Africa Market Watch - September

8/14/2019 Africa Market Watch - September

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Standard Bank

Africa markets watch Africa September 2008

Jan Duvenage, Anita Last, Yvonne Mhango & Victor Munyama

Recent developmentsZimbabweOn Monday, 15 September 2008 we witnessed the historic signing of the power-sharing agreement

that lays the foundation for the formation of a transitional government of national unity in Zimbabwe. For a lot of

Zimbabweans this agreement holds the promise that they finally have a government that will start addressing their

plight. The international community is watching in anticipation of a strong and genuine commitment of the

signatories to rebuilding the country. This agreement is built on various aspects identified as significant for the

restoration and rebuilding of the countrys economy; for example, land reform, constitutional reform and freedom of

expression and communication. The implementation of these pillars of the agreement should convey a strong

message of commitment and cooperation among the countrys stakeholders. The success of this fragile agreement

depends not only on the benevolence of the signatories to the deal but on their ability to ascend the differences and

animosity eminent in the negotiation stages. To the Zimbabweans, normality will be realised when the rights to pave

their own path are fully entrenched and protected through the ballot box. It is important to note that the agreement

signed does not outline policy prescription necessary for economic recovery nor does it present clear government

thinking necessary to restore some confidence in the country. The agreement does, however, provide a platform

from which genuine and inclusive deliberations on policy direction and an economic recovery plan can now start.

Commitment and compromise from all signatories to the agreement might help to restore private sector confidence

that has become a negative force in the recent past.

Angola - Almost one month after voters elected parliamentary representatives for the first time in 16 years, Angola

has sworn in its new parliament. One-hundred-and-ninety-one legislators from the Movement for the Liberation of

Angola (MPLA) took seats in the legislature, while the largest opposition party, the National Union for the Total

Liberation of Angola, has just 16 representatives. The remaining seats are shared among the smaller opposition

parties, with the Social Renewal Party claiming eight, the Angola National Freedom Front claiming three and theNew Democratic Coalition claiming two. The new House speaker is former Prime Minister Fernando Dias dos

Santos, who replaces Roberto de Almeida. A new cabinet is expected to be composed soon.

Mauritius - The central statistics bureau of Mauritius has revised its 2008 real GDP forecast down from 5.7% to

5.6%. Mauritius is closely linked to international financial markets and the slowdown in the US and Europe will have

significant connotations for the Mauritian economy and its reliance on through-trade and transportation. Despite a

deteriorating external environment and softer growth, there are still signs of strength in the economy. The sugar

sector continued to perform above expectations in the second quarter of this year and manufacturing also came in

on the upside compared to the first quarter of this year.

Nigeria - The Central Bank of Nigeria (CBN) held an emergency meeting of its Monetary Policy Committee on 18

September 2008 to assess the state of the domestic banking system in the context of the current global financial

crisis and to address the liquidity shortages eminent at that time. In an attempt to lubricate the system, the MPCdecided to reduce the Monetary Policy Rate (MPR) by 50 basis points from 10.25% to 9.75%; reduce the cash

reserve ratio from 4% to 2%; reduce liquidity requirements for banks from 40% to 30%; extend the repo tenors with

the CBN from overnight to 90 days, 180 days and 360 days; and to buy and sell securities (Treasury bills) through

two-way quotes. In the short term, these measures should easily inject about NGN1.5 trillion into the system.

Zambia - Four presidential candidates filed their nomination papers between 23 and 26 September 2008 for the

presidential by-elections scheduled for 30 October 2008. The main contenders are the ruling Movement for

Multiparty Democracys candidate, the current acting president, Rupiah Banda, the colourful Michael Sata of the

Patriotic Front and Hichelema Hakainde of the United Party for National Development (UPND). The prospects for

the UPND candidate, who performed surprisingly well in the 2006 general election, are expected to be diluted by the

fact that at the upcoming presidential by-election he will not be representing the three-party alliance, the United

Democratic Alliance, as he did in 2006. This time around, the UPNDs former alliance partners, the United National

Independence Party and the Forum for Democracy and Development, are backing the ruling MMDs candidate, thus

boosting Bandas prospects..

Botswana

Ghana

Kenya

Lesotho

Malawi

Mauritius

Mozambique

Namibia

Nigeria

Swaziland

Tanzania

Uganda

Zambia

Zimbabwe


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Page 3

Standard Bank Group EconomicsStandard Bank Group Economics

Botswana - picture gallery

Real GDP growth - %

Source: IMF

Sectoral contribution to GDP - %

Source: IMF

Foreign exchange reserves

Source: Bank of Botswana

Trade balance Pula million


Government budget balance - % of GDP

Source: IMF

Diamond prices - US$ index, 1982 = 100


Weights of consumer price index (CPI) constituents


Botswana Stock Exchange indicators

Source: Bloomberg, Bank of Botswana

8.3

4.9

5.7 6.06.3

4.7

3.6

5.4

5.0

4.3

0

2

4

6

8

10

00 01 02 03 04 05 06 07 08f 09fMining38.0%

Agriculture2.1%

Other14.3%

Construction4.6%

Manufacturing

3.6%

Trade &hotels10.4%

Government16.5%

Banking,insurance

10.5%

10

20

30

40

50

3,000

5,000

7,000

9,000

11,000

2004 2005 2006 2007 2008

Forex reserves Import cover

US$ mn months

0

5,000

10,000

15,000

20,000

25,00030,000

35,000

2002 2003 2004 2005 2006 2007p

Exports Imports Merchandise trade balance

-6

-4

-2

0

2

4

6

8

10

02/03 03/04r 04/05r 05/06p 06/07b

120

130

140

150

160

170

180

2001 2002 2003 2004 2005 2006 2007 2008

22%

19%

9%11%

8%

31%

Food Transport

Alcohol & tobacco Housing

Clothing Other

0

3

6

9

12

0

10

20

30

40

2002 2003 2004 2005 2006 2007 2008

Market cap. (lh) Domestic index (rh)

Pula billion '000 month-end


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Ghana

Inflation declines for two consecutive months. Theharvest season, which started in August, has provided somerelief from food inflation and headline inflation declined to18.1% y/y in August from 18.3% y/y in July and 18.4% y/y inJune. Food, which represents around 45% of the CPI basketof goods, rose from 7.5% y/y in August 2007 to 17.7% in

June 2008. This was due to the restriction of local foodsupply in the north of the country by drought in the first partof 2007, followed by flooding in September coupled with theupward trend in global food prices at a time of high transportcosts. Over the same period, non-food inflation rose from10.9% y/y to 18.9% y/y driven by changes in utility pricesand transport costs. The moderation in international crude oilprices and the improved domestic food supply on the back ofthe ongoing harvest season should continue to support amar inal declinin trend.

Bank of Ghana keeps the policy rate at 17%. TheMonetary Policy Committee (MPC) hiked the policy rateby 100 basis points to 17% in July in response toaccelerating inflation. The central bank policy rate (primerate) was raised from 13.5% to 14.25% in March andagain in May by 175 basis points to 16%. Following the

MPCs rate decision in July, average commercial banklending rates were similarly revised upwards within arange of 22% to 41%. (The commercial bank ratescontinue to show high spreads between deposit andlending rates and are also well above the Bank ofGhanas prime rate). Due to a declining inflation trendwe do not expect an interest rate hike but we do expectmonetary policy to remain tight in the presence ofinflationary pressures stemming from pre-elections endin and hi h utilit rices.

Inflation - % y/y

Source: Bank of Ghana

Interest rates - %


The cedi continues to depreciate. The cedi lost someground during 2007 and depreciated by 5%, 7% and 17.5%

against the US dollar, pound sterling and euro respectively.Demand pressures were exerted mainly from the golden jubilee anniversary celebration, preparations for hosting theAU summit and the continued energy crisis. In addition tothis, lower cocoa production, as a result of extreme rainfall,led to a 33.8% decline in earnings from exports of cocoabeans and products. Despite strong international prices forgold and cocoa, the national currency continued todepreciate in 2008 - a trend that was fuelled by a large andburgeoning current account deficit stemming from capitalgoods and oil imports. The cedi largely stabilised in Augustand September and traded between GHc1.1543/US$ andGHc1.1640. We expect marginal depreciation to continue,es eciall in a re-election context.

Favourable cocoa harvest expected. Ghanas CocoaBoard (Cocobod) expects favourable output for the

2007/08 season as a result of improving weatherconditions. Purchases declared by private buyersreached 566 340 tonnes in the first 25 weeks of the2007/08 season, which represents an increase of 10.2%over the same period in 2007. Consequently, Cocobodincreased its initial estimate of 600 000 tonnes at thestart of the season to 634 000 tonnes (8% increase).Last year the country declared total production of 614469 tonnes, down from a record 740 457 tonnes in 2006.The average price of cocoa bean exports (US$1 942.2per tonne) at the end of 2007, increased by 7.7% toUS$2 091.8 per tonne in the first quarter of this year.

Exchange rates

Source: Bloomberg

Cocoa prices

US$/metric tonne

Source: IMF

6

10

14

18

22

26

2004 2005 2006 2007 2008

5

10

15

20

25

30

35

2004 2005 2006 2007 2008Prime 91-day t-bill Lending

1.20

1.30

1.40

1.50

1.60

0.90

0.94

0.98

1.02

1.06

1.10

1.14

1.18

2007 2008

USD (rhs) EUR (lhs)

1000

1500

2000

2500

3000

3500

2004 2005 2006 2007 2008


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Ghana picture gallery

Real GDP growth - %




Foreign exchange reserves - US$ million


Trade account - US$ million



Source: IMF

Gold Price - US$/oz

Source: Reuters



Ghana Stock Exchange index

Source: Bloomberg

0

1

2

34

5

6

7

2000 2001 2002 2003 2004 2005 2006 2007 2008

Trade, hotel & restaurant Services

Agriculture Cocoa production & marketing

Mining & quarrying Manufacturing

Construction Other

0

500

1000

1500

2000

2500

3000

2004 2005 2006 2007 2008

-6000-4000-2000

020004000

60008000

10000

2001 2002 2003 2004 2005 2006 2007

Imports Exports Trade Balance

-10

-8

-6

-4

-2

0

2000 2001 2002 2003 2004 2005 2006 2007 2008

400

500

600

700

800

900

1000

2004 2005 2006 2007 2008

52%

10% 9%

7%

6%

5%

4%

4%3%

Food & Bev. Clothing & FootwearUtilities FurnishingsTrans. & Comm. Enter.Health Alcohol & Tobacco

Misc.

2000

4000

6000

8000

10000

12000

2004 2005 2006 2007 2008


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KenyaStrong food price increase drives up Septembers inflation to

28.2% y/y. This years poor long rains season (on the heels of

insufficient rainfall in the end-2007 short rains season) has

exacerbated the deterioration in food security. Declining food

stocks put upward pressure on prices, 2% m/m in September, and

spurred an acceleration in food inflation to 37.2% y/y from 36.2%

y/y in August. The incline in non-food inflation was largely due to

a significant increase in housing costs in September, 2% m/m.

The fuel and power, and transport and communication sub-

indices reported softer price increases in September, 0.5% m/m

and 0.3% m/m respectively, from 3.6% m/m and 0.9% in August.

Given the persistent food inflationary pressures, overall inflation is

projected to only slip below 20% in the second quarter of 2009.

Short-term interest rates ease. Following the central

banks decision to hike the policy rate to 9% in June 2008,

there was a parallel increase in the 91-day Treasury bill

yield to 8.03% in July. The tightening of policy was effective

at moderating the liquidity situation, which has now

normalised. The central bank has insisted that the drivers of

inflation are exogenous and due to liquidity to justify its

decision not to tighten policy despite high inflation. Greater

appetite for short-term debt over that with a longer maturity

partly explains the slide in short-term rates. Investors are

uncertain about future prospects, given the global financial

turmoil and recent political crisis in Kenya, are reluctant to

put their money in long-dated debt instruments.

Inflation - % y/y

Source: Sources: National Bureau of Statistics, Central Bank of Kenya

Interest rates - %

Source: Central Bank of Kenya

The Kenyan shilling slides. The shilling depreciated by a

significant 5.7% against the US dollar in September, compared

to the exchange rate in August, to a monthly average exchangerate of KES71.65/USD. While the US dollars sharp gain of 3.7%

against the euro contributed to the weakening of the exchange

rate, the decline in foreign exchange inflows stemming from

agricultural exports, capital inflows and tourism revenue added

to the shillings woes. International reserves dropped to 3.2

months of imports at the end of September, from four months in

January, partly explaining the depreciation of the Kenya

currency. The shilling is now weaker against the US dollar than it

was during the political turmoil in the first quarter of 2008.

Depreciation pressures are expected to persist over the short

term.

Liquidity pressures subside. As expected, broad money

(M3) growth decelerated in the third quarter of 2008 to

17.1% y/y in August, from this years peak of 28.5% y/y inApril that reflected the surge in the growth rate of net foreign

assets due to the capital inflows related to the Safaricom

IPO. The slowdown in M3 growth was partly due to the

payment of refunds related to investors that had

oversubscribed to the IPO. M3 growth is expected to

stabilise at current levels. The deceleration of reserve

money growth to 16.7% y/y in May from 24.5% y/y in

January, reflects the decline in currency in circulation,

particularly during the political crisis when economic activity

was interrupted. However, from mid-2008 it is expected to

have picked up as the economy recovers.

Exchange rates

Sources: Bloomberg, Standard Bank Group est.

Money supply growth - % y/y


0

5

10

1520

25

30

35

2004 2005 2006 2007 2008

OverallUnderlying (excl. food)Underlying (excl. food, energy & transport)

5

7

9

11

13

15

2005 2006 2007 200891-day TB rate Average lending rate

Central Bank Rate Weighted average repo

6

8

10

12

14

16

60

70

80

90

100

110

2004 2005 2006 2007 2008

KES/USD KES/EUR KES/ZAR (rhs)

0

6

12

18

24

30

2004 2005 2006 2007 2008

Broad money (M3) Reserve money


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Page 7


Kenya - picture galleryReal GDP growth - %

Source: Kenya National Bureau of Statistics, Standard Bank est.



Foreign exchange reserves import cover


Trade account - US$ million


Government finance - % of GDP


Tea, Mombasa, Kenya, Auction price US cents per kilogram

Source: IMF



Nairobi Stock Exchange indicators


5.3 5.86.4

7

2.3

4.2

0

1

2

3

4

5

6

7

8

2004 2005 2006 2007 2008p 2009f

Agriculture,forestry &

fishing30%

Manufacturing

11%

Wholesale &retail trade

11%Hotels &

restaurants2%

Financialservices

4%

Construction3%

Transport,storage &commun.

12%

Government

14%

Real estate,renting &bus. serv.

6%

Electricity &water3%

Community,social &personalservices

4%

2.5

3.0

3.5

4.0

4.5

0

600

1200

1800

2400

3000

3600

2004 2005 2006 2007 2008

Gross foreign reserves Import cover

US$ millions months

-1500

-1200

-900

-600

-300

0

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008

Exports Imports Trade deficit

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

150

200

250

300

350

50%

12%

6%

6%

9%

6% 4%2% 2% 3%

Food and drink Housing

Recreation and education Household goods and services

Clothing and footwear Transport and communication

Fuel and power Medical goods and services

Personal goods and services Alcohol and tobacco

0

200

400

600

800

1000

1200

1400

3500

4000

4500

5000

5500

6000

2006 2007 2008

Market Capitalisation (rhs)

NSE 20 Share Index (1966=100)

Kshs billions


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LesothoOverall inflation driven by food and energy prices. Inflation is

largely imported from South Africa as almost 85% of Lesothos

goods and services are sourced from there. High international

and regional food prices and high crude oil prices have impacted

negatively on the inflation rate. Drought conditions also add to

food price pressures as the subsistence economy is adversly

affected. In August overall inflation reached 11.2% y/y, one of

the highest rates in years, from 10.5% y/y in the previous month.

Food inflation was 15.2% y/y in August and 14.9% y/y in July,

somewhat lower than the high of 18.7% y/y recorded in

February. The food group has a weight of nearly 40% in the CPI.

Transport prices also rose steeply; by 14% y/y in August and

12.4% y/y in July.

Interest rates are linked to South African trends. Lesotho

is a member of the Common Monetary Area (CMA) with

South Africa, Namibia and Swaziland. Membership implies

that the county has limited control over monetary policy,

which is imported from South Africa. The Central Bank of

Lesotho monetary policy targets net international reserves of

US$500 million to support the 1:1 currency peg with the

rand. The Lombard rate, the policy rate, is set at 400 basis

points above the 91-day Treasury bill rate. Interest rates in

South Africa have risen on the back of higher inflation, but

the prices could start easing in 2009, leaving room for the

central bank to start cutting rates, reducing the prime rate

from 15.5% to 13.5% in December next year.

Inflation - % y/y

Source: Bureau of Statistics

Interest rates - %

Source: Central Bank of Lesotho

The currency depreciates. The loti is pegged at par to the South

Africa rand under the CMA agreement. Economic conditions in

Lesotho have no effect on the exchange rate. Exportcompetitiveness is, however, linked to the value of the currency.

The weaker long-term trend against the US dollar is welcome

relief for exporters, but imported food and fuel will become dearer

as a result, driving overall inflation higher. The exchange rate

averaged LSL7.70/USD in August compared to LSL7.34/USD in

July. Standard Bank expects that the exchange rate will average

LSL7.78/USD in 2008; LSL7.97/USD in 2009 and LSL8.10/USD

in 2010. Turmoil in the banking and financial markets, falling

commodity prices and a slowing world economy will ensure that

the exchange rate remains volatile.

Basotho mineworkers in South Africa. Basotho mine-

workers employed on South African mines, particularly gold

mines, provide valuable income for Lesotho households.Even though the number of miners employed has fallen

dramatically, the value of the remittances has continued to

rise. In 2000 the number of Basotho miners employed in

South Africa was 64 907, but fell to 51 595 in 2006. Over the

same period the value of the remittances rose from M1 400

million to M1 983 million, as the average annual wage rose

from M30 131 to M53 670. The higher gold prices should

help boost demand for mine labour.

Exchange rate - LSL/USD

Source: Bloomberg

Mineworkers and remittances

Source: IMF, Central Bank of Lesotho

0

5

10

15

20

2004 2005 2006 2007 2008

Consumer inflation Food inflation

5.0

7.5

10.0

12.515.0

17.5

20.0

2003 2004 2005 2006 2007 2008

Prime Lo mbard rate 91-day TBs

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08 09

1,300

1,400

1,500

1,600

1,700

1,800

1,900

2,000

2,100

50,000

52,000

54,000

56,000

58,000

60,000

62,000

64,000

66,000

2000 2001 2002 2003 2004 2005 2006

M millionsNumber

Number employed (lh) Miners' remittances (rh)


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Lesotho - picture galleryReal GDP growth - %

Source: IMF


Source: IMF


Source: Bloomberg

Trade balance US$ million

Source: IMF

Government budget balance - % of GDP, including grants

Source: IMF

Manufacturing index Index 2000=100

Source: Bureau of Statistics


Source: Central Bank of Lesotho

Capital account

US$ million

Source: IMF

2.3 1.8

2.8 2.7

4.2

2.9

7.2

4.9 5.25.4

0

1

2

34

5

6

7

8

00 01 02 03 04 05 06 07 08f 09f

Crops10.0%

Livestock5.8%

Manufacturing

17.9%

Electricity &water

5.4%

Construction13.3%

Wholesale &retail8.6%

Financialintermed

5.9%

Public admin7.8%

Education7.6%

Other17.8%

4.04.55.05.56.06.57.0

7.58.0

200300400500600700800

9001,000

2003 2004 2005 2006 2007

MonthsUSD m

Gross reserves Import cover

-1000

-500

0

500

1000

1500

01 02 03 04 05 06e

Exports Imports Trade balance

-10

-5

0

5

10

15

20

02/03 03/04 04/05 05/06 06/07 07/08p

40

60

80

100

120

140

160

2002 2003 2004 2005 2006 2007 2008

Textile and clothing Total manufacturing

Food & non-alc. bev.

39.8%

Furnishings,h/h equip,

maint.17.0%

Clothing &footwear15.6%

Transport7.8%

Alcoholicbeverages &

tobacco6.4%

Other13.3%

-800

-600

-400

-200

0

200

400

01 02 03 04 05 06eTrade balanceCurrent account (incl transfers)Capital & financial account


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Page 10


MalawiInflation accelerated to 9.1% y/y in August. Inflationfollowed global trends, accelerating from 8.7% y/y in July,mainly due to fuel and maize price increases. In spite of highoil prices, inflation recorded the lowest rates in decades in2007 and averaged just below 8%. However, oil prices thatkept reaching new highs as well as a marginal seasonalincrease in food inflation towards the end of last year sawoverall inflation starting to increase moderately from ahistorical low of 7.1% y/y in September 2007 to 8.2% y/y inMarch 2008. Although inflation eased in April and May dueto the seasonal decline in food costs, the upward trendcontinued in June. High oil prices and increased governmentspending ahead of the 2009 election as well as moneysupply growth pose further upside risks to overall inflation.

Monetary Policy Committee keeps the policy rateflat. In view of the current inflationary pressuresstemming from high international oil prices as well asaccelerating money supply growth, the Monetary PolicyCommittee maintained its monetary stance at itsmeeting, and kept the bank rate at 15% and the liquidityreserve requirement at 15.5%. Despite the governmentsintention to encourage private-sector-led development ofthe economy, we expect monetary policy to remain tightin order to contain inflation expectations. However,should inflation drop to the estimated levels of below 7%presented in the 2008/09 budget, we expect interestrates will be brought down to around 12%, as projectedin the 2008/09 budget.

Inflation - % y/y

Source: National Statistics Office

Interest rates - %

Source: Reserve Bank of Malawi

Kwacha stability ensured through RBM intervention. Theauthorities attach importance to exchange rate stability as anintermediate measure in maintaining macroeconomicstability. The kwacha remained relatively stable against theUS dollar in the first three quarters of 2008 and averagedMWK140.35/USD, MWK140.63/US$ and MWK140.69respectively. In September the kwacha was slightly weakerat MWK140.82. The economy is into the seasonal leanperiod following the end of the tobacco auctions. Thepressure on foreign reserves from fertilisers and oil importswill remain a concern for some time, although the kwacha isexpected to receive some support from donor funds and theauthorities. The RBM is expected to continue intervening inthe foreign exchange market and we therefore expect thekwacha to trade within a narrow band of MWK140/US$ andMWK142/US$.

Tobacco auction floors more than doubled sales.The tobacco auction floors had processed about 143million kilograms valued at US$348 million as at the endof July 2008. In value terms, the quantity is almostdouble that posted for the whole season last year(US$185 million). As at 22 August, 168.7 kilograms ofthe green gold had been sold, earning US$412.3 million

an average price of 244 US cents per kilogram. Out ofthe total sold, burley contributed 145.9 million kilograms(86.5%) whereas flue-cured contributed 20.9 millionkilograms (12.3%). All foreign currency payments fortobacco sold in Malawi are now made through thecentral bank and not commercial banks as in the past.The onset of uranium exports next year will be anadditional source of support for the local currency.

Exchange rates

Source: Bloomberg

Tobacco export price

UScts/kg

Source: Tobacco Control Commission

0

4

8

12

16

20

2004 2005 2006 2007 2008

Overall Inflation Non-food inflation

Food inflation

5

15

25

35

45

2004 2005 2006 2007 2008

Prime-avg Bank rate 91-day t-bill

14

16

18

20

22

24

60

100

140

180

220

260

2004 2005 2006 2007 2008

USD EUR ZAR (rhs)

150

200

250

300

350

2004 2005 2006 2007


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Page 11


Malawi picture galleryReal GDP Growth - %

Source: IMF


Source: OECD 2007



Trade Balance - US$ million

Source: Central Statistics Office

Government finance - %

Source: IMF

Tobacco exports million Kg




Malawi Stock Exchange index

Source: MSE

-6

-4

-2

02

4

6

8

10

2001 2002 2003 2004 2005 2006 2007 2008 2009

Agriculture Mining and quarryingManufacturing UtilitiesConstruction DistributionTransport and Comm Finance & InsurancePrivate social services Government services

1.5

2.0

2.5

3.0

3.5

50

100

150

200

250

2004 2005 2006 2007 2008

Foreign reserves Import cover

US$ million Months

-1000

-500

0

500

1000

1500

2001 2002 2003 2004 2005 2006 2007 2008

Imports Exports Trade Balance

-16-14-12-10

-8-6-4-2

0

02/03 03/04 04/05 05/06 06/07 07/08e 08/09f

Including grants Excluding grants

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007

58%12%

9%

6%

6%5% 4%

Food Housing

Clothing & footwear Misc.

Beverage & tobacco Transport

Household operation

0

1000

2000

3000

4000

5000

6000

2006 2007 2008


12/30

Page 12


MauritiusContinued pressure on inflation from high food and oilprices. Headline inflation has been on a declining trendsince July last year but remained relatively high at around9%, largely as a result of the pass-through effects of highfood and energy prices. The appreciation of the rupee in thefirst four months of this year dampened the impact ofmounting import prices, and inflation came marginally downto 8.8% y/y in May. After remaining level during June,inflation accelerated to 9.1% y/y in July and to 9.5% y/y inAugust. Once again the main pressure came from food andfuel. With oil prices showing a softening bias and food pricesexpected to plateau, external pressures are easing, althoughdomestic pressures such as strong demand are expected toremain. Our expectation is that overall inflation will slightlyexceed the 8.6% average projected in the 2008/09 budget.

Further interest rate cuts ruled out. Against thebackdrop of a reduction in policy interest rates by the USFederal Reserve and the Bank of England as well aspotential downside risk to economic growth stemmingfrom decelerating growth in major trading partners, theBoM cut the repo rate by 25 basis point to 9% inFebruary, lowered it further to 8.5% in March and in Mayagain by 50 basis points to 8%. In view of growingdemand-side pressures on inflation and no slowdown infood and fuel prices, the BoM increased the repo rate on21 July to 8.25%. It is likely that the MPC will commit toanother interest rate rise, especially if inflation pressescloser to double digits. However, there are some positivesigns, particularly with regard to commodity prices suchas food and oil which are thought to have peaked.

Inflation - % y/y


Interest rates - %

Source: Bank of Mauritius

Rupee depreciated further in September toMUR28.67/USD. Supported by FDI inflows, record tourismearnings and the depreciation of the US dollar on currencymarkets, the rupee appreciated by 9% in the first quarter ofthis year to a four-year high of MUR25.5/US$. In April thistrend was reversed when the rupee averaged MUR26/US$,MUR26.5/US$ in May and MUR27.2/US$ in June. This wasmainly on account of continued deterioration of the currentaccount as import prices, particularly food and fuel, pushedup the import balance. The extent and duration of the globaldownturn will play a large part in export demand as Mauritiusis closely linked to international financial markets and themajority of its export demand (more than 50%) comes fromEurope and the US. The current account will thereforeremain under pressure. FDI and tourism receipts should lendsome su ort to the ru ee.

Tourist arrivals increased by 5.5% in the first half of2008.Tourist arrivals increasedto 455 758 compared to432 113 for the same period in 2007. Gross tourismreceipts for the first six months amounted to Rs22 170million, an increase of 12.2% compared to Rs19 752million for the same period in 2007. According to theBoM, tourism receipts for this year will be around 13%higher than last year. Tourist arrivals for the year areestimated to be between 965 000 and 975 000 against903971 last year. Given the construction timeframe ofcurrent hotel projects, the sector should receive asubstantial increase in capacity through 2008 and 2009.The sector continues to play a large role in terms ofattracting FDI and is one of the main drivers of thecountrys economic recovery.

Exchange rates

Source: Bloomberg

Tourism receipts - Rs million


2

4

6

8

10

12

14

2004 2005 2006 2007 2008

2

4

6

810

12

14

2004 2005 2006 2007 2008

Prime rate Bank rateLombard Rate Repo Rate

3.0

3.5

4.0

4.5

5.0

5.5

20

25

30

35

40

45

2004 2005 2006 2007 2008

MUR/USD MUR/Euro MUR/ZAR (rhs)0

10000

20000

30000

40000

50000

60000

2001 2002 2003 2004 2005 2006 2007 2008


13/30

Page 13


Mauritius picture galleryReal GDP Growth - %



Source: IMF (2006)


Source: Central Statistical Office

Trade Balance US$ million


Government finance - % of GDP

Source: IMF

Tourist arrivals - number




Stock Exchange of Mauritius index

Source: Bloomberg

0

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008

Sugar Non-sugar agriculture

Export-oriented industry Construction

Wholesale & Retail trade Hotels & Restau-rants

Transport, storage & communication Financial Inter-mediation

Others (incl. gov)

0

10

20

30

40

50

0

500

1000

1500

2000

2500

2004 2005 2006 2007 2008

Foreign Reserves Weeks of import cover

-1000

-500

0

500

10001500

2000

2500

3000

2000 2001 2002 2003 2004 2005 2006 2007

Imports Exports Trade balance

-7

-6

-5

-4

-3

-2

-1

0

00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/090

200

400

600

800

1000

1200

2000 2001 2002 2003 2004 2005 2006 2007 2008

10%16%

4%22%5%

13%

9%

4%8% 9%

Clothing, footwear Housing, water, electricity

Health Transport

Communication Furnishings, household

Recreation, culture Education

Restaurants, hotels Miscellaneous goods, services

600

800

1000

1200

1400

1600

1800

2000

2200

2005 2006 2007 2008


14/30

Page 14


MozambiqueMarginal increase in overall inflation to 10.7% y/y in

September. As projected, non-food inflation accelerated to 4%

y/y in September as the low base effect kicked in. Other than

food, the annualised inflation rates for the transport and

households goods sub-indices accelerated in September.

Although food prices moderated by 0.1% m/m in September, its

annualised inflation rate increased to 16.1% y/y, from 15.7% y/y

in August. The modest decrease in the food price in September is

in our view temporal, especially as the lean season is

approaching implying that food stocks will decline, putting upward

pressure on prices. However, a high base effect in the last quarter

of 2008 is expected to moderate the impact of higher food prices.

Single-digit inflation is thus projected to return in the first quarter

of 2009, when the worst of the lean period, and the festive

season has passed.

The interest rate on the 91-day Treasury bill edged up in

the third quarter. The climb of the interest rate on the

short-term government security to 13.89% in August, after

being flat at 13.5% in the first half of 2008, reflects the

tightening of monetary policy in response to the spurt in

demand for money in the third quarter of 2007. The base

money stock exceeded the September programme target

ceiling in July, on account of strong demand for currency

from buyers acquiring newly harvested cash crops.

However, the spurt in base money was temporal and in

August had fallen to below the end-quarter target. The

approaching festive season is likely to prompt monetary

expansion, as such monetary policy is expected to remain

firm in the short term and thus the policy rate is expected

stabilise over this period.

Inflation - % y/y

Source: Source: Instituto de Nacional Estatistica

Interest rates - %

Source: Banco de Mocambique

The metical holds steady against hard currencies. The

modest 0.7% depreciation of the Mozambican currency againstthe US dollar in September, to MZN24.05/USD, was largely due

to a stronger US dollar. Conversely, the metical strengthened

against the rand, the currency of Mozambiques largest trading

partner, South Africa, and the euro. The sound build up of

international reserves to beyond six months of import cover has

provided resources for the Bank of Mozambique to lean towards

foreign exchange sales to drain liquidity and place less emphasis

on Treasury bill issuances. The subsequent injection of foreign

exchange into the domestic market partly explains the strength of

the metical in recent months. Added to that are the large donor

and foreign direct investment inflows. The metical is projected to

hold steady at present levels over the short term.

Base money fell below target ceiling in August, after

overshooting in July. Strong demand for currency in Julyexplains base moneys breach of the end of September

ceiling target of MZN17 347 million. It expanded by 15.6%

y/y in July and amounted to MZN17 479 million. This growth

spurt was due to the purchase newly harvested cash crops,

including cotton. In August, base money declined by 0.8%

m/m to MZN17 332 million, thus allowing for the monetary

aggregate to fall below the target ceiling. The long weekend

in early September may have spurred higher currency

demand that may have countered the moderation of base

money in August, implying a fair likelihood of a September

breach. The approaching festive season implies a fair

likelihood of monetary expansion in the short term.

Exchange rates

Source: Bloomberg

Money supply


0

5

10

15

20

25

2004 2005 2006 2007 2008

Overall Food Non-food

5

10

15

20

25

30

2004 2005 2006 2007 2008

Prime Standing lending facility 91 day t-bill

2.8

3.1

3.4

3.7

4.0

4.3

4.6

16

20

24

28

32

36

40

2004 2005 2006 2007 2008MZN/USD MZN/EUR MZN/ZAR (rhs)

5

10

15

20

25

30

35

2004 2005 2006 2007 2008

M2 Base money


15/30

Page 15


Mozambique picture galleryReal GDP growth - %



Source: Source: Instituto de Nacional Estatistica

Gross foreign reserves & import cover

Source: Banco de Mocambique, Standard Bank est.



Government deficit - % of GDP

Source: IMF CR. No 08/220

Aluminium price US$ per metric tonne

Source: IMF


Source: Instituto de Nacional Estatistica

Capital account

US$ million

Source: IMF

7.58.4 8.7

7.0 7.07.7

0

2

4

6

8

10

2004 2005 2006 2007 2008p 2009f

Agriculture,animal

production,hunting &

forestry, 24%

Fishing,2%

Extractiveindustries,1%

Manufacturing, 15%

Electricityand water,

6%

Construction,4%

Commerce,11%

Hotels andrestaurants,

2%

Transports,storage &

communications, 10%

Financial

activities, 6%

Real estateactivities &business

services, 9% Communityservices, 7%

Education,4%

2

4

6

8

10

0

400

800

1200

1600

2000

2004 2005 2006 2007 2008

Foreign reserves Import cover

-300

-150

0

150

300

450

600

750

900

2004 2005 2006 2007 2008

Exports Imports Deficit

-7

-6

-5

-4

-3

-2

-1

0

2003 2004 2005 2006 2007 2008p1500

1900

2300

2700

3100

3500

2004 2005 2006 2007 2008

52%

13%10%

5%

5%

3%3%

2%

2%2%2%

1%

Food & non-alcohol ic drinks Dwellings,water,elec., gas & fuels

Transport Mobile dwellings, hhold equip. & main.

Clothes & footwear Health

Leisure, recreation & culture Communications

Alcohol & tobacco Restaurants & hotels

Miscellaneous Education

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2006 2007 2008p 2009p 2010p

Foreign borrowing Amortisation Direct investment


16/30

Page 16


Namibia

Inflation may have peaked. As 85% of Namibias goods and

services are sourced from South Africa, inflation is largely

imported. This year inflation rose from 7.8% y/y in January to

12% y/y in August. Inflation is mainly driven by the escalation in

food and energy prices. The food group has the largest weight in

the overall consumer price index at 29.6%. Food inflation rosefrom 15% y/y in January to 18.8% y/y in July, but eased to 18.3%

y/y in August. Food prices may have peaked which suggests

overall inflation could ease. However, transport inflation (weight

14.8%) remained high at 18.1% y/y in July and August. South

Africas producer price inflation is an important leading indicator

of Namibias inflation rate and rose by 19.1% y/y in August.

Although high it is expected to ease in coming months.

Monetary Policy Committee keeps policy rate flat.

Namibias policy stance is closely linked to that of the South

African Reserve Banks (SARB) through membership of the

Common Monetary Area (CMA). Namibias monetary policy

focuses on maintaining the Namibian dollars peg to the

South African rand at par by holding adequate foreignexchange reserves. Namibias interest rates have remained

unchanged this year, whereas the SARB hiked rates in April

and June. Namibias policy or bank rate is 10.5% and the

prime rate is 15.25%. The Central Bank of Namibia (BoN) no

longer meets on the same day as the SARB. Interest rates

have started to diverge from South Africas, signalling some

degree of policy independence.

Inflation - % y/y

Source: Bank of Namibia

Interest rates - %


The Namibian dollar is under pressure to depreciate. The

Namibian dollar (NAD) is pegged to the South African rand

(ZAR) at 1:1. Several factors are affecting the exchange rate,such as South Africas large trade and current account deficits,

emerging markets jitters and global uncertainty from the sub-

prime debacle, and are exposing the rand to further weakness.

The weaker exchange rate could help boost the export sector,

but equally could underpin imported inflation. Greater exchange

rate uncertainty and volatility can be expected. The projected

exchange rates for the rand/Namibian dollar exchange rate to the

US dollar are: NAD8.05/USD in Q4 2008; NAD8.17/USD in Q1

2009 and NAD8.12 in Q2 2009. The 12-month trading range is

NAD7.30 to NAD8.50 to the US dollar.

Diamond minings contribution to GDP declining. The

important diamond mining contributed 5.9% of GDP in 2007,

below the high of over 10.4% in 2002. The sectorcontributed an average of 8.3% to GDP from 2000 to 2007.

Diamond mining output amounted to N$3.11 billion in 2007,

marginally below N$4.05 billion in 2006. The sectors growth

is erratic: between 2002 and 2007 it grew by 17.3%, -3.5%,

38.6%, -3.4%, 25.2% and -0.3% respectively in real terms.

The mining and quarrying sector as a whole also exhibited

volatility. Diamond prices, as measured by the Antwerp

Diamond Index, surged to 171.7 in June this year (the latest

available) from 140.9 a year earlier, after being relatively

stable in 2006 (see Botswana Picture Gallery).

Exchange rate - NAD/USD

Source: Bloomberg

Diamond mining


-4

0

4

8

1216

20

2004 2005 2006 2007 2008

CPI Food

4

8

12

16

20

2002 2003 2004 2005 2006 2007 2008

Prime rate Ban k rate 91-d ay TB

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08

2%

4%

6%

8%

10%

12%

0.0

1.0

2.0

3.0

4.0

5.0

00 01 02 03 04 05 06 07

Diamond mining (lh) % of GDP (rh)

N$ billion %


17/30

Page 17


Namibia picture gallery

Real GDP growth

Source: IMF




Source: Bloomberg, Bank of Namibia

Trade balance - N$ billion


Government budget balance (incl. grants) - % of GDP

Source: IMF

Fishing industry



Source:Bank of Namibia

Namibia Stock Exchange index

Source: Bloomberg

3.5

2.4

6.7

3.5

6.6

4.8

4.1

4.4 4.74.5

0

2

4

6

8

00 01 02 03 04 05 06 07 08f 09f

Agriculture &forestry

5.7%

Fishing4.2%

Mining &quarrying

8.3%

Other15.1%

Manufacturing

12.6%

Otherservices35.5%

Governmentservices

18.6%

0

1

2

3

4

5

6

7

0

200

400

600

800

1,000

1,200

1,400

2004 2005 2006 2007 2008

MonthsUS$ mn

Reserves ( lh) Import cover ( rh)

-5

0

5

10

15

20

25

2002 2003 2004 2005 2006p 2007p

Exp orts Imp orts Trad e balan ce

-8

-6

-4

-2

0

2

4

03/04 04/05 05/06e 06/07 07/08p

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

0.0

0.5

1.0

1.5

2.0

2.5

00 01 02 03 04 05 06 07

Fishing on board (lh) % of GDP (rh)

N$ billion %

30%

21%15%

7%

7%

20%

Food & non-alc. bev. Housing, water, electricity

Transport Education

Misc. goods & services Other

200

300400500600

700800900

1,000

1,100

2002 2003 2004 2005 2006 2007 2008


18/30

Page 18


Nigeria

Risk to inflation remains high. Headline inflation declined from

14% y/y in July to 12.4% y/y in August 2008 driven by a decline

in food prices. Food prices (which account for about 64% of the

CPI basket) declined from an average of 20.9% y/y to an

average of 18.8% over the same period. Despite headline

inflation remaining in double digits, core inflation (headlineinflation, excluding food) declined from an average of 4.8% y/y in

July to an average of 3.9% y/y in August 2008. We expect the

improvement in agricultural production to ease food supply

problems thereby reducing food prices through 2008. Significant

growth in broad money, M2, mostly fuelled by rising private

sector credit growth continues to pose an upward risk to

inflation. We have revised our inflation forecast upwards to

average 10.7% in 2008.

Monetary policy rate (MPR) reduced by 50 basis points.

As core inflation remains in single digits, the central bank

continues to divert its focus to liquidity management to avert

the long-term inflationary pressures from fiscal expansion

and high inflows of oil revenue rather than fight the short-

term inflationary impact of rising food prices. Following anemergency monetary policy committee meeting on 18

September, the MPR was reduced from 10.25% to 9.75% in

an attempt to address liquidity shortages in the system.

However, excess liquidity from fiscal expansion and rapid

private sector credit extension, which is driving high money

supply growth, continues to pose major interest rate risks.

Overall, we expect monetary policy to remain restrictive

through 2008.

Inflation - % y/y

Source: National Bureau of Statistics

Interest rates - %

Source: Central Bank of Nigeria

Naira exchange rate remains relatively strong. The central

bank continues to uphold its strong stance of a strong and stableexchange rate. The exchange rate continues to trade within a

narrow range fluctuating around NGN117 per US dollar. A strong

naira should also help curb the high import bill, especially from

food and energy. Due to high oil revenues and fiscal expansion,

we expect the monetary authority to remain active in the forex

market. This should help reduce the surge in money supply and

be an effective way of managing excess liquidity that is posing

significant long-term risks to inflation. We expect the naira to

remain relatively strong and to average NGN116.50 per US dollar

in the fourth quarter of 2008.

Non-oil sector continue to drive economic growth. First

quarter GDP growth was revised downwards from 6.5% to5.5%. The economy grew by 6.7% in the second quarter of

2008 mainly driven by 8.5% growth in the non-oil sector.

Non-oil sector growth was driven by strong agriculture

performance following favourable weather conditions and

high prices of agriculture products that increased by between

16% and 40% for the nine monitored agriculture

commodities. The unrest in the Niger Delta area continues to

constrain oil production thereby leading to slowdown in the

oil sector growth. The manufacturing sector contracted by

2.2% in the second quarter due to poor electricity supply.

Overall, we expect GDP growth to remain strong in 2008 due

to strong performance in the non-oil sector.

Exchange rates

Source: Bloomberg & Federal Ministry of Finance

Real sectoral GDP growth - %


-20

-10

0

10

20

30

40

2005 2006 2007 2008CPI inflation CPI ex foodCPI ex food & energy Transport

9.75

0

4

8

12

16

20

2005 2006 2007 2008

Policy rate Prime 91-day TB

115

120

125

130

135

2006 2007 2008Naira/US$ Budget exchange rate (Naira/US$)

-10

-5

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008f 2009f

Real GDP Oil GDP Non-oil GDP


19/30

Page 19


Nigeria picture gallery

Real GDP growth - %

Source: NBS


Source: NBS

Foreign exchange reserves US$ million

Source: Bloomberg

Trade account

Source: IIMF

Government surplus - % of GDP

Source: IMF

Oil production and prices

Source: International Energy Agency


Source: NBS

Nigerian stock exchange

All share index

Source: Bloomberg

10.3 10.6

5.4 6.26.4

9.48.6

0

2

4

6

8

10

12

2003 2004 2005 2006 2007 2008f 2009f

Agriculture,42.2

Oil & gas,19.4

Building &construction,

1.7

Finance &insurance,

3.9

Wholesale &retail trade,

16.2

Manufacturing, 4.0

Telecommunication, 2.3

0

10000

20000

30000

40000

50000

60000

70000

2003 2004 2005 2006 2007 2008

-60

-40

-20

0

20

4060

80

100

2004 2005 2006 2007 2008f

Exports Imports Trade surplus

-10

0

10

20

30

2003 2004 2005 2006 2007 2008f

Overall balance (cash basis) Revenue Expenditure

20

40

60

80

100

120

140160

-

0.5

1.0

1.5

2.0

2.5

3.03.5

2005 2006 2007 2008

US$/barrelmillion bpd

Total productionBonny Light spot price (RHS)

64%

18%4%

4%

3%

2%5%

Food & non-alcohol ic bev. Hse water, elec, gas & other fuel

Transport Furn & hshld equip maint

Clothing & footwear Alcohol, tobacco & kola

Other

10000

20000

30000

40000

50000

60000

70000

2003 2004 2005 2006 2007 2008


20/30

Page 20


Swaziland

High food and transport prices driving inflation. Inflation is

largely imported from South Africa through close trade links.

Almost 90% of Swazilands imports are sourced from South

Africa. Swazilands inflation averaged 14.7% y/y in August,

above 13.3% y/y in July. Although food inflation data is not

readily available, it can be assumed that food prices followSouth African trends. Swaziland has rebased its CPI in April

2007; the food groups weight rose from 25.3% to 37.7% and the

transport groups from 7.9% to 8.6% in the index. The greater

weights of these two important groups, which both experienced

price surges, are more reason why inflation is at these high

levels. South Africas inflation rate is expected to peak in the

next few months, which should bring some relief.

Interest rates linked to South Africas. Swazilands

monetary policy focuses mainly on maintaining its 1:1

currency peg to the rand by holding adequate foreign

exchange reserves. The Common Monetary Area rules limit

Swazilands policy independence and policy is effectively

imported from South Africa. The Central Bank of Swazilanddid not raise its discount rate in June when the SARB raised

the repo rate to 12%, keeping the discount rate at 11.5%. In

the 2008 MPC statement, the committee argued that a less

restrictive policy may be followed to avoid stifling economic

growth and encourage the agricultural sector, helping to

offset imported food price pressures. Also, higher local

interest rates do not affect prices determined internationally.

Inflation - % y/y

Source: Central Bank of Swaziland

Interest rates - %


Depreciation in the offing. The lilangeni is pegged at par to the

South African rand under the CMA agreement. The rand is legal

tender in Swaziland, but not vice versa. Economic conditions inSwaziland do not affect the exchange rate of the ZAR, only

South African and global economic conditions. The SZL/ZAR is

expected to trade at an average of SZL8.05/USD in the fourth

quarter of 2008 and SZL7.78/USD for the whole of 2008;

SZL8.17/USD in the first quarter and SZL8.12/USD in the

second quarter of 2009; and SZL7.97/USD for 2009. The 12-

month trading range is SZL7.30-8.5/USD. However, South

Africas large trade and current account deficits, emerging

markets jitters and global uncertainty from the sub-prime

debacle expose the rand to further weakness.

Sugar production. Sugar is the backbone of the economy,

but recent changes in the global trade regime has meant

that the industry will suffer. European Union sugar pricescontinue to fall. Sugar production is also vulnerable to

weather conditions, particularly water for irrigation. Sugar

production has been relatively stable between 2004/05

(597 563 MT) and 2007/08 (631 236 MT), despite being

lower than in 2005/06 (652 735 MT). About half the

production is sold domestically. The value of exports,

however, has risen from E758.4 million to E1 126.0 million

over the same period. Export earnings were boosted by the

weaker exchange rate, but a lower international sugar price

dampened earnings (see the picture gallery below).

Exchange rates

SZL/USD

Source: Bloomberg

Sugar production


0

2

4

6

8

10

12

14

16

2002 2003 2004 2005 2006 2007 2008

4

6

8

10

12

14

16

18

2002 2003 2004 2005 2006 2007 2008

Prime rate Discount rate TB rate

5

6

7

8

9

10

11

12

00 01 02 03 04 05 06 07 08

0

200

400

600

800

1,000

1,200

550

575

600

625

650

675

700

04/05 05/06 06/07 07/08

E millio nMT '000

Production Value of exports


21/30

Page 21


Swaziland picture gallery

Real GDP growth - %

Source: IMF


Source: IMF


Source: Bloomberg


Source: Bloomberg

Government budget balance - % of GDP, including grants

Source: IMF

Sugar prices international - Sugar No. 11 contract US$/lb

Source: Bloomberg


Source: IMF

Capital account

US$ million

Source: IMF

2.0

1.0

1.8

3.9

2.5 2.2

2.8

2.4

2.0 2.0

0

1

2

3

4

00 01 02 03 04 05 06 07 08f 09fAgriculture

12.1%

Manufacturing

32.0%

Construction3.7%

Services49.7%

Other2.5%

0

1

2

3

4

5

6

100200300400500600700800

9001000

2004 2005 2006 2007 2008

MonthsUS$ mn

Gross reserves Import cover

-500

0

500

1,000

1,500

2,000

2,500

2002 2003 2004 2005 2006e 2007p

Trade balance Exports Imports

-6

-4

-2

0

2

4

6

8

1012

03/04 04/05 05/06 06/07 07/08p 08/09p

0

4

8

12

16

20

95 96 97 98 99 00 01 02 03 04 05 06 07 08

Food37.73%Housing

14.33%

Clothing6.16%

Furniture11.88%

Transport8.60%

Health3.58%

Education5.38% Other

12.34%

-400

-200

0

200

400

2002 2003 2004 2005 2006e 2007p

Trade balance Current accountCapital & financial account


22/30

Page 22


Tanzania

Second round effects of high oil prices. Headline inflation

increased from 9.5% y/y in July to 9.8% y/y in August mostly

driven by high energy and transport costs. The food component

(which constitutes about 55.9% of the consumer price index

CPI- basket) declined marginally from 11.2% y/y in July to 11.1%

y/y in August as the country enters the harvest period. Energyprices (which constitute about 8.5% of the CPI basket) increased

from 12% y/y in July to 12.7% y/y in August as the country

continues to import its full quota of oil. Second-round effects of

high energy prices are now evident as transport costs increased

from 5.5% y/y in July to 9.9% y/y in August. Thus we expect

softer oil prices and increased food supply to bring some relief

through 2008. We have revised our inflation forecast downwards

to average 9.5% in 2008.

Upside risk to interest rates. The declining interest rates

environment experienced since November 2007 seems to be

fading. Having declined from a high of 15.14% in October

2007 to 4.95% in May 2008, the 91-day Treasury bill (T-bill)

rate increased to 8.62% in August 2008. As developments in

T-bill yields continue to provide an anchor for market-determined interest rates, the yields for all maturities have

started increasing as well. The overall weighted average T-

bill rate also increased from a low of 7% in May to 9.47% in

August 2008. The high inflation environment should lead to

an increase in nominal lending rates through 2008, which

should help to maintain stable real interest rates. Overall, the

risks to interest rates are on the upside. We forecast the

end-year T-bill rate to reach 11.4%.

Inflation - % y/y


Interest rates - %

Source: Bank of Tanzania

The shilling exchange rate to strengthen through 2008. As

the country enters the agriculture harvest period, we expect thecurrency to strengthen throughout the remainder of the year.

Export performance continues to determine fluctuations in the

exchange rate as the economy is heavily dependent on the

agriculture and commodity sectors. Increased demand for tourism

services and continued inflow of donor aid should also support a

strong currency. As the boom in the world commodity market

continues, this should further improve mining exports thereby

strengthening the currency. The shilling appreciated from an

average of TZS1 160.33 per US dollar in

August to an average of TZS1 159.16 per US dollar in September

2008.

Tourism leading the export sector improvements.

Tanzanias economy depends heavily on the agriculture,commodity and tourism sectors. Trade, hotels and

restaurants (accounting for about 25% of the countrys forex

earnings) should continue to grow as tourism remains

strong. The low-cost high volume tourism strategy continues

to attract more visitors into the country, thereby generating

more revenue. Travel receipts, of which tourism is 80%,

dominates the export sector followed by gold receipts.

Infrastructural bottlenecks will have to be addressed if the

tourism sector is to reach its full potential. Following the

aggressive marketing drive by the tourism authorities, we

expect a continued increase in tourism services in the

medium term.

Exchange rates


Exports (year ending May) US$ million


0

3

6

9

12

15

2005 2006 2007 2008

Overall Non-food Food

0

5

10

15

20

25

2005 2006 2007 2008

Central Bank RateComm.Bank Lending RateTreasury Bills

0

40

80

120

160

200

240

1050

1100

1150

1200

1250

1300

1350

2005 2006 2007 2008

Volume of transactions (US$ millions) RHSExchange rate (TZS per USD)

TZS per USD Millions of US$

0

200

400

600

800

1000

1200

Travel Gold Traditional

exports

Manufactured

exports2005 2006 2007 2008


23/30

Page 23


Tanzania picture gallery

Real GDP growth - %




Foreign exchange reserves, import cover


Trade account US$ million


Government deficit % of GDP

Source: Bank of Tanzania & IMF

Services receipts year ending May - US$ million


Weights in consumer price index (CPI) constituents


Capital account - US$ million


7.2 6.97.8

7.46.7

7.17.8 8.1

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008f 2009f

44.7%

17.5% 5.4%9.2%

6.9%5.4%

5.8%

1.5%

3.8%

4.1%

Agriculture Trade, Hotels & Restaurants

Financial & Business Services Manufacturing

Public Admin. Transport & Comm.

Construction Electricity and water supply

Mining and quarrying Owner occupied dwellings

2

3

4

5

67

8

0

500

1000

1500

20002500

3000

2000 2001 2002 2003 2004 2005 2006 2007e

months

Gross reserves Import cover (rhs)

US$ millions

-6000-5000-4000-3000-2000-1000

0100020003000

2000 2001 2002 2003 2004 2005 2006 2007e

Exports Imports Trade deficit

-7

-6

-5

-4

-3

-2

-1

0

2000 2001 2002 2003 2004 2005 2006 2007 2008f

0

200

400

600

800

1000

1200

Transportation Travel (Tourism) Other Services

2004 2005 2006 2007 2008

55.9%

6.9% 6.4% 1.4%

8.5% 2.1%

2.1%

2.1%

0.8%

9.7%

2.6%

1.5%Food Drinks and Tobacco

Clothing and Footwear Rents

Fuel, Power and Water Furniture & Household Equipment

Household Operations&Maintenance Personal Care & Health

Recreation & Entertainment Transportation

Education Miscellaneous Goods and Services

0

1000

2000

3000

4000

5000

6000

2000 2001 2002 2003 2004 2005 2006 2007e


24/30

Page 24


Uganda

Overall inflation subdued by slowing food inflation. Overall

inflation slowed to 15.2% y/y in September from 15.8% y/y in

August on the back of a deceleration in food inflation to 30.7% y/y

from 33.6% y/y. Nevertheless, food prices are expected to remain

high because despite favourable domestic production, demand

from neighbouring countries, including Kenya, is projected todeplete food stocks and thus maintain upward pressure on food

prices in the short term. The softening of the international oil price

is expected to reduce the inflationary pressures stemming from

the transport and fuel sub-indices. Nevertheless, overall inflation

is projected to remain stubbornly high for longer and persist until

the second quarter of 2009.

Central bank governor signals lower interest rates. The

Bank of Ugandas outlook for inflation is positive and the

governor suggested in September that there were grounds

to cut interest rates, especially as the inflationary pressures

are exogenous. Following the suspension of Treasury bill

auctions in July, which prompted a spike in the 91-dayTreasury bill yield of 9.1%, the yield eased to 8.6% at the

end of September. The rediscount rate was higher in the

third quarter of 2008 than it was in the first half of the year,

implying a tightening of monetary policy as liquidity

increased. This reflects the upward pressure of sterilisation

on interest rates, mainly through debt issuances.

Inflation - % y/y

Source: Uganda Bureau of Statistics

Interest rates - %

Source: Bank of Uganda

The shilling stabilises. The 1.4% depreciation of the Ugandan

currency against the US dollar in September, compared to

August, to UGX1 646.27/USD, in relation to its appreciationagainst the rand and the euro reflects the effect of a stronger US

dollar. The Ugandan shilling has benefited from large inflows of

foreign exchange due to sound export earnings, capital inflows

and aid. The Bank of Ugandas preference for foreign exchange

sales for open market operations, made possible by the prudent

accumulation of international reserves to about six months of

import cover, has also boosted the value of the shilling. The

moderation of the oil price is likely to ease pressure on the

current account, which is shilling friendly. The risk to the shilling

is investors increasing risk aversion to emerging market assets.

Large foreign exchange inflows raise liquidity. Strong

foreign exchange inflows due to growing capital inflows and

buoyant export revenue have proven a challenge for theauthorities to sterilise, hence the breaching of the indicative

target on base money at the end of 2007 and end of March

2008. The acceleration of money supply growth over the

past two years from the teens to the 20-30% range on an

annual basis is testimony to these increasing inflows. To

accommodate the permanent effect on the level of food and

fuel prices, the base money target for June 2008 was

upwardly adjusted. To subdue second-round effects, the

authorities have based their target for June 2009 on a

conservative core inflation projection of 5%.

Exchange rates

Source: Bloomberg, Standard Bank est.

Money supply growth - % y/y


0

3

6

9

12

15

18

2005 2006 2007 2008

Overall Core (excl. food, fuel, electricity and utilities)

0

4

8

12

16

20

24

28

2004 2005 2006 2007 200891 Day TB (yield)Weighted average lendingRediscount

0

60

120

180

240

300

360

1500

1700

1900

2100

2300

2500

2700

2004 2005 2006 2007 2008

UGX/USD UGX/EUR UGX/ZAR (rhs)

0

10

20

30

40

50

2004 2005 2006 2007 2008

M3 (Broad money) Base money


25/30

Page 25


Uganda - picture gallery

Real GDP growth - %

Source: Uganda Bureau of Statistics, IMF, Standard Bank est.




Source: Bank of Uganda, Bloomberg



Government budget deficit - % of GDP

Source: IMF CR No. 08/236

Coffee prices US cents per pound

Source: IMF



Capital and financial account US$ million

Source: IMF CR No. 08/236

6.6

8.69.4 8.9 9.1 9.2

0

2

4

6

8

10

2004 2005 2006 2007e 2008p 2009f

Agriculture30%

Mining andquarrying

1%

Manufacturing

9%

Electricityand water

1%

Construction11%

Wholesale &Retail Trade

11%

Hotels &Restaurants

3%

Transport &communicati

on10%

Communityservices

24%

4.5

5.0

5.5

6.0

6.5

7.0

7.5

0

500

1000

1500

2000

2500

3000

2004 2005 2006 2007 2008

Forex reserves Import cover (rhs)

US$ million months

-540

-450

-360

-270

-180

-90

0

0

200

400

600

800

1000

1200

2005 2006 2007 2008

Exports Imports Trade balance (rhs)

-4

-3

-2

-1

0

1

2005/06 2006/07 2007/08 2008/09p

0

40

80

120

160

200

2004 2005 2006 2007 2008

Robusta price (rhs) Arabica price (rhs)

27.2%

4.7%

4.4%

14.8%4.5%

12.8%

14.7%16.8%

Food

Beverages and tobacco

Clothing and footwear

Rent, fuel and utilities

Household and personal goods

Transport and communication

Education

-3000

-2000

-1000

0

1000

2000

3000

4000

Capitalaccount(MDRI)

FDI andportfolio

investment

Otherinvestment

Short-terminvestment

2005/06 2006/07 2007/08 2008/09p


26/30

Page 26


ZambiaInflation accelerates to 14.2% y/y in September. The persistent

incline of inflation from 13.2% y/y in August was due to food, fuel

and transport prices. Food inflation remained steady at 16.2% y/y

in September. However, the rent, fuel and lighting sub-indexs

inflation accelerated to 17.7% y/y from 14.5% y/y, while the

transport and communication sub-indexs inflation surged to

11.5% y/y from 5.3% y/y. The price of fuel is very high and feeds

into transport costs and final goods and services. To ease the

pressure of high fuel prices on production and inflation, the

authorities cut import tariffs on diesel and petrol to 7% and 36%

from 15% and 45% respectively. This is projected to ease fuel

prices and transport costs; however, the approaching lean

season will keep food prices elevated in the short term.

Interest rates edge up. Uncertainty surrounding Zambias

imminent presidential elections, the global financial turmoil

and high inflation contributed to the increase in short-term

interest rates in September. In recent years, yields on

Treasury instruments have been largely influenced by

portfolio capital inflows. Over the past year, portfolio

investors have sought longer dated instruments, thus easing

the downward pressure on yields. However, in the second

half of 2008 these flows slowed, hence the increase in the

yield on the 91-day Treasury bill to 12.5% in September

from 10.9% in March. Even the sticky lending rate edged up

to 25.6% in September. Interest rates are expected to

moderate over the short term as uncertainty recedes.

Inflation - % y/y


Interest rates - %

Source: Bank of Zambia

Kwacha weakened by pre-election jitters and a softer copper

price. The Zambian currency depreciated against three hard

currencies, namely the US dollar, euro and rand, in September.The kwachas loss in value is due to a slowdown in portfolio

capital inflows on account of uncertainty surrounding domestic

events, turmoil in global financial markets and the 15.4% m/m

drop in the copper price to USD6 388 per tonne at the end of

September. Accelerating inflation has also aggravated the value

of the kwacha, as the inflation differential with that of its trade

partners widens thus spurring a weaker currency. A stable

kwacha is projected in the short term on the grounds that policy

continuity is all but assured under new leadership. Although the

copper price has softened it is not expected to fall off.

M3 growth slows on the back of softening growth of

foreign currency deposits. The slowdown in the growth

rate of broad money (M3) to 29.2% y/y in July from 34.6%y/y in January is reflective of a significant deceleration in the

growth of the foreign currency deposits constituent of broad

money to 10.1% y/y in August from 57.3% y/y in January.

The weakness of the US dollar in the first half of the year

and relatively lower appetite for Zambian debt partly explains

this years decline in foreign currency deposits. Reserve

moneys cumulative increase target of ZMK22 billion was

met in June 2008; however, at the end of August, the ceiling

target for September was exceeded by ZMK127 billion, likely

due to the challenge of fully sterilising net purchases of

foreign exchange.

Exchange rates

Source: Bloomberg, Standard Bank Group est.

Money supply growth % y/y


-5

0

5

10

15

20

25

2004 2005 2006 2007 2008

Overall Food Non-food

0

10

20

30

40

50

2004 2005 2006 2007 2008

Average lending rate BoZ rate 91-Day TB

0

150

300

450

600

750

900

3000

3600

4200

4800

5400

6000

6600

2004 2005 2006 2007 2008

ZMK/USD ZMK/EUR ZMK/ZAR (rhs)

-10

0

10

20

30

40

50

2004 2005 2006 2007 2008

Broad money (M3) Reserve money.


27/30

Page 27


Zambia picture galleryReal GDP growth - %

Source: IMF, Standard Bank est.



Foreign reserves & import cover

Source: Bloomberg, Bank of Zambia




Source: IMF CR No 08/187

Copper prices US$ per tonne



Source: Central Statistical Office, Standard Bank Group est.

Stock market indicators

Source: Lusaka Stock Exchange

5.4 5.26.2 5.7 6.1 6.2

0

1

2

34

5

6

7

2004 2005 2006 2007e 2008f 2009f

Agriculture,Forestry &

Fishing13%

Mining &Quarrying

8%Manufacturi

ng11%

Electricity,Gas &Water

3%

Construction

11%

Wholesale& Retail

trade18%

Restaurants, Bars &Hotels

3%

Transport,Storage &

Communications9%

FinancialInstitutions& Insurance

7%

Real Estate& Business

services9%

Community,Social &PersonalServices

8%

1.5

2.0

2.5

3.0

3.5

4.0

0

300

600

900

1200

1500

2004 2005 2006 2007 2008

Forex reserves (US$ millions)months of import cover

-300

0

300

600

900

1200

1500

2005 2006 2007 2008

Imports Exports Trade balance

-4

0

4

8

12

16

20

2005 2006 2007 2008p 2009f

0

100

200

300

400

500

2004 2005 2006 2007 2008

57.1

6.8

8.5

8.2

0.8 9.64.9

4.1

Food & beverage Clothing & footwearRent, fuel, lighting Furniture & household goodsMedical care Transport & communicationRecreation & education Other goods & services

6000

8000

10000

12000

14000

16000

18000

20000

22000

0

500

1000

1500

2000

2500

3000

3500

4000

2005 2006 2007 2008

LuSE All Share Index (Jan 1997=100)

Market Capitalisation (rhs)

ZMK billions


28/30

Page 28


ZimbabweHyperinflation environment remains a major challenge. Lack

of foreign exchange, shortages of goods and services and a

resultant increase in food prices, high global energy prices,

sharp depreciation of the currency and rapid growth of money

supply continue to drive inflation to new record highs. The

government continue to print money to finance quasi fiscal

spending and that is also fuelling the hyperinflation environment.

However, in the absence of any official inflation and monetary

survey data, it remains difficult to quantify the extent of the

countrys economic crisis. Also, in the absence of substantial

productive activities, hyperinflation will continue. The last official

inflation recorded for June 2008 was 11.2 million per cent.

Monetary policy remains restrictive and ineffective.

Continued depreciation of the currency and the

hyperinflation environment remains a major challenge for

the monetary authorities to conduct monetary policy

effectively. Secured overnight accommodation rate remains

unchanged at 8500%. This tight monetary policy

environment has completely crowded out any meaningful

economic activity, as access to credit is severely limited.

The central bank continues to maintain stringent statutory

reserve requirements that impose a heavy administrative

burden on commercial banks. Commercial banks lending

remains unprofitable. Overall, real lending rates remain

deeply in negative territory and this should escalate the

hyperinflation environment.

Inflation - % y/y

Source: Reserve Bank of Zimbabwe

Interest rates - %

Source: Reserve Bank of Zimbabwe

Depreciating currency. Since the redenomination of the

currency by a factor of 1:10 000 000 000 on 1 August 2008, the

Zimbabwe dollar continues to depreciate significantly. The official

interbank exchange rate depreciated from Z$7.78 per US dollar

on 1 August 2008 to Z$132.30 per US dollar on 30 September

2008. The parallel exchange rate was Z$750 000 per US dollar

on 30 September 2008. Even with the recent political settlement,

foreign exchange management will continue to be a major

challenge to all the efforts to institute any meaningful economic

reforms. Continued shortages of foreign exchange should lead to

a further depreciation of the currency.

Sectoral performance remains dismal. Overall, we expect

the economy to contract by about 7% in 2008 as most

sectors continue to operate below capacity. The countrys

inability to secure essential raw materials, machinery and

equipment should continue to fuel the slump in production in

most sectors of the economy. The agricultural sector

continues to perform dismally. Because the sector has been

the largest purchaser of goods and services (for example,

manufactured products) and the anchor around which

industries and services developed, its poor performance

continues to hinder developments of other sectors.

Exchange rates Z$ per US dollar

Source: Bloomberg

Manufacturing output index - 1990=100

Source: IMF

0

2000000

4000000

6000000

8000000

10000000

12000000

2006 2007 2008

3000

8500

66.30

2000

4000

6000

8000

10000

2005 2006 2007 2008

Prime lending rateOvernight accommodation (secured)91-day T-bill

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