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Standard Bank
Africa markets watch Africa October 2008
Jan Duvenage, Anita Last, Yvonne Mhango & Victor Munyama
150
200
250
300
350
400
450
500
2002 2003 2004 2005 2006 2007 2008
Reuters/Jefferies Commodity Price Index
Recent developmentsImplications of the collapse in commodity prices
Since the Reuters/Jefferies commodity price index peaked
at the end of June 2008 at 462.72, it has dropped (by 42%
to 268.32 at the end of October) to levels last seen in
2005. Most notably, the international oil price has dropped
by almost US$100 per barrel to date, since it peaked at
US$147 earlier this year. This has significant implications
for oil-driven economies like those of Angola and Nigeria
that depend heavily on oil revenues to build up their
international reserves, finance their fiscal spending, and
invest in their oft-neglected non-oil sectors. Given the
continents dependence on commodities, the effects of
lower commodity prices have been swift and pervasive. Other than oil, metals prices are also on a downward
slide. The price of copper, which is often used as a bellwether for the health of the global economy, has more
than halved since it peaked at US$8 900 per tonne in July. Zambia, and to a lesser extent the Democratic
Republic of Congo, has been significantly affected by the lower price. For the first time in ten quarters, Zambias
trade balance went into negative territory in the third quarter of 2008 because of the poor copper price. As such,
Zambias current account deficit is expected to deteriorate, its international reserves are on a downward path,
fiscal revenue is being squeezed, and mining-related foreign direct investment is likely to slow. The prices of
agricultural raw materials, and food and beverage commodities have not been left unscathed: their price indices
decreased by 25% and 18% respectively between July and October 2008. For major agricultural raw material
producers, such as the West African countries that depend on cotton for foreign exchange earnings, this is
significant. Similarly, exporters of beverage commodities, including cocoa in Ghana, tea in Kenya and coffee in
Uganda, have also had their export earnings shaved as a result of the fall in price of their main export
commodities. On the upside, lower food prices are favourable for major food-importing countries and the cut in the
fuel price will significantly lower the regions transaction costs, particularly those of landlocked countries.
Nevertheless, these gains are modest relative to the massive drop in earnings that several countries in the region
have experienced. The year 2009 will be one of weaker external sectors, contracting fiscal spaces, and a
slowdown in the remarkable growth momentum that was experienced earlier this decade.
DRC Despite all the peace accords signed (morbid 1999 Lusaka agreement, Pretoria accord in 2002, and 2008
peace deal), peace and stability in the DRC continue to be overshadowed by violence in the North and South Kivu
areas. As discussed in our January 2008 report (Blueprint: Finally, a peace deal but major challenges ahead), the
current administrations ability to face and deal with the ghost of its past is instrumental in the overall stability in thecountry. Two major issues all the peace agreements have not been able to address are: first, the future of the
Banyamulenge (Congolese ethnic Tutsis), who, apart from tracing their origins to Rwanda, have had domicile in the
DRC since before independence, and, second, the presence of the rebel forces, which are remnants of army forces
from neighbouring states. The current governments failure to address the issue of the decentralisation of the
political system has aggravated the problem. There is still a dire need to offer provincial administrations more
responsibility for local decision making. Overall, even the presence of a 17 000 strong UN peacekeeping force will
not be enough to oversee any DRC peace agreement that does not include the neighbouring states (Rwanda,
Burundi, Uganda and Angola).
Botswana
DRC
Ghana
Kenya
Malawi
Mauritius
Mozambique
Namibia
Nigeria
Tanzania
Uganda
Zambia
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Standard Bank Group EconomicsStandard Bank Group Economics
BotswanaInflation continues to climb, but may have peaked .
Botswanas consumer price index averaged 7.1% in 2007. This
year inflation has continued its upward trend, from single digits
to 15.1% y/y in August. In September inflation eased to 14% y/y.
Overall inflation continues to breach the central banks upper
limit of the medium-term target of 3-6%. Food and non-alcoholic
beverages have been the main drivers of the inflation rate, rising
by over 18% y/y every month since January and by 20.4% y/y in
September, the highest for many years. Transport inflation
peaked at 37.4% y/y in July but eased to 27.8% y/y in
September. Inflation is largely imported from South Africa,
where inflation as started to ease. We expect inflation to have
peaked and to average about 12.5% this year.
Policy rate left unchanged at 15.5% in October. The Bank
of Botswanas (BoB) Monetary Policy Committee (MPC) kept
the bank rate, the policy rate, unchanged at its meeting on 21
October. The MPC last raised the bank rate by 50 bps to
15.5% in June. The committee noted that inflation is likely to
ease into 2009. Monetary policy, however, remains restrictive
to contain second round effects and pressures from
consumption taxes and administered prices. The real policy
rate was low at 1.5% in September. Monetary policy is more
influenced by the BoBs medium-term inflation forecast and
less by credit growth. Rates are expected to remain at these
levels, but a global slowdown could imply a more
accommodative policy stance.
Inflation - % y/y
Source: Bank of Botswana
Interest rates - %
Source: Bank of Botswana
High inflation rate drives weaker pula. Botswana has a
crawling band exchange rate system, which was introduced in
2005. The central bank set the trading band at 0.5% around
central parity. The band rules out a large and unexpected
adjustment in the exchange rate. Botswanas relatively high
inflation rate implies that the pula should weaken proportionately
in line with expected inflation differentials with its main trading
partners. Despite the crawling band system, the pula weakened
sharply in October against the US dollar and traded at an
average of BWP7.71/USD compared to BWP6.82/USD in
September. We expect the pula to trade at an average of
BWP6.81/USD this year and BWP8.21/USD in 2009.
Diamond production still robust. The diamond sector
continues to dominate the economy, despite efforts to
diversify the countrys export and production base. The
weaker pula in recent weeks will help push export earnings
higher. However, although diamond resources could be
depleted by 2029, production volume is expected to increase
until 2015 and then decline, according to research. Unless the
economy is more diversified, livings standards could drop as
export earnings decline. Botswana produced 31.8 million
carats in 2005, up from 20 million in 2000. Export earnings
were USD3 359.2 million in 2007. In the third quarter 2008
exports were USD1 055.6 million compared to USD1 073.1
million in the same quarter last year.
Exchange rates
Source: Bank of Botswana
Diamond exports - USD million per quarter
Source: Bank of Botswana
0
3
6
9
12
15
18
2002 2003 2004 2005 2006 2007 2008
10111213141516
1718
2002 2003 2004 2005 2006 2007 2008 2009
Prime rate Bank rate3m BoBC Bank rate f'cast
0.5
0.6
0.7
0.8
0.9
1.0
3.0
4.0
5.0
6.0
7.0
8.0
2002 2003 2004 2005 2006 2007 2008 2009
BWP/ZARBWP/USD
BWP/USD (lh) BWP/ZAR
0
200
400
600
800
1,000
1,200
2002 2003 2004 2005 2006 2007 2008
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Standard Bank Group EconomicsStandard Bank Group Economics
Botswana picture galleryReal GDP growth - %
Source: IMF WEO October 2008
Sectoral contribution to GDP (2004/05) - %
Source: IMF
Foreign exchange reserves
Source: Bank of Botswana
Trade balance
Source: Bank of Botswana
Government budget balance - % of GDP
Source: IMF
Diamond prices (Antwerp) - US$ index, 1982 = 100
Source: Band of Botswana
Weights of consumer price index (CPI) constituents
Source: Bank of Botswana
Botswana Stock Exchange indicators
Source: Bloomberg, Bank of Botswana
8.4
4.75.3
6.4 6.6
4.7
3.4
5.75.3
4.6
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
20,00025,000
30,000
35,000
2002 2003 2004 2005 2006 2007p
Pula millio n
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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Standard Bank Group EconomicsStandard Bank Group Economics
DRC
Significant upside risks to inflation. The gains made on
keeping inflation under double digits continue to fade. Consumer
inflation increased from 18.2% y/y in June to 21.1% y/y in
September 2008. The currency stability that has helped subdue
imported inflation, especially from high food and energy imports,
seems to be waning. This should exert upward pressures oninflation in the medium term. The deteriorating security
environment should also impact negatively on the distribution of
consumer items from one part of the country to the other.
Despite improved agricultural production, the recent resumption
of conflicts in the eastern DRC is already contributing
significantly to the upward surge in inflation. Government revised
its 2008 inflation target from 12% to 23.5%.
Monetary policy remains tight. The worsening inflation
outlook should necessitate that the central bank tightens
monetary policy in the short to medium term. Short-term
lending rates remain at 30%, having been increased from
24% in July 2008. We expect the central bank to raise rates
in an attempt to curb surging money supply growth.However, interest rates as an instrument of monetary policy
are not very effective. Thus, the central bank should
continue to, directly, manage monetary policy by controlling
base money through the sale of foreign exchange. This also
helps the monetary authority to manage excess liquidity
generated by large inflows of foreign aid and revenue from
commodity exports.
Inflation - % y/y
0
5
10
15
2025
30
2005 2006 2007 2008
Source: Banque Centrale du Congo
Interest rates - %
20
25
30
35
40
45
50
55
2006 2007 2008Discount rate Prime lending rate
Source: IMF, Banque Centrale du Congo
The franc exchange rate to depreciate. The resumption of
unrest in the eastern DRC jeopardises any attempt of the country
to return to the International Monetary Fund (IMF) Poverty
Reduction and Growth Facility (PRGF) programme. This should
lead to a significant reduction of the donor inflows into the
country. Thus, we expect the exchange rate to depreciate in the
medium term. The slowdown in the global demand for
commodities should also reduce commodity export earnings that
have facilitated a stable exchange rate since 2007. The exchange
rate depreciated from an average of CDF554.68 per US dollar in
September to an average of CDF561.64 per US dollar in October
2008.
Surging money supply. Owing to limited ability to control
liquidity through other monetary policy instruments, such as
interest rates, the central bank (Banque Centrale du Congo
BCC) continues to control base money growth in an
attempt to curb inflationary pressures from large inflows of
foreign funds. In recent months, money supply has surged,
thereby suggesting currency depreciation in the medium
term. This development has also worsened the inflation
outlook. We expect the BCC to continue controlling base
money through the sale of foreign exchange to alleviate
inflation pressures from the rapid increase in money supply.
Exchange rates CDF/USD
400
450
500
550
600
2005 2006 2007 2008
Source: Bloomberg
Money supply % y/y
0
10
20
30
40
50
60
70
2002 2003 2004 2005 2006 2007 2008f
Source: IMF
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Standard Bank Group EconomicsStandard Bank Group Economics
DRC picture gallery
Real GDP growth - %
3.0
5.8
7.9
5.6
8.8
-2.0
6.6 6.3
-4
0
4
8
12
2001 2002 2003 2004 2005 2006 2007 2008f
Source:IMF
Sectoral contribution to GDP - %
Source: IMF
Foreign exchange reserves
Source: IMF
Trade account US$ million
Source: IMF
Government finances - % of GDP
-10
-8
-6
-4
-2
0
2
2003 2004 2005 2006 2007 2008fOverall balance (excl. grant)Overall balance (incl. grant)
Source: IMF
Copper price US$/ton
Source: Bloomberg
External debt as % of GDP
0
50
100
150
200
250
300
0
2,000
4,000
6,000
8,000
10,000
12,000
2003 2004 2005 2006 2007e 2008f
External public debt % of GDP (RHS)
USD millio ns
Source: IMF
FDI inflows US$ million
-200
0
200
400
600
800
2000 2001 2002 2003 2004 2005 2006 2007e
Source: IMF
40%
13%7%
5%
22%
6%
6%
1%
Agriculture Mining
Construction Manufacturing
Wholesale & retai l trade Transport & Comm.
Trade & commerce Other
0
2
3
5
6
8
0
50
100
150
200250
300
2000 2001 2002 2003 2004 2005 2006 2007 2008f
Gross official reserves Import cover (RHS)
US$ mn months
-4000
-2000
0
2000
4000
2000 2001 2002 2003 2004 2005 2006 2007e2008f
Imports Exports Trade balance
0
2000
4000
6000
8000
10000
2003 2004 2005 2006 2007 2008
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Standard Bank Group EconomicsStandard Bank Group Economics
Ghana
Inflation declines for three consecutive months. Theharvest season, which started in August, has provided relieffrom food inflation, and headline inflation declined to 17.9%y/y in September from 18.1% y/y in August and 18.3% y/y inJuly. 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 because of drought in thefirst part of 2007, followed by flooding in September coupledwith the upward trend in global food prices at a time of hightransport costs. Over the same period, non-food inflationrose from 10.9% y/y to 18.9% y/y, driven by changes inutility prices and transport costs. The moderation ininternational crude oil prices and the improved domestic foodsupply on the back of the ongoing harvest season shouldcontinue to su ort a mar 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.) Owing 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 - %
Source: Bank of Ghana
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 August,September and October and traded at betweenGHc1.1543/US$ and GHc1.1660/US$. We expect marginaldepreciation to continue, especially in a pre -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 of614 469 tonnes, down from a record 740 457 tonnes in2006. The average price of cocoa bean exports(US$1 942.2 per tonne at the end of 2007) increased by7.7% to US$2 091.8 per tonne in the first quarter of thisyear. Cumulative cocoa purchases through the end ofSeptember 2008 amounted to 758 908.
Exchange rates
Source: Bloomberg
Cocoa prices US$/metric tonne
Source: IMF
5
10
15
20
25
2004 2005 2006 2007 2008
5
10
15
20
25
30
35
2004 2005 2006 2007 2008
Prime 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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Standard Bank Group EconomicsStandard Bank Group Economics
Ghana picture gallery
Real GDP growth - %
Source: Bank of Ghana
Sectoral contribution to GDP - %
Source: Bank of Ghana
Foreign exchange reserves - US$ million
Source: Bank of Ghana
Trade account - US$ million
Source: Bank of Ghana
Government budget balance - % of GDP
Source: IMF
Gold Price - US$/oz
Source: Reuters
Weights of consumer price index (CPI) constituents
Source: Bank of Ghana
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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Standard Bank Group EconomicsStandard Bank Group Economics
KenyaStubbornly high food prices keep inflation persistently high.
Inflation edged up to 28.4% y/y in October, from 28.2% y/y in
September, on the back of high food prices and an increase in the
price of household goods and services. Conversely, non-food
inflation eased to 13.0% y/y, from 13.3% y/y. This softening in
non-food inflation was largely due to a 1.4% m/m fall in the price
of fuel and power, which is l ikely a consequence of the sharp drop
in the international oil price. Although the current long rains
season maize harvest has improved grain supply, it has had
limited effect on prices because of food insecurity, particularly in
the north-east region of Kenya. This explains the downwardly
sticky food prices. However, the markedly lower international oil
price is favourable for the inflation outlook, which we expect to
improve in 2009. Inflation is projected to slip to below 20% by
mid-2009.
Sell-off of short-term government securities pushes up
yields. The yield on the 91-day Treasury bill rate rose to
8.52% in mid-November, from 8.12% at the end of October
and 7.7% at end-September. This increase is on the back of
a decline in appetite for government securities from foreign
portfolio investors due to the heightened risk environment
related to the global financial crisis. The policy rate, the
central bank rate, remained unchanged at 9%, as the
monetary authority maintained its firm policy stance in light
of soaring inflation. The decrease in the average lending
rate in August to 13.66%, from 13.91% in July, is partly
attributed to increasing competition among banks. Only
once international financial markets begin to stabilise will
short-term rates cease climbing.
Inflation - % y/y
Sources: National Bureau of Statistics, Central Bank of Kenya
Interest rates - %
Source: Central Bank of Kenya
The Kenyan shilling continues to flounder. The shillingdepreciated by a whopping 7% against the US dollar in October,
compared to the previous month, to average KES76.64/USD.
The loss in value of the shilling against the greenback was
largely due to a 7.6% appreciation of the US dollar. Acute risk
aversion implied that investors sought safe haven assets,
including US Treasury securities. Also in October, the shilling
strengthened by a massive 12.1% against the rand to
KES7.81/ZAR, as capital flight weighed heavily on the South
African economy. Conversely, the shilling depreciated by a
modest 1.2% against the euro, to KES/EUR101.93. In the short
term the shilling will be volatile and undervalued, however, once
the cumulative effects of the various rescue packages kick in,the shilling should stabilise.
Liquidity position stabilises. The global credit crunch hassubdued foreign portfolio inflows, thus contributing to the
deceleration of growth in net foreign assets, which in turn
has placed a damper on money supply growth. Latest
figures reveal that net foreign assets growth slowed to 6.9%
y/y in July, from 10.5% y/y in June, and, as such, broad
money (M3) growth eased to to an estimated 17.1% y/y in
August, from this years high of 28.5% y/y in April, at the
height of the Safaricom initial public offering. The refunds
made to foreign over-subscribers of the IPO added to the
deceleration of net foreign assets growth. In line with M3,
reserve money growth also moderated to 19.0% y/y in July,
from 19.3% y/y in June. Monetary expansion is expected to
be subdued in early 2009.
Exchange rates
Sources: Bloomberg, Standard Bank Group est.
Money supply growth - % y/y
Source: Central Bank of Kenya
0
5
10
15
20
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 2008
91-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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Standard Bank Group EconomicsStandard Bank Group Economics
Kenya picture galleryReal GDP growth - %
Source: Kenya National Bureau of Statistics, Standard Bank est
Sectoral contribution to GDP (%)
Source: National Bureau of Statistics
Foreign exchange reserves import cover
Source: Central Bank of Kenya
Trade account US$ million
Source: Central Bank of Kenya
Government deficit - % of GDP
Source: Central Bank of Kenya
Tea, Mombasa, Kenya, Auction Price, US cents per kilogram
Source: IMF
Weights of consumer price index (CPI) constituents
Source: Kenya National Bureau of Statistics
Stock market indicators
Source: Central Bank of Kenya
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
0300600900
120015001800210024002700
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
0.00.5
1.0
2002/03 2003/04 2004/05 2005/06 2006/07 2007/08
150
200
250
300
350
2004 2005 2006 2007 2008
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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Standard Bank Group EconomicsStandard Bank Group Economics
MalawiInflation accelerated to 9.3% y/y in September. 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 to be brought down to around 12%, as projected inthe 2008/09 budget, in the second quarter of 2009.
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/US$, MWK140.63/US$ and MWK140.69/US$respectively. In October, the kwacha was slightly weaker atMWK140.82/US$. 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 about143 million kilograms valued at US$348 million as at theend of 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$412.3 million an average price of 244 US cents per kilogram. Out ofthe total sold, burley contributed 145.9 million kilograms(86.5%) whereas flue-cured contributed 20.9 millionkilograms (12.3%). All foreign currency payments fortobacco sold in Malawi are now made through thecentral bank and not through commercial banks as in thepast. The onset of uranium exports next year will be anadditional source of support for the local currency.
Exchange rates
Source: Bloomberg
Tobacco export price
UScts/kg
Source: Tobacco Control Commission
0
4
8
12
16
20
2004 2005 2006 2007 2008
Overall Inflation Non-food inflation
Food inflation
5
15
25
35
45
2004 2005 2006 2007 2008
Prime-avg Bank rate 91-day t-bill
14
16
18
20
22
24
60
100
140
180
220
260
2004 2005 2006 2007 2008
USD EUR ZAR (rhs)
150
200
250
300
350
2004 2005 2006 2007
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Page 11
Standard Bank Group EconomicsStandard Bank Group Economics
Malawi picture galleryReal GDP Growth - %
Source: IMF
Sectoral contribution to GDP - %
Source: OECD 2007
Foreign exchange reserves import cover
Source: Reserve Bank of Malawi
Trade Balance - US$ million
Source: Central Statistics Office
Government finance - %
Source: IMF
Tobacco exports million Kg
Source: Reserve Bank of Malawi
Weights of consumer price index (CPI) constituents
Source: Central Statistics Office
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
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Page 12
Standard Bank Group EconomicsStandard Bank Group Economics
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 and 9.8% y/y in September. Once again the mainpressure came from food and fuel. With oil prices showing asoftening bias and food prices expected to plateau, externalpressures are easing, although domestic pressures such asstrong demand are expected to remain. Our expectation isthat overall inflation will slightly exceed the 8.6% averageprojected in the 2008/09 budget.
Bank of Mauritius cuts the repo rate to 7.75%.Against the backdrop of a reduction in policy interestrates by the US Federal Reserve and the Bank ofEngland as well as potential downside risk to economicgrowth stemming from decelerating growth in majortrading partners, the BoM cut the repo rate by 25 basispoints to 9% in February, lowered it further to 8.5% inMarch and in May by 50 basis points to 8%. In view ofgrowing demand-side pressures on inflation and noslowdown in food and fuel prices, the BoM increased therepo rate on 21 July to 8.25%. On 31 October the BoMconsidered the resilience of the domestic economy in thelight of the exceptional circumstances characterising thedomestic and global economic and financial situationand decided by consensus to reduce the repo rate by 50basis points to 7.75%.
Inflation - % y/y
Source: Central Statistics Office
Interest rates - %
Source: Bank of Mauritius
Rupee depreciated further in October to MUR30.04/US$.Supported by FDI inflows, record tourism earnings and thedepreciation of the US dollar on currency markets, the rupeeappreciated by 9% in the first quarter of this year to a four-year high of MUR25.5/US$. In April this trend was reversedwhen the rupee averaged MUR26/US$, MUR26.5/US$ inMay and MUR27.2/US$ in June. This was mainly on accountof continued deterioration of the current account as importprices, particularly food and fuel, pushed up the importbalance. The extent and duration of the global downturn willplay a large part in export demand as Mauritius is closelylinked to international financial markets and the majority ofits export demand (more than 50%) comes from Europe andthe US. The current account will therefore remain underpressure. FDI and tourism receipts should lend somesu 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 toRs22 170 million, an increase of 12.2% compared toRs19 752 million for the same period in 2007. The sectorcontinues to play a large role in terms of attracting FDIand is one of the main drivers of the countrys economicrecovery. Given the construction timeframe of currenthotel projects, the sector should receive a substantialincrease in capacity through 2008 and 2009. Despitethis, the sector may experience even negative growth inrevenues through 2008, because of the dismalperformance through the second half of the year, as theeffects of the global financial crisis start hittingconsumers dis osable income.
Exchange rates
Source: Bloomberg
Tourism receipts
Rs million
Source: Central Statistics Office
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
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Standard Bank Group EconomicsStandard Bank Group Economics
Mauritius picture galleryReal GDP Growth - %
Source: Central Statistics Office
Sectoral contribution to GDP - %
Source: IMF (2006)
Foreign exchange reserves import cover
Source: Central Statistical Office
Trade Balance US$ million
Source: Central Statistical Office
Government finance - % of GDP
Source: IMF
Tourist arrivals - number
Source: Central Statistics Office
Weights of consumer price index (CPI) constituents
Source: Central Statistical Office
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
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Page 14
Standard Bank Group EconomicsStandard Bank Group Economics
Mozambique
Inflation slowed to 10.3% y/y in October, from 10.7% in
September. This deceleration was due to a slowdown in food
inflation to 15.2% y/y, from 16.1%. However, this softening of food
inflation was not due to falling prices, but rather a low base effect.
Hereafter, food inflation is expected to accelerate in the short
term as the lean season has begun. Price pressures from fuelprices have moderated, on account of the sharp drop in the
international oil price. As such, the rent, fuel and utilities price
index remained unchanged in October, and that of transport
increased by a modest 0.1% m/m. In the short term, price
pressures will stem from food prices; however, a high base effect
in the tail end of 2008 is likely to subdue annualised food inflation.
Thus, a modest decrease in inflation is projected over the short
term and a return to single-digit inflation in the first quarter of
2009.
Higher short-term interest rates signal tightening in
policy to curb monetary expansion. The yield on the 91-
day Treasury bill rose again in September to 13.95%, from
13.89% in August. This increase reflected the tightening of
monetary policy, to ensure base money met its end-quarter
ceiling targets. The lending rate, which increased to 18.61%in August, fell to 18.36% in September, thus resuming its
long-term downward trend. Conversely, the policy rate, the
standing lending facility, remained unchanged at 14.5%,
mostly likely because the real policy rate has not been
compromised by a concomitant surge in inflation. Monetary
policy is expected to remain firm in the short term, on
account of the approaching festive season, and thereafter to
ease as inflation decelerates in 2009.
Inflation - % y/y
Source: Instituto de Nacional Estatistica
Interest rates - %
Source: Banco de Mocambique
Metical holds firms against hard currencies. The metical
depreciated by a modest 0.6% against the US dollar in October,
compared to September, to MZN24.20/USD. Evidently, the
central bank is managing the value of the local currency against
the US dollar to ensure that it does not veer off the central
banks seemingly preferred exchange rate for 2008 of
MZN24.00/USD. As fundamentals and external events in recent
months suggest a weaker metical, the fact that the local currency
has not depreciated against most hard currencies implies that
the central bank is using foreign reserves to prop up the metical.
The meticals appreciation of 17.3% and 7% against the rand
and euro respectively, to MZN2.47/ZAR and MZN32.14/EUR,
was amplified by the depreciation of the rand and euro in
October. As global financial markets stabilise, the metical isprojected to recover against the euro and rand.
Base money stock breaches target ceiling in
September. Although base money contracted by 0.8% y/y
in August, its subsequent2% m/m expansion in September
to MZN17 495 million led it to exceed the target, for the end
of the third quarter of 2008, of MZN17 347 million. On an
annualised basis, base money growth continued to slow, as
it has done since June, to 13.1% y/y in September, from
15.2% y/y in August. Money supply (M2) growth also
softened in September to 23% y/y, from 2008s high of
26.2% y/y in July. The approaching festive season is
expected to spur an acceleration in money supply growth in
the last quarter of 2008, and, thereafter, monetary
expansion is expected to moderate. As fuel price pressures
have eased, other than food prices, excess money supplywill be elevated as an inflation risk in 2009.
Exchange rates
Source: Bloomberg
Money supply - % y/y
Source: Banco de Mocambique
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
2.4
2.8
3.2
3.6
4.0
4.4
4.8
16
20
24
28
32
36
40
2004 2005 2006 2007 2008
MZN/USD MZN/EUR MZN/ZAR (rhs)
5
10
15
20
25
30
35
2004 2005 2006 2007 2008M2 Base money
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Standard Bank Group EconomicsStandard Bank Group Economics
Mozambique picture gallery
Real GDP growth - %
Source:IMF, Instituto de Nacional Estatistica,Standard Bank est.
Sectoral contribution to GDP (%)
Source: Instituto de Nacional Estatistica
Gross foreign reserves & import cover
Source: Instituto de Nacional Estatistica
Trade account US$ million
Source: Banco de Mocambique
Government deficit - % of GDP
Source: IMF CR. No.08/220
Aluminium price US dollars per metric tonne
Source: IMF
Weights of consumer price index (CPI) constituents
Source: Instituto de Nacional Estatistica
Capital account
US$ millions
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 &businessservices,
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
US$ millions months
-300
-150
0
150
300
450
600
750
900
2004 2005 2006 2007 2008
Exports Imports Deficit
-7
-6
-5
-4
-3
-2
-10
2003 2004 2005 2006 2007 2008p
1500
1900
2300
2700
3100
3500
2004 2005 2006 2007 2008
52%
13%10%
5%
5%
3%3%
2%2%2%2%
1%
Food & non-alcoholi c 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
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Standard Bank Group EconomicsStandard Bank Group Economics
NamibiaInflation levelling off. Namibias inflation is largely imported
from South Africa through close trade links. Inflation has risen
steeply since a low of 0.9% y/y in May 2005 to 12% y/y in
August and September this year. Inflation is mainly driven by
high food prices and transport prices. Food inflation reached a
high of 18.8% y/y in July and September, the highest for
several years; in 2004 and 2005 there were short bouts of
food deflation. Transport prices rose by 18.1% y/y in August,
but fell to 15.4% y/y in September. Food and transport
inflation may have peaked as prices are trending lower in
South Africa and elsewhere on the back of the much lower
crude oil price. We expect inflation to average 10.2% this
year.
Monetary policy rate remains unchanged. Namibias
monetary policy focuses mainly on securing the 1:1 peg to the
rand by holding sufficient foreign exchange reserves under the
Common Monetary Area (CMA) agreement. The CMA also
limits Namibias policy independence as there are no
restrictions on capital flows within the area. Namibias policy
rate, the bank rate, is 10.5%, which implies a negative real
policy rate of 1.5%. The last MPC meeting was on 16 October,
but no statement was released. The next meeting will be on 18
December. We expect interest rates to remain unchanged this
year, but lower rates may start to materialise from the second
quarter of next year onwards as inflation is expected to start
falling.
Inflation (% y/y)
Source: Bank of Namibia
Interest rates - %
Source: Bank of Namibia
The Namibian dollar relatively stable, but vulnerable. The
Namibia dollar (NAD) is pegged at par to the South African
rand (ZAR) under the CMA agreement. The rand is legal
tender in Namibia, but not vice versa. The sudden appreciation
of the US dollar against most developed and emerging market
currencies has driven the rand/Namibian dollar substantially
weaker. The NAD/ZAR is expected to trade at an average of
NAD9.80/USD in the fourth quarter of 2008; and
NAD8.22/USD for the whole of 2008. Next year the forecasts
are: NAD8.80/USD in the first quarter; NAD8.50/USD in the
second quarter and NAD8.25/USD in the third quarter. The
average for 2009 is NAD8.4/USD. The expected 12-month
trading range is NAD8.00-12.00/USD.
Money supply. Broad money supply (M2) rose by an average
of 20.8% in 2006 and 19.6% in 2007. This year M2 rose from
N$27 030 million in the first quarter to N$28 004 million in the
second quarter on 2008, an increase of 3.5% q/q. Net foreign
assets rose by 4.5% q/q; and domestic claims fell by 1.5% q/q;
whereas other items declined by 6.4% q/q. Domestic claims to
the private sector (consisting of individual households and
private non-financial businesses), other financial corporations
and parastatals rose by 1.9% q/q. Credit growth to businesses
was marginally lower. However, credit growth to individuals
was higher as personal loans rose driven by individuals facing
the rising cost of living.
Exchange rate: NAD/USD
Source: Bloomberg
Money supply (M2)
y/y % change
Source: Bank of Namibia
-4
0
4
8
12
16
20
2004 2005 2006 2007 2008
CPI Food
4
8
12
16
20
2002 2003 2004 2005 2006 2007 2008
Prime rate Bank rate 91-d ay TB
4
6
8
10
12
00 01 02 03 04 05 06 07 08
0
5
10
15
20
25
30
35
40
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
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Standard Bank Group EconomicsStandard Bank Group Economics
Namibia picture galleryReal GDP growth - %
Source: IMF WEO April 2008
Sectoral contribution to GDP - %
Source: Bank of Namibia
Foreign exchange reserves
Source: Bank of Namibia, Bloomberg
Trade balance N$ billion
Source: Bank of Namibia
Government budget balance (incl. grants) - % of GDP
Source: IMF
Fishing industry output
Source: Bank of Namibia
Weights of consumer price index (CPI) constituents
Source: Bank of Namibia
Namibia Stock Exchange index (monthly, overall)
Source: Bloomberg
3.5
2.4
6.7
3.5
6.6
4.7
3.93.6
3.9
4.2
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%
Otherservices
35.5%Government
services
18.6%
0
2
4
6
8
0
400
800
1,200
1,600
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
Exports Imports Trade balance
-8
-6
-4
-2
0
24
03/04 04/05 05/06e 06/07 07/08p 08/09p
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 %
29%
21%15%
7%
7%
21%
Food & non-alc. bev. Housing, w ater, electricityTransport EducationMisc. goods & services Other
200
300
400500
600700
800900
1,0001,100
2002 2003 2004 2005 2006 2007 2008
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Page 18
Standard Bank Group EconomicsStandard Bank Group Economics
Nigeria
Inflation remains elevated. Headline inflation remained in
double digits, increasing from 12.4% y/y in August to 13% y/y in
September 2008, driven by surging energy prices. Energy prices
(which constitute about 18.1% of the consumer price index
CPI basket) increased from 4.1% y/y in August to 7.5% y/y in
September 2008. Increased agricultural production continues toease food supply problems, thereby reducing food prices. Food
prices (accounting for about 64% of the CPI basket) declined
from an average of 18.8% in August to 17.2% y/y in September
2008. However, core inflation (headline inflation, excluding food)
increased from an average of 3.9% y/y in August to 6.9% y/y in
September 2008. We forecast inflation to average 10.7% in
2008.
Monetary policy to loosen into 2009. The central bank
continues to focus its efforts on 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. From
the lowering of the monetary policy rate (MPR) to 9.75% inSeptember, the 91-day Treasury bill (T-bill) rate declined
marginally to average 9.08% in September from an average
of 9.13% in August 2008. In the short term, the fiscal
contraction following the reduction in the 2009 budget oil
price to USD45/bbl from USD59/bbl in 2008 might lead to a
significant spending cut, thereby reducing inflation.
However, decreased fiscal revenue might force government
to issue bonds, thereby driving yields up.
Inflation - % y/y
Source: National Bureau of Statistics
Interest rates - %
0
4
8
12
16
20
2005 2006 2007 2008
Policy rate Prime 91-day TB
Source: Central Bank of Nigeria
Naira exchange rate to weaken. A stable and strong naira/USD
remains the central policy of the central bank as is evident fromthe narrow range within which the currency continues to fluctuate.
However, with the significant decline in oil prices, which should
lead to fiscal contraction going into 2009, we expect some
depreciation of the naira exchange rate to maintain the current
revenue stream at the USD45 per barrel oil price set in the 2009
budget. That is, about 80% of government revenue is dollar
denominated. However, a too weak budget exchange rate might
make it impossible to fight the double-digit inflation, as the
country relies heavily on imports. Thus, going into 2009, a naira
exchange rate of around NGN126/USD should support a
relatively healthy fiscal space while enabling the monetary
authority to fight inflation.
Declining money supply. Following the banking sector
reforms and positive business environment experiencedthroughout 2006/2007, broad money supply surged as a
result of increased credit lending. Private sector credit
extension (PSCE) declined from 103.7% y/y in April to
77.4% y/y in September 2008. This led to a slowdown in
broad money growth from 97.1% y/y to 57.9% y/y over the
same period. We expect the downward trend to continue
owing to the envisaged fiscal contraction that might squeeze
the government fiscal space, in this way leading to a
reduction in oil savings in the Excess Crude Account. We
also expect a significant reduction in net foreign assets of
the banking system. This should help slow down the growth
in broad money supply.
Exchange rates
115
120
125
130
135
2006 2007 2008Naira/US$ Budget exchange rate (Naira/US$)
Source: Bloomberg & Federal Ministry of Finance
Broad money supply (M2) % y/y
-20
0
20
40
60
80
100
120
2003 2004 2005 2006 2007 2008
Source: Central Bank of Nigeria
-10
0
10
20
3040
50
2005 2006 2007 2008
CPI inflation Food Non-food
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Standard Bank Group EconomicsStandard Bank Group Economics
Nigeria picture gallery
Real GDP growth - %
Source: NBS
Sectoral contribution to GDP (%)
Source: NBS
Foreign exchange reserves US$ million
Source: Bloomberg
Trade account US$ million
Source: IMF
Government surplus - % of GDP
Source: IMF
Oil production and prices
Source: International Energy Agency
Weights of consumer price index (CPI) constituents
Source: NBS
Nigerian stock exchange
All share index
Source: Bloomberg
10.3 10.6
5.4
6.2 6.4
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
140
160
-
0.5
1.0
1.5
2.0
2.5
3.0
3.5
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
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Standard Bank Group EconomicsStandard Bank Group Economics
Tanzania
Inflation in double digits. Headline inflation increased from
9.8% y/y in August to 11.6% y/y in September 2008, mostly
driven by high energy and food prices. The food component
(which constitutes about 55.9% of the consumer price indexCPI
basket) increased from 11.1% y/y in August to 13.4% y/y in
September 2008. We expect food price increases to slow downduring this harvest period. Energy prices (which constitute about
8.5% of the CPI basket) increased from 12.7% y/y in August to
15% y/y in September as the country continues to import its full
quota of oil. Second-round effects of high energy prices are still
evident, as transport costs remained elevated at 9.7% y/y in
September 2008. Thus, we expect softer oil prices and increased
food supply to bring some relief in the medium term. We forecast
inflation to average 9.5% in 2008.
Upside risk to interest rates. The developments in
Treasury bill (T-bill) yields continue to provide an anchor for
market-determined interest rates. The increasing trend in the
yields for all maturities continues and is expected to remain
elevated in the short term. The 91-day T-bill rate increased
from 8.62% in August to 10.36% in September 2008. Theoverall weighted average T-bill rate also increased, from
9.47% in August to 10.17% in September 2008. As inflation
ventures into double-digit territory, we expect nominal
lending rates to increase in the short term. This should,
however, help maintain stable real interest rates. Overall, the
risks to interest rates are on the upside. Our revised end-
year T-bill forecast is 11.4%.
Inflation - % y/y
0
3
6
9
12
15
2005 2006 2007 2008
Overall Non-food Food
Source: National Bureau of Statistics
Interest rates - %
0
5
10
15
20
25
2005 2006 2007 2008Central Bank RateComm.Bank Lending RateTreasury Bills
Source: Bank of Tanzania
The shilling exchange rate remains relatively stable. Export
performance continues to determine fluctuations in the exchangerate as the economy is heavily dependent on the agriculture and
commodity sectors. Increased demand for tourism services and
continued inflow of donor aid should continue to support a strong
currency. The slowdown in the world commodity demand might
dampen mining exports, thereby leading to slight depreciation of
the currency. However, strong performance in tourism and
tourism services has provided an anchor for currency stability,
and is expected to continue in the medium term. Having
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, the shilling depreciated to TZS1 230.13 in October
2008 following the bleak inflation outlook.
Slowdown in money supply growth. Tight monetary policy
and a strong currency have facilitated a slowdown in moneysupply growth. In fulfilling its primary mission of price
stability, the Bank of Tanzania (BOT) aims to control
inflation by influencing the growth of broad money through
targeting reserve money. Announcing the June 2008
monetary policy statement (MPS), the BOT specified a target
of reducing money supply growth (both M2 and M3) to 18%
each by end June 2009. Extended broad money (M3)
declined from 27.1% y/y in March to 20% y/y in July, while
M2 declined from 33.6% y/y to 25.3% y/y over the same
period. We expect monetary policy to remain tight to contain
inflationary pressures from large donor inflows.
Exchange rates
0
40
80
120
160
200
240
1050
1100
1150
1200
1250
1300
1350
2005 2006 2007 2008
Volume o f trans actions (US$ millions) RHSExchange rate (TZS per USD)
TZS per USD Millions of US$
Source: Bank of Tanzania
Extended broad money supply (M3) - % y/y
15
20
25
30
35
40
2005 2006 2007 2008
Source: Bank of Tanzania
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Page 21
Standard Bank Group EconomicsStandard Bank Group Economics
Tanzania picture gallery
Real GDP growth - %
Source: National Bureau of Statistics
Sectoral contribution to GDP (%)
Source: National Bureau of Statistics
Foreign exchange reserves, import cover
Source: Bank of Tanzania
Trade account US$ million
Source: Bank of Tanzania
Government deficit % of GDP
Source: Bank of Tanzania & IMF
Services receipts year ending July (US$ millions)
Weights in consumer price index (CPI) constituents
Source: National Bureau of Statistics
Capital account - US$ million
Source: Bank of Tanzania
7.2 6.97.8 7.4
6.77.1 7.8
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
-4000
-2000
0
2000
4000
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 TobaccoClothing and Footwear RentsFuel, Power and Water Furniture & Household EquipmentHousehold Operations&Maintenance Personal Care & HealthRecreation & Entertainment TransportationEducation Miscellaneous Goods and Services
0
1000
2000
3000
4000
5000
6000
2000 2001 2002 2003 2004 2005 2006 2007e
8/14/2019 Africa Markets Watch - October 2008
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Page 22
Standard Bank Group EconomicsStandard Bank Group Economics
Uganda
Inflation consolidated its slowdown in October. Inflation
slowed to 14.5% y/y in October, from 15.2% y/y in September
and 15.8% y/y in August. In the short term, overall inflation is
projected to ease on the back of softening non-food inflation.
Lower fuel and transport prices are expected to subdue non-
food inflation. The sharp drop in the international oil price to afraction of its peak in 2008 has dampened inflationary
pressures. However, food insecurity in the region is expected
to put upward pressure on food prices. As the weighty item in
the consumer price index (food) has a price that is downwardly
sticky, the softening of inflation is expected to be moderate. As
such, single-digit inflation is only projected to return in the
second quarter of 2009.
Global financial crisis curbs foreign appetite for Treasury
bills. The yield on the 91-day Treasury bill jumped to 10.4% at
the end of October, from 8.6% at the end of September, on the
back of a surge in investors risk aversion for emerging
markets, as global financial conditions deteriorated. The policy
rate, the rediscount rate, is also likely to have climbed inOctober, from 15.2% in September. In recent days, there have
been tentative signs that the cumulative interventions by
developed world Treasuries and central banks are beginning to
take effect, thus easing risk aversion, which may explain the
moderation of the 91-day Treasury bill rate to 9.2% in early
November. As conditions stabilise short-term interest rates are
projected to moderate.
Inflation - % y/y
Source: Uganda Bureau of Statistics
Interest rates - %
Source: Bank of Uganda
The shilling weakens significantly. Uganda was not
untouched by the massive sell-off of emerging market assets
during the volatile month of October for global financial
markets. Investors sought safe haven assets, including US
Treasury securities, which boosted the value of the US dollar in
October, and thus explains the Uganda shillings 9.7%
depreciation against it to a monthly average rate of
UGX1 805.3/USD. The shilling depreciated by a relatively
modest 1.3% against the euro, to UGX2 394.7/EUR. However,
the Ugandan currency appreciated by 9.9% against the rand to
UGX184.03/ZAR, largely on account of the latter currencys
excessive weakness due to massive capital flight. As
conditions improve in international financial markets, the
shilling is projected to recover modestly before stabilising.
The rate of monetary expansion slows. The global financial
crisis has heightened risk aversion, particularly of emerging
market assets, and has as a result slowed capital inflows into
Uganda. Liquidity has thus moderated as is evident from the
slowdown of base money growth to 17.3% y/y in September,
from 21.7% y/y in August. Similarly, broad money growth
decelerated in August to 25.4% y/y, from 28.3% y/y in July.
The softening of monetary expansion reduces the challenges
of sterilising large foreign exchange inflows and as a result
improves the authoritys chances of containing base money
below the ceiling target. Slower monetary expansion will also
reduce the upside inflationary risk that stems from too much
money chasing too few goods.
Exchange rates
Sources: Bloomberg, Standard Bank Group est.
Money supply growth y/y %
Source: Bank of Uganda
0
3
6
9
12
15
18
2005 2006 2007 2008
Overall Core (excl. food, fuel, electricity and utilities)
0
5
10
15
20
25
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 2008M3 (Broad money) Base money
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Page 23
Standard Bank Group EconomicsStandard Bank Group Economics
Uganda picture gallery
Real GDP growth - %
Source: Uganda Bureau of Statistics, IMF, Standard Bank est.
Sectoral contribution to GDP (%)
Source: Uganda Bureau of Statistics
Foreign exchange reserves import cover
Sources: Bank of Uganda, Bloomberg
Trade account US$ million
Source: Bank of Uganda
Government budget deficit - % of GDP
Source: IMF CR No. 08/236
Coffee prices US cents per pound
Source: Bloomberg
Weights of consumer price index (CPI) constituents
Source: Bank of Uganda
Stock market indicators
Source: Uganda Stock Exchange
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%
Manufacturing9%
Electricityand water
1%
Construction
11%Wholesale& RetailTrade11%
Hotels &Restaurant
s3%
Transport &communica
tion10%
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
-200
-180
-160
-140
-120-100
-80
-60
0
50
100
150
200
250300
350
400
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
1,600
2,500
3,400
4,300
5,200
6,100
7,000
300
450
600
750
900
1,050
1,200
2005 2006 2007 2008Market Capitalisation (rhs)
USE ALSI (Share index)
Ushs billions
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Page 24
Standard Bank Group EconomicsStandard Bank Group Economics
Zambia
Inflation continued its ten-month climb in October to
15.2% y/y. Inflation in October was largely driven by food, and
transport and communication prices. Food inflation accelerated
to 17.6% y/y in October, from 16.2% y/y in September, while
transport and communication price inflation surged to 19.2%
y/y, from 11.5% y/y over the same period. Food inflationarypressures are expected to persist in the short term, as the lean
season has just begun. Expenditure related to the recent
presidential elections is also likely to have created short-term
price pressures. The sharp fall in the international oil price is
expected to substantially dampen price pressures from fuel,
utilities and transport. And, as the green harvest begins to
enter markets at the end of the first quarter of 2009, inflation is
expected to ease.
A higher interest rate environment. Short-term interest rates
have increased in recent months largely on account of a
decline in appetite for local government debt related to the
sharp increase in investors aversion to emerging market risk.
The drop in the copper price has also reduced the appeal of
Zambian debt. As such, the yield on the 91-day Treasury billincreased to 13% in the first week of October, from 12.5% in
September. Accelerating inflation and reservations about the
countrys new leadership also added to the upward pressure
on interest rates. Similarly, the average lending rate increased
to 26.7%, from 25.7% over this period. This high interest rate
environment is expected to persist until the global financial
markets stabilise.
Inflation - % y/y
Source: National Bureau of Statistics
Interest rates - %
Source: Bank of Zambia
Kwacha at its weakest value against the US dollar in 18
months. Heightened risk aversion spurred the dramatic sell-offof emerging market assets in October and led to a sharp
depreciation of emerging market currencies, including the
kwacha. The kwacha lost 15.4% of its value against the US
dollar and 6.4% against the euro, to average ZMK4 088.1/USD
and ZMK5 415/EUR in October. The reversion of the trade
balance to negative territory in the third quarter of 2008, largely
because of the halving of the copper price in less than six
months, subdued foreign exchange inflows and thus added to
the weakening pressure on the kwacha. The slowdown in
Chinas growth momentum suggests that the demand for
copper has softened and thus Zambias export earnings will
moderate, im l in a weaker kwacha in the short term.
Broad money (M3) growth drops to a two-year low in
August. M3 growth slowed to 19.5% y/y in August, from 29.2%y/y in July, largely on account of a significant decline in foreign
currency deposits. The growth rate of foreign currency
deposits, which constitute between 26% and 30% of M3,
slowed sharply to 0.8% y/y in August, from 9.2% y/y in the
previous month. This deceleration reflects acute emerging
market risk aversion, in light of the global financial crisis, and
uncertainty surrounding policy continuity following the death of
President Mwanawasa. Reserve money growth was also
subdued in September at 4.3% y/y, compared to 11.1% y/y in
August, owing to a decline in growth of statutory reserves on
foreign exchange deposits.
Wwwwwweeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeeee
Exchange rates
Sources: Bloomberg, Standard Bank Group est.
Money supply growth % y/y
Source: Bank of Zambia
-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.
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Page 25
Standard Bank Group EconomicsStandard Bank Group Economics
Zambia picture gallery
Real GDP growth - %
Source: IMF, Standard Bank est.
Sectoral contribution to GDP (%)
Source: Central Statistical Office
Foreign reserves & import cover
Sources: Bloomberg, Bank of Zambia
Trade account US$ million
Source: Central Statistics Office
Government budget balance - % of GDP
Sources: IMF CR No.08/187
Copper price US dollars per tonne
Source: Bloomberg
Weights of consumer price index (CPI) constituents, %
Sources: Central Statistical Office, Standard Bank Group est.
Stock market indicators
Source: Lusaka Stock Exchange
5.4 5.26.2
5.7 6.16.2
0
1
2
34
5
6
7
2004 2005 2006 2007e 2008f 2009f
Agriculture, Forestry& Fishing
13%
Mining &Quarrying
8%
Manufacturing
11%
Electricity,Gas &Water
3%
Construction
11%
Wholesale& Retail
trade18%
Restaurants, Bars &
Hotels3%
Transport,Storage &Communic
ations9%
FinancialInstitutions
&Insurance
7%
RealEstate &Businessservices
9%
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
-400
0
400
800
1200
1600
2005 2006 2007 2008
Imports Exports Trade balance
-4
0
4
8
12
16
20
2005 2006 2007 2008p 2009f0
1500
3000
4500
6000
7500
9000
2004 2005 2006 2007 2008
57.1
6.8
8.5
8.2
0.8 9.6
4.9 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
8/14/2019 Africa Markets Watch - October 2008
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Standard Bank Group Economics
Standard Bank Group Economics
Group EconomicsGoolam Ballim Group [email protected]
South Africa
Johan Botha Shireen Darmalingam Jeremy Stevens Danelee van Dyk
+27-11-636-2463 +27-11-636-2905 +27-11-631-7855 +27-11-636-6242
[email protected] [email protected] [email protected] [email protected]
Rest of Africa
Jan Duvenage Anita Last Yvonne Mhango Victor Munyama
+27-11-636-4557 +27-11-631-5990 +27-11-631-2190 +27 11-631-1279
[email protected] [email protected] [email protected] [email protected]
BotswanaLesothoNamibia
Swaziland
AngolaGhanaMalawi
Mauritius
KenyaMozambiqueUganda
Zambia
DRCNigeriaTanzania
Zimbabwe
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