with adoption of a floating exchange rate regime, liberalization of current account transactions, and adoption of an automatic fuel price adjustment mechanism, all of which transformed the policy environment. Fiscal and monetary policy changes were made to reduce inflationary pressures. However, the devalued MWK resulted in higher import prices that led to inflation accelerating to 21.3% in from 7.6% in Although progress was made in implementing an integrated financial management information system (IFMIS) to control government spending, with government-funded external travel curtailed in December and procurements of goods and services now requiring purchase orders generated through IFMIS, there were growing pressures on the budget partly due to weak corporate revenues. In addition, despite the effect of the devaluation of the MWK and a resumption of donor support, the fiscal deficit widened to 8.4% of GDP in 2011/12 (July June). Meanwhile, the MWK devaluation and adoption of a market-determined exchange rate regime boosted the production of exports and reduced demand for imports, which narrowed the current account deficit by around one percentage point of GDP to around 5%. Economic outlook Assuming continued good rainfall and with improved price incentives for tobacco production, agricultural output is expected to rise in Given the importance of agriculture to the economy, overall economic growth is likely to strengthen over 5%. The effects of the exchange rate devaluation will continue to be felt throughout most of 2013, which will sustain inflationary pressures and be likely to lead to inflation slowing only moderately to around 20%. Therefore, the authorities will be keen to maintain a tight monetary policy stance to contain inflation. Fiscal pressures will continue to be driven by high demand for provision of government services and an uncertain revenue outlook. This warrants a further tightening of expenditure controls and cutting of lower-priority commitments, if the fiscal deficit is to narrow to the targeted 1% of GDP in /13. Despite the current account deficit narrowing to 2% of GDP in 2013, supported by the expected boost to exports due to the MWK devaluation and the effect of good weather (and government inputs), the import bill will remain high. As a result, FX reserves are likely to remain low (equivalent to around 1-2 months of imports), which will expose the economy to external shocks such as an increase in global oil prices. 238 Southern Africa

242 Malawi MWK Currency values versus US dollar 450 Source: Bloomberg MWK:USD Jan Apr Jul Oct Jan 2013 Apr 2013 Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Following the policy changes made in mid-, monetary policy remains based on meeting quantitative money supply growth targets and aims to maintain price and exchange rate stability. Reserve money remains the nominal anchor, which is expected to grow at a level similar to that of nominal GDP. The Reserve Bank of Malawi (RBM) recognizes the importance of price stability and aims to make greater use of interest rate policy to mop up excess liquidity in the financial system in order to improve the inflation outlook. In the medium term, policy seeks to achieve price stability while supporting the accumulation of foreign reserves and allowing for a sufficient supply of credit to the private sector. Currently, the RBM relies mainly on its holdings of treasury bills to conduct monetary operations in order to help manage domestic demand and contain inflation. In the immediate future, the RBM will use all available instruments to achieve the above objectives, including open market operations and changes in the bank rate. Moreover, the RBM and the Ministry of Finance are expected to strengthen coordination to ensure sharing of information to provide a more solid basis for RBM s liquidity forecasts, which guide its monetary operations. The authorities aim to strengthen the operational independence of the RBM via two main channels: (i) issuance of new T-bills for monetary operations (with the Ministry of Finance carrying the interest costs); and (ii) issuance of an income-generating security to the RBM (with the RBM bearing the cost of its monetary operations). The authorities are also likely to limit the government s total borrowing from the RBM (currently, there is a limit on overdrafts but not on other forms of RBM lending to the government). From early 2004 until May, Malawi had a de facto exchange rate peg to the USD (the MWK was devalued at certain times in an attempt to reduce balance of payments problems arising from lax fiscal and monetary policies) despite the authorities stated objective of implementing a flexible exchange rate regime. Based on the changes introduced in May, Malawi now has a floating exchange rate regime, which helps contain inflation by limiting the pass-through effects of exchange rate adjustment to the prices of non-tradables. Currency outlook: The RBM is likely to maintain the floating exchange rate regime following IMF support and advice, underpinned by the recent rise in FX reserves. However, steady depreciation of the MWK is likely over the short-term as a result of the high level of import dependence, fluctuating export revenues, limited capital inflows, and despite the expectation of continued donor support. There are no forward rates; these, however, generally prove weak indicators of currency trends. Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 239

243 Malawi FX market structure The Reserve Bank of Malawi (RBM, the central bank), donors, and the corporate sector are all large suppliers of FX in Malawi. By liberalizing the exchange rate regime, which is similar to earlier moves by Ghana, Tanzania, and Uganda, large premiums in the parallel exchange rate have been eliminated. Nonetheless, while FX supply is likely to improve, it will be capped to a large extent by export revenue potential and the size of donor inflows each year. Average bank discount rate (%) 30 Source: IMF Real GDP growth (%) Source: IMF e e Nigeria / Rest of Central Africa East Africa Southern Africa Existence of any current/capital account controls/withholding taxes on foreign investors Despite being a member of the IMF, the previous exchange rate regime prior to the devaluation of the MWK led to multiple currency practices (such as significant spreads between the commercial bank exchange rate and FX bureaux rates) that were contrary to Malawi s Article VIII commitments. Although these have been removed, Malawi currently maintains restrictions on the capital account and the IMF is in the process of reviewing the situation. Official approval is required on all FX transactions in excess of USD20,000 for prepayments and services and excess of USD2 mn for invoiced goods. FI primary market information Market size (central government debt stock) Public sector debt (MWK bn) 2008/ / / /12e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF 240 Southern Africa

244 Malawi Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by a combination of the monetary policy stance, central bank liquidity management efforts, and the exchange rate. The policy interest rate is likely to rise in the months ahead if inflation accelerates to help slow MWK depreciation. As a result, primary and secondary market yields will rise in line with successive policy interest rate rises. Similarly, a tightening of interbank liquidity would probably also drive yields up. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in July ), Malawi s risk of external debt distress remains moderate. Malawi s narrow export base, reliance on rain-fed agriculture, and weak international reserves leave it vulnerable to terms-of-trade, and weather shocks. Stress testing reveals potential vulnerabilities in Malawi s public debt situation. In particular, the external sector debt burden indicator (PV of debt-to-exports) breaches the sustainability threshold after an export shock. Malawi s debt situation is expected to improve over the medium- to long-run, reflecting strong economic growth under a floating exchange rate regime and a liberalized current account. However, measures to support a diversification of the export base will also be important. Fiscal dominance has contributed to the increase in domestic debt burden indicators. Stress tests to public sector debt dynamics reveal the need for significant fiscal consolidation and reform of parastatal institutions. Types of securities on offer (T-bills and bonds, central bank bonds) Malawi issues short-term instruments, ranging from 91-day to 364-day T-bills, various bonds that range from three-, five-, and ten- to 15-year maturity, and three-year Reserve Bank of Malawi bonds (for liquidity management purposes). Auctions Timetable/frequency Money market instruments: Weekly Bonds: Monthly Type of auction: Competitive Primary dealers: No Bid size limits: No limit Auction calendar: Yes, Weekly Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Malawi, Ecobank House, Corner of Victoria Avenue and Henderson Street, Blantyre 3 Tel: / 808 / 681 Ecobank trading capabilities per country (FX and FI) FX forwards: Quotes on request. Project trade financing: Yes, currently small projects are being handled. Cash management: Yes Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 241

245 Malawi Nigeria / Rest of Commodity information Key commodities Malawi is an important producer of agricultural cash crops, including tobacco, sugar, tea, maize, and cotton. In 2009, Malawi started to produce uranium, all of which is produced for export to Canada. Trade flows Exports Malawi s main exports include tobacco, worth USD571 mn in 2011, equivalent to 160,000 tonnes (t), mostly to markets in Europe, Egypt, and the US. Malawi is also Africa s third-largest producer of tea, exporting 46,000 t in 2011 (equivalent to USD86 mn) to South Africa, the EU, the USA, and Kenya (for re-export). Malawi exported 274,000 t of sugar in 2011 (equivalent to USD214 mn), most of which went to the EU and the USA under special tariff-free arrangements, as well as some to neighboring markets in Zimbabwe, Kenya, and Tanzania. Maize (USD85 mn) and cotton (USD49 mn) are the remaining soft commodity exports. Uranium exports rose to an estimated USD120 mn in 2011, equivalent to 1,342 t. Imports Petroleum products are the main imports (USD214 mn in 2011), followed by fertilizer (USD186 mn), and wheat (USD82 mn). The country also imported tobacco worth USD88 mn from neighboring countries for re-export. Central Africa East Africa Southern Africa 242 Southern Africa

246 Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 243

247 Mozambique Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Reserve Money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) 27,599 34,337 29,055 27,530 29,182 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Mozambique s economy continued to expand strongly in despite global economic weakness. Real growth expanded 7.5%, driven by a combination of new coal production, good harvests, robust services and megaproject activity, and government spending. Inflation slowed rapidly last year to 2.4%, partly due to the stability of administered prices for fuels and utilities and lower than expected imported food prices that was helped by exchange rate appreciation of over 8%. There is a commitment to strengthening further public financial management, tax policy, and tax administration, which, if successful, will help boost revenues, assuming prudent budget execution. Indeed, revenues exceeded the budget projection by two percentage points (pp) of GDP, reflecting a capital gains tax windfall from the sale of equity in a major gas project and despite weak performance in the first half of due to problems with the introduction of a single tax system for trade transactions. With expenditure largely on target, the fiscal deficit narrowed to 3.6% of GDP. However, recurrent and capital spending remains high, and demand for fiscal spending is strong, which may well widen the deficit to nearly 6% of GDP in Foreign direct investment (FDI) in coal and gas resource projects led to rapid import growth in. As a result, and despite robust export growth, the current account deficit (including grants) widened slightly to a significant 27% of GDP from 26% in However, strong export growth and capital inflows resulted in FX reserves increasing to the equivalent of 3.7 months of imports (including projected megaproject import demand). 244 Southern Africa

248 Mozambique Economic outlook Real GDP growth in 2013 (and beyond) is expected to remain elevated at over 8%, driven by hydrocarbons (coal and gas) project development, development of large infrastructure projects, sustained megaproject output, and robust demand for services. This continues a remarkable real growth trend that has averaged 7.5% over the past ten years. Average inflation is likely to accelerate to high single digits in 2013 despite price controls on major goods. Fiscal weakness will be an important driver of increased liquidity that will add pressure to domestic prices. Moreover, the Banco de Moçambique (BM, the central bank) eased monetary policy throughout, which, together with a public transport tariff increase in November, is expected to raise inflationary pressures. Exports and FDI remain strong, which has boosted the balance of payments. However, owing to strong import demand for consumer and capital goods for megaprojects, the current account deficit is likely to remain elevated in 2013 at around 26-27% of GDP. Once construction of liquefied natural gas plants begins (possibly in late-2013), a large jump in imports could widen the deficit to over 40% in However, in three to five years from then, increased coal exports and the start-up of liquefied natural gas (LNG) exports would help reduce the deficit significantly. Risks to the outlook are moderate, relating mostly to global uncertainties such as deterioration in the eurozone that could weaken demand for Mozambique s exports and reduce aid flows. Global weakness could also impact adversely on South Africa, Mozambique s main trading partner (mainly for electricity exports and food imports). MZM Currency values versus US dollar Source: Bloomberg MZM:USD Jan Apr Jul FX, FI, and commodity information FX market information Monetary and exchange rate policies Oct Monetary policy is based on a quantitative money supply growth target intended to maintain price and exchange rate stability. Reserve money remains the nominal anchor, which is expected to rise slightly above nominal GDP growth. The BM aims to ease monetary policy cautiously, which is consistent with the medium-term inflation objective of around 6% and in an environment of a highly liquid banking system and very high real lending rates. Meanwhile, efforts continue towards developing a domestic repo market, which should help improve money market management and government securities liquidity. Monetary policy will continue to support credit growth consistent with the medium-term inflation objective. The BM intends to move towards an inflation-targeting framework over the next few years, supported by progress in improving data collection and analysis, developing forecasting techniques, and improving communications to explain the intent of the BM s policy. Jan 2013 Apr 2013 Jul 2013 Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 245

249 Mozambique Mozambique has a de jure and de facto floating exchange rate arrangement. The BM will continue to allow the exchange rate to adjust freely to changes in trade and financial flows while also aiming to pursue efforts to increase foreign reserves, which are forecast to approach the equivalent of five months of projected imports over the medium term. Currency outlook: The BM is likely to maintain the floating exchange rate regime for the foreseeable future, a position underpinned by the steady rise in FX reserves. However, following a sharp appreciation from mid-2010 to late-2011 supported by monetary tightening, the Mozambican metical (MZN) has depreciated steadily since January partly because of strong growth in USD demand to meet the rising import bill. Steady depreciation in the MZN in the remainder of 2013 is likely, owing to a further rise in import costs (mostly linked to megaprojects). There are no forward rates (which, however, generally prove weak indicators of currency trends). FX market structure The exchange rate is largely determined by the interbank FX market. The BM regularly intervenes in the market to smooth seasonal fluctuations, provide FX liquidity received by the government in the form of aid, and sterilize domestic liquidity as part of its monetary policy operations. Average bank discount rate (%) 20 Source: IMF Real GDP growth (%) 10 Source: IMF Nigeria / Rest of Central Africa East Africa Southern Africa e e Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Mozambique maintains an open capital account. Moreover, Mozambique maintains an exchange rate system that is free of restrictions on payments for current and capital transfers. Mozambique accepted its IMF membership obligations under Article VIII in May A new FX law came into effect in March 2009, after which a new FX regulation to implement the FX law was issued at end This regulation fully removed the existing exchange restrictions provided for by Article VIII. The two existing multiple currency practices were also removed in March and April 2011 through the adoption of a new regulation for the interbank exchange market and the discontinuation of the previous multiple price FX auction system, which in any case had not been used since Southern Africa

250 Mozambique FI primary market information Public sector debt Public debt MZN bn e Domestic External Total Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Yield curve outlook and debt sustainability Yield curve: Primary market yields will continue to remain strongly influenced by the monetary policy stance and central bank liquidity management efforts. The policy interest rate is expected to be maintained around the current level in the months ahead, with an upwards bias that will be influenced by the expectation of currency depreciation. However, yields are not expected to change significantly in the remainder of 2013 due in part to the relative weakness of the monetary policy transmission mechanism. Any significant rise in inflation or exchange rate weakness would push up the policy interest rate. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in May ), Mozambique remains at a low risk of debt distress as the government plans to temporarily increase public investment partially financed by external borrowing on non-concessional terms over the next few years. However, further improvements in debt management and project selection capacity will be key to use non-concessional resources productively. As public debt is largely external, the evolution of public debt indicators mirrors that of external debt. Types of securities on offer (T-bills and bonds, central bank bills) Mozambique generally issues short-term instruments, such as various money market instruments including 91-, 182-, and 364-day T-bills (28- and 63-day bills were last issued in 2002 and 2003 respectively). Government bonds are rarely issued. The BM issues short-term (1- to 15-day) instruments for liquidity management purposes. Auctions Timetable/frequency Money market instruments: Generally weekly Bonds: Infrequent issuance Type of auction: Competitive Primary dealers: Yes Bid size limits: n/a Auction calendar: No Reopening of existing bonds: No Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 247

251 Mozambique FI secondary market information Daily turnover (volume/value) Limited trading volume Limited trading value Ecobank local affiliate contact details Ecobank Mozambique: Presence being established Ecobank trading capabilities (FX and FI) None at present Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Hydrocarbons Mozambique is currently estimated to hold in excess of 100 trn cubic feet (cu ft) of gas offshore in the Pande Temane gas fields in the north of the country, based on discoveries by US firm Anadarko and Italian firm ENI. The country has no oil reserves. Mozambique produces about 110 bn cu ft of gas a day and exports about 96% of the gas to South Africa in fulfillment of its bilateral trade agreement with South Africa and the South African oil company, SASOL. Downstream, Mozambique s consumption of petroleum products has increased to about 25,000 barrels per day (bpd), all of which are imported mostly from neighboring South Africa and Asia. However, a group of private investors are set to spend USD12 bn on constructing a 350,000-bpd refinery and petrochemical plant in Mozambique. Completion is expected in 2016/2017. Mozambique gas production, 2007 billion cubic feet (bcf) Sources: EIA and ENH e 248 Southern Africa

252 Mozambique Others Mozambique produces significant quantities of aluminum, produced by the Mozal smelter complex outside Maputo. The country is also a major energy producer from the Cahora Bassa Dam. Major investment is under way to expand hydroelectric capacity on the Zambezi River, with the aim of substantially increasing power exports to the sub-regional grid. Meanwhile, investment in large coal deposits in Tete province is expected to make Mozambique one of the largest coal exporters in the world over the next decade. Mozambique also produces a variety of agricultural cash crops including tobacco, bananas, timber, cashew nuts, and sugar (Mozambique is one of the fastest growing sugar producers in Southern Africa). Commodity Trade flows Exports Mozambique s leading export is aluminum, which was worth USD1.6 bn in Mozambique exported 500,000 tonnes (t) of aluminum in 2011, nearly all of which went to the Netherlands, a key aluminum trading hub. Energy exports in 2011: electricity exports were worth USD297 mn and gas worth USD186 mn. Electricity exports to South Africa, Zimbabwe, and Zambia in 2011from the Cahora Bassa Dam were 10.5 mn megawatt (MW) hours of power. The country s mining sector is rapidly growing in importance, with titanium exports worth USD122 mn in The country also exports a variety of agricultural cash crops, including tobacco (USD190 mn in 2011), bananas (USD169 mn), timber (USD146 mn), sugar (USD88 mn), and cashew nuts (USD83 mn). In 2011 Mozambique exported 240,000 t of sugar to the EU under a special tariff-free quota. Unknown volumes of sugar were smuggled to neighboring markets. Although Mozambique s cashew nut industry has declined since the 1990s, the country still exported 137,000 t of cashews in 2011, over 90% of which were exported raw to India for processing. Imports The country s largest import is petroleum products, worth USD1.1 bn in A large proportion of the country s USD314 mn of electricity imports are actually re-imports of Mozambican electricity, which uses transmission lines in South Africa to connect the Cahora Bassa Dam to consumers in the Maputo area. In 2011, the country also imported wheat worth USD140 mn and rice worth USD135 mn, both of which are staples in the national diet, as well as iron and steel worth USD338 mn. Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 249

253 Zambia Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal Balance (% GDP) Reserve Money (% change, end period) Population Exports (USD bn) Imports (USD bn) Current Account Balance (% GDP) FX Reserves (USD bn, end period) Exchange Rate (average) 5,045 4,797 4,863 5,224 5,538 Recent economic developments Sources: IMF, World Bank, Bloomberg, Ecobank Research Growth was strong and broad-based in with real GDP expanding over 7%. Copper output increased, which, in combination with continuing high prices driven by the ongoing expansion in Asia, supported government spending throughout the economy. Non-maize agricultural activity was also good, helping stoke domestic demand. Meanwhile, FDI inflows into the mining sector remained strong, which complemented further private sector investment. Inflation exceeded the target of 7% for end- set by the Bank of Zambia (BoZ) as a result of food and fuel price rises, but overall remained under control. The introduction by the BoZ of a policy interest rate as a step towards modernizing the monetary policy framework played a part in helping contain inflation. Despite a sustained rise in spending pressures, the fiscal deficit came in close to the target of 4.1% of GDP. Revenue performance was better than expected due to improved revenue administration and robust corporate tax revenues from mining-sector activity (the authorities successfully launched a maiden Eurobond that helped raise funds to finance high priority capital spending). However, despite a shortfall in capital expenditure, expenditure increased above budget mainly because of overruns on wages and goods and services as well as significant maize purchases. Moreover, weaknesses in public financial management were exposed by the government s having to guarantee commercial bank loans to the Food Reserve Agency, and by the accumulation of new public sector pension arrears. The current account surplus remained largely unchanged in at 1.2% of GDP compared to the year before. Copper exports (which account for around 75% of total exports) increased, despite weaker prices, owing to higher production; however, this was offset by an equally large rise in imports due to robust global fuel and commodity prices. The rise in imports in resulted in FX reserve draw-downs, which left reserves unchanged at three months of imports at end- (and below the medium-term goal for reserve cover of over four months of import cover). This partly explains why the Zambian kwacha (ZMW) depreciated 1.6% in. 250 Southern Africa

254 Zambia Economic outlook Economic conditions and prospects remain good in Zambia. Assuming that the global economy improves, real GDP growth should remain strong at around 8% supported by further increases in mining sector output and recovery in the agriculture sector. Maintaining a sound monetary policy in 2013, by sustaining a responsible level of central bank credit to government, will help reduce inflationary pressures. However, a probable high level of government spending is likely to maintain inflation in high single digits in Meanwhile, the fiscal deficit will, in all likelihood, be little changed from at 4% of GDP in part due to one-time capital expenditures financed from the recent Eurobond issuance. Moreover, restraint on civil servant wage increases is important if the planned increases in capital spending are to materialize. There are several risks to the economy stemming from global economic uncertainties: further deterioration in global economic conditions could reduce trade credit lines, lower demand for copper exports, and lower copper prices. ZMW Currency values versus US dollar and Euro ZMW:USD1 (lhs) Source: Bloomberg ZMW:EUR1 (rhs) Jan Apr Jul Oct ZMW Currency volatility versus US dollar (standard deviations) Jan 2011 Jan Jan 2013 ZMW:USD (lhs) Apr Jul 2013 Sources: Bloomberg, Ecobank Average (lhs) Jan 2013 #SDs (rhs) 3 Jul Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 251

255 Zambia Nigeria / Rest of Central Africa East Africa Southern Africa FX, FI, and commodity information FX market information Monetary and exchange rate policies The monetary policy framework was changed in April, in order to better support the objective of achieving and maintaining low and stable inflation, with the introduction of the BoZ policy interest rate. It was initially set at 9% within a +/-400 basis point (bp) band that is reviewed monthly. It replaced a quantitative target system anchored on reserve money, under which broad money demand was projected to expand in line with nominal GDP as the BoZ s main monetary policy tool. The change aims to create a more flexible monetary policy framework, improve the interbank market, and enhance bank competition, with a future aim of adopting an inflation targeting system. The trading band is probably too wide to successfully drive interest rate expectations and improve the BoZ s daily liquidity management operations to keep overnight interbank rates close to the policy rate. However, it is a useful first step with the likelihood that the band will be reduced over Meanwhile, to attain persistently low and stable inflation, the authorities seek to develop a measure of core inflation in order to accurately adjust the monetary stance and thereby enhance monetary policy formulation. The exchange rate arrangement is classified as a floating exchange rate regime, with the ZMW exchange rate determined in the interbank market. Interventions by the BoZ in the FX market will be limited to smoothing excessive fluctuations while allowing for a gradual build-up of foreign reserves. The authorities rebased the ZMW (previously the ZMK) on 1 January 2013 by removing three zeros, which has helped ease the burden on the payments system, reduced transaction costs, and simplified accounting processes. However, rebasing the ZMW required one year of lead time for planning, technical work, and an extensive public education program to ensure a smooth transition and reduce risks to the banking and payments systems. Currency outlook: The BoZ is likely to maintain the floating exchange rate regime for the foreseeable future, a position underpinned by the recent rise in FX reserves. However, reserves will probably have to rise to the equivalent of around 4.5 months of imports before a greater level of exchange rate stability can be achieved. Over many years ZMW volatility has been driven in large part by changes in global copper prices, which have undermined terms-of-trade improvements. Moreover, changes in capital flows and global interest rate rises pose risks to the stability of the ZMW. In addition, the BoZ has tried to tackle ZMW weakness by banning the private sector from trading or paying salaries in US dollars. The steady depreciation of the ZMW since July is likely to be sustained, interspersed with brief but sharp periods of strengthening. There are no forward rates; these, however, generally prove weak indicators of currency trends. FX market structure The corporate sector (largely based on mining firms) is the largest provider of FX in Zambia, although the BoZ supplies FX when deemed necessary to smooth ZMW volatility. The ZMW buying rate of the BoZ is a simple average of the primary dealers low bid rates while the BoZ s selling rate is the simple average of the primary dealers high offer rates. 252 Southern Africa

256 Zambia Average bank discount rate (%) 20 Source: IMF Real GDP growth (%) Source: IMF e e Existence of any current/capital account controls/withholding taxes on foreign investors As a member of the IMF that has accepted its Articles of Agreement, particularly Articles IV and VIII, Zambia maintains an open capital account. Zambia accepted the Article VIII obligations in April However, over time, the authorities have accumulated external payments arrears that need to be eliminated if exchange restrictions are to be removed. From 1 July 2013, under the revised SI32 (Statutory Instrument 32) formulated by the central bank, which seeks to reduce tax avoidance and transfer pricing, all exporters are required to repatriate the proceeds of exports with a value in excess of USD10,000 within 60 days. To transfer funds offshore requires evidence for the planned use of the money, such as dividend payments or equipment purchase. FI primary market information Public sector debt Public sector debt (ZMW mn) e Domestic 7,819 10,019 11,296 12,224 External 6,462 7,068 9,522 13,173 Total 14,280 17,087 20, Public sector debt (% of GDP) Domestic External Total External debt service (%) Source: IMF Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 253

257 Zambia Nigeria / Rest of Central Africa East Africa Southern Africa Yield curve outlook and debt sustainability Yield curve: Due to the shallow nature of the local capital market, primary market yields will continue to remain strongly influenced by the monetary policy stance, exchange rate developments, and central bank liquidity management efforts. With inflation likely to remain relatively stable, the policy interest rate is expected to remain largely unchanged in the months ahead; therefore, yields are not expected to change significantly. However, should inflation accelerate above target, the BoZ would probably raise the policy interest rate, which would push up market rates. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in May ), Zambia s risk of external debt distress remains low as under the baseline and alternative scenarios, all external debt sustainability indicators remain below their relevant thresholds. Zambia s overall public sector debt dynamics are sustainable in light of the current size and the evolution of the domestic debt stock. However, besides sound macroeconomic policies, both strong debt management and project appraisal capacity are needed to maintain debt sustainability in the face of access to international capital markets and a gradual increase in non-concessional borrowing. Types of securities on offer (T-bills and bonds) Zambia regularly issues 91-, 182-, 273-, and 364-day T-bills and two-, three-, five-, seven-, ten-, and 15 year bonds. In addition, various Open Market Operations instruments of up to 364-days are issued. The authorities issued a maiden 5.625%, ten-year USD750 mn Eurobond in September, which was 15 times oversubscribed. Auctions Timetable/frequency T-bills: Fortnightly Bonds: Quarterly Type of auction: Competitive (tender) and non-competitive (price taker) basis Primary dealers: Yes Bid size limits T-Bills: ZMW30,000 Bonds: ZMW30,000 Allotment is based on cut-off price for T-bills and bonds. The BoZ applies the multiple price system (Dutch auction) to price T-bills. Auction calendar: Yes Reopening of existing bonds: No FI secondary market information Daily turnover (volume/value) T-bills: Monthly average ZMW30 mn Bonds: Monthly average ZMW50 mn 254 Southern Africa

258 Zambia Ecobank local affiliate contact details Ecobank Zambia, Acacia Park, Thabo Mbeki Road, Lusaka Tel: Ecobank trading capabilities per country (FX and FI) Primary market auction: T-bills and bonds: ZMW1 mn Secondary market trading (monthly average) T-bills: ZMW1,220 mn Bonds: ZMW200 mn FX: Net open position limit is 15% of shareholders funds. FX forward rates available on request Project trade financing: 20% of shareholders funds Cash management: Yes Payment capabilities (e.g. payroll, SWIFT): Fund transfers (weekly): 100 transactions worth USD3 mn Banking sector Zambia s financial sector has 19 licensed commercial banks. The country registered a four-year 21% CAGR in assets to USD6.6 bn at end The asset structure of the banking sector continued to be dominated by net loans and advances, which accounted for 39.7% of total assets by end-2011 compared with 35.0% a year before. However, there was a shift in the structure of assets, with investments in government securities increasing to 24% of total assets from 19%. Both ROE and ROA have remained positive (averaging 4.1% and 25.4%), but there has been a gradual decline due to the compression in net interest margins and low efficiency levels. Asset quality improved in 2011 as non-performing loans (NPLs) decreased to 10.4% from 14.8% at end Nonetheless, this remains higher than the 5.0% threshold for Middle African economies. Capital strength has remained positive averaging 18.7% while the liquidity ratio of 35.5% also remained strong. Banks are yet to adopt agency banking models on a wider scale. In addition, penetration rates of cost efficient platforms such as mobile banking are still low. CPI Inflation (% change) Jan 2007 Jan 2009 Jan 2011 CPI inflation (lhs) M2 (% change) Source: IMF M2 supply (rhs) Jan Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 255

259 Zambia Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Copper Zambia is Africa s largest copper producer (it is also a large producer of cobalt). The copper mines are located in the north east of the country, and are spread alongside the border region with DRC. Others Zambia is a major producer of maize, following the collapse of production in Zimbabwe. Various other agricultural commodities are grown, including: tobacco, sugar, cotton, and timber. Trade flows Exports Zambia exported copper and copper products worth USD6.5 bn in Other mineral exports include gold (USD237 mn), cobalt (USD218 mn), and inorganic chemicals (USD167 mn). Around 1.6 mn tonnes (t) of copper concentrate was exported in 2011, most of which was exported to traders in Switzerland and end-users in China. Zambia is one of Southern Africa s largest sugar exporters, exporting 280,000 t in 2011, all of which went to African markets, including Mauritius, the DRC, and Burundi/Rwanda. Zambia has in recent years replaced Zimbabwe as Southern Africa s bread basket, exporting maize worth USD420 mn (726,000 t) to the sub-region, over half of which went to Zimbabwe to meet domestic shortages. Large volumes were also exported to South Africa (144,000 t) and Kenya (60,000 t), both of which suffered maize shortages that year. Zambia is the fifth largest cotton producer in Africa and exported an estimated 85,000 t of raw cotton to end-users in South Africa and traders in Switzerland. However, a poor season in /13 is expected to have reduced exports by over a third in. Exports of other goods in 2011 included: tobacco (USD159 mn), sugar (USD147 mn), raw cotton (USD136 mn), and timber (USD103 mn). Imports Zambia is a major transit point for minerals from its northern neighbor, the DRC, importing USD859 mn of copper ore and USD194 mn of cobalt ore in 2011, all of which was re-exported. The country met its domestic fuel requirement by importing oil worth USD557 mn in 2011 for refining in country in addition to USD319 mn of petroleum products. The main industrial raw material imports in 2011 were iron and steel (USD578 mn), fertilizer (USD309 mn), and rubber (USD176 mn). 256 Southern Africa

260 Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 257

261 Zimbabwe Nigeria / Rest of Central Africa East Africa Southern Africa Select economic and financial indicators e Real GDP (% change) GDP (USD bn) Inflation (average) Fiscal balance (% GDP) Broad money (% change, end period) Population (mn) Exports (USD bn) Imports (USD bn) Current account balance (% GDP) FX reserves (USD mn, end period) Exchange rate (average)* Recent economic developments *In 2009 Zimbabwe adopted the US dollar as the principal currency. Sources: IMF, World Bank, Bloomberg, Ecobank Research In, real GDP accelerated by 4.4%, albeit unevenly, given contraction in agriculture caused partly by drought, and from a low base. In addition, significant structural bottlenecks in agriculture, manufacturing and power provision (the drivers of growth and employment creation in the past) remained in place, which also slowed growth. The Unity government formed in February 2009 continued to face major challenges resulting from the political turmoil and economic mismanagement between 1998 and 2008 that caused large output losses and resulted in hyperinflation. The adoption of the multicurrency regime (see below) restored price stability and forced stronger fiscal discipline, both of which helped support growth in. Price and exchange regime liberalization has increased efficiency, boosted output, and encouraged renewed capital inflows. Dollarization helped keep inflation low at around 4% in. However, the government experienced difficulties implementing its ambitious budget partly because projected revenues (such as those related to diamond production) did not materialize. Despite improvements in tax policy and administration, ongoing slow progress in improving expenditure management and dealing with oversized public wage costs, spending arrears, and difficulties in adhering to cash budgeting continue to weaken fiscal policy, widening the deficit to nearly 4% of GDP. Meanwhile, the current account deficit remained large at 20% of GDP mainly because the import bill remained significantly greater than export revenues. The deficit was financed in part by short-term capital flows and non-concessional government borrowing. Economic outlook Zimbabwe s growth potential is high, but unlocking this potential is a challenge particularly in light of the results following the end of July elections. Achieving higher sustained growth will require implementing reforms focused on strengthening public financial management, improving public wage control, raising the productivity of government expenditure, reducing financial sector vulnerabilities, addressing infrastructure bottlenecks, increasing competitiveness, and improving the business climate. There are uncertainties surrounding the election results and what they mean for the economy. Given economic uncertainties, little change in the fiscal deficit is expected in Moreover, several areas require strengthening if the fiscal space is to improve: i) tax policy and administration; ii) public financial management and expenditure policy; iii) financial sector reform; iv) central bank reform; and v) formulation and implementation of a comprehensive adjustment program. Although inflation is expected to remain low helped by the effect of dollarization, adverse risks are significant, ranging from possible resurgence of political instability ahead of the elections (expected in mid-2013) and a deeper global downturn to the very low level of FX reserves. 258 Southern Africa

262 Zimbabwe Eurozone recession/stagnation and slowing growth in China would lower global commodity prices, which in turn would upset activity in South Africa (which is a main source for Zimbabwe of remittances and investment). Policy risks include the potentially destabilizing effects of the indigenization policy on the banking system and on investment more generally. Other risks include fiscal slippages and financial sector instability. Low external reserves (of less than one month of import cover) and lack of a lender of last resort mean Zimbabwe faces these risks with minimal buffers. ZAR: Currency values versus US dollar and euro ZAR:USD1 (lhs) Source: Bloomberg USD:EUR1 (rhs) Jan Apr Jul Oct Jan 2013 Apr Jul 2013 FX, FI, and commodity information FX market information Monetary and exchange rate policies Zimbabwe currently does not have independent monetary or exchange rate policies due to the adoption of the USD (along with other currencies see below) as the medium of exchange in Monetary policy is largely determined by the policy stance of the US Federal Reserve, albeit with recognition of domestic demand conditions within Zimbabwe. The de facto exchange regime is classified as an exchange arrangement with no separate legal tender. Zimbabwe s exchange system has been significantly liberalized and exchange rates have been unified. In 2009, Zimbabwe adopted major currencies for transactions (i.e., it is a multi-currency regime) with the US dollar as the principal currency. Use of the Zimbabwean dollar as domestic currency was discontinued at the beginning of Currency outlook: The Reserve Bank of Zimbabwe (RBZ, the central bank), is expected to maintain the current exchange arrangement for the foreseeable future with the aim of eventually re-introducing the Zimbabwean dollar (no date has been published). Due to dollarization, there are no forward rates. Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 259

263 Zimbabwe Nigeria / Rest of Central Africa East Africa Southern Africa FX market structure The RBZ, donors, and the private sector all supply varying, albeit relatively small, amounts of FX. FX Reserves (excl gold) USD mn Real GDP growth (%) e e Existence of any current/capital account controls/withholding taxes on foreign investors 4.4 Source: IMF As a member of the IMF, Zimbabwe is bound by a commitment to the IMF s Article IV and VIII obligations. This commitment has been weak in recent years, reflected in arrears to the IMF since Apart from one remaining exchange restriction, which is subject to IMF jurisdiction and arises from unsettled balances under an inoperative bilateral payments agreement with Malaysia, payments and transfers for current international transactions can now be effected without restriction. FI primary market information Public sector debt Public debt (USD bn) e Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a Public sector debt (% of GDP) Domestic n/a n/a n/a n/a External Total n/a n/a n/a n/a External debt service (%) Source: IMF Southern Africa

264 Zimbabwe Yield curve outlook and debt sustainability Yield curve: As Zimbabwe issues a very low level of T-bills (but no bonds see below), the yield curve is extremely flat and short. However, the US Federal Reserve s policy interest rate will continue to remain a benchmark rate that will strongly influence local monetary conditions. With the likelihood that the exchange arrangement remains in place for the foreseeable future, the prevailing interest rates in Zimbabwe will be maintained around current levels in the months ahead. Debt sustainability: Based on the most recent IMF-World Bank debt sustainability analysis (published in September ), Zimbabwe is in debt distress. The public DSA suggests that Zimbabwe s overall public debt remains unsustainable in light of current fiscal policies and the current size and evolution of the debt stock. The authorities broadly agreed with these conclusions. Under a country-specific alternative upside scenario, debt burden indicators would decline faster but the country s external debt ratios would still remain above indicative thresholds. Types of securities on offer Following dollarization in 2009, the government did not issue domestic debt until the second half of. In line with the July Mid-Term Fiscal Policy Review, the authorities started to issue short-dated Treasury instruments aimed at addressing persistent systemic liquidity challenges, unequal distribution of liquidity, and the shortage of appropriate instruments for use as collateral in interbank trading. The short dated paper was expected to be instrumental in determining the money market reference interest rate. However, participation in all five auctions was very low. Nonetheless, the authorities have indicated that they will undertake additional auctions in 2013 on dates yet to be announced. FI secondary market information Daily turnover (volume/value) No active secondary market Ecobank local affiliate contact details: Ecobank Zimbabwe, Sam Levy s Office Park, 2 Piers Road, Borrowdale, Harare Tel: Ecobank trading capabilities per country (FX and FI) Yes, FX Project trade financing: No Cash management: No Payments (e.g. payroll, SWIFT): Yes Southern Africa East Africa Central Africa Nigeria / Rest of Southern Africa 261

265 Zimbabwe Nigeria / Rest of Central Africa East Africa Southern Africa Commodity information Key commodities Zimbabwe was once a major producer of various agricultural and mineral commodities, including tobacco, cotton, sugar, coffee, tea, maize, wheat, soy, horticultural and floricultural goods, gold, platinum, nickel, coal, and other minerals. Currently, Zimbabwe produces a mixture of agricultural commodities, precious metals and stones, mineral ores and refined metals, many of which are significantly lower compared to pre-2000 levels of output. Trade flows Exports In 2011, Zimbabwe exported 7.8 mn carats of rough diamonds (worth USD423 mn) to the UAE, Belgium, and India for polishing. The country exported 149 tonnes (t, equal to USD287 mn) of gold to South Africa in 2011; along with iron and steel (USD279 mn), nickel and chromium ores (USD224 mn), and nickel & copper (USD113 mn). Zimbabwe also exported tobacco worth USD598 mn and 9,800 t of tea worth USD15 mn in 2011 (mostly to South Africa and the UK). The country exported 73,000 t (USD222 mn) of cotton in 2011 to markets in South Africa, Singapore, the UK, and Bangladesh. Zimbabwe is one of Southern Africa s leading sugar producers, with exports of 190,000 t (USD158 mn) in 2011, all of which went to Mozambique for re-export. Imports Given the erratic performance of the country s agricultural sector, Zimbabwe has periodically imported large volumes of food, including maize worth USD151 mn and rice worth USD26 mn in Zimbabwe has lost its status as the breadbasket of Southern Africa and has come to rely on increasing imports of food, including 468,000 t of maize, 50,000 t of wheat, 34,000 t of rice, and 120,000 t of vegetable oil in Given the country s lack of refining capacity, Zimbabwe s main commodity imports are petroleum products (USD180 mn in 2011) and electricity (USD53 mn). Zimbabwe has periodically served as a re-export hub for minerals produced in neighboring countries, notably diamonds, gold, and mineral ores, but this traffic appears to have dwindled in Southern Africa

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