31st May 2016

TABLE OF CONTENTS

1.0 Executive Summary…………………………………......Pg2

2.0 Kenya…………………………………………………….Pg2

3.0 Tanzania…………………………………………………Pg5

4.0 Uganda…………………………………………………...Pg6

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EAST AFRICAN COMMUNITY

The East African region continues to be a prime investor destination following the latest developments made towards the integration of the East African Community. The region remains largely stable in terms of macro-

economic outlook and we expect growth to remain positive going forward. Integration of the East African countries is also expected to boost development and growth in the region. East Africa’s GDP is expected to rise

from 4.6% to 5.2% in the 2015/16 fiscal year despite an unexpected weaker global growth.

Rwanda recently decided to re-route its standard gauge railway (SGR) from Kenya to Tanzania. The remarks

come at a time when Kenya’s position as the region’s economic super-power is coming under threat. Kenya’s stated that Rwanda’s decision will not have adverse effects on the SGR project as 70% of the goods imported

through the port of Mombasa end up in Nairobi. Only 30% of exports from Mombasa go beyond Nairobi to other towns in the country and further into the region, including Rwanda. Rwanda stated that developing a rail

link to Indian Ocean ports through Tanzania is cheaper and shorter than the route passing through Kenya.

KENYA

Political & Economic Environment Kenya Signs Trade Pacts with South Korea Kenya signed seven trade agreements with South Korea towards improvement of health, education,

energy, ICT and industrialization sectors. One of the

deals will see the Korea Export-Import Bank pump an initial KES 5.0bn to support the agricultural

sector towards food security. President Kenyatta and President Park Geun-hye, who had earlier

chaired a bilateral meeting, witnessed the signing of

the bilateral pacts at State House, Nairobi.The memorandum with the Korean Bank was signed for

Kenya by Agriculture CS Willy Bett. The agreements will boost the country’s efforts to become an

economic, industrial and technological powerhouse in the region.

Tanzania Cuts Power Imports from Kenya By 67% In a statement last week, Dar es Salaam confirmed it would be scaling down its power imports from

Kenya, but did not go into the details of why it

would do so. Data from the Ministry of Energy already shows that between January and March this

year, Kenya exported 170,000 kilowatt-hours less to Tanzania. Kenya and Tanzania have a power

exchange agreement at their border towns. The data, however, shows Kenya ceased importing

power from Tanzania last year, following the

successful completion of electricity-generating programmes the Government is working on.

Kenya's USD 13bn Railway Project It's been billed as the most ambitious project in Kenya since it gained independence in 1963. Now,

the first section of the east African nation's USD

13.8bn railway is nearly finished. Originally planned to link Mombasa and Nairobi, the decision was

made to extend the line to the market town of Naivasha in 2015, and 75% of civil works have

reportedly been completed. This first Mombasa-

Nairobi stretch will be completed by June 2017. It is hoped that the track will shorten the journey

between the two cities from 12 hours to four hours. Passenger trains will travel at 120km/h, and freight

trains will be able to carry 25mn tonnes per year, according to the International Railway Journal.

Kenya to Close World’s Largest Refugee Camp Kenya is to send Somali refugees in the world’s

largest camp back to their war-torn country or other nations by November. The sprawling Dadaab camp

on the Kenya-Somalia border is currently home to

some 600,000 refugees, the vast majority of whom fled Somalia’s more than two-decades long conflict.

Kenya said earlier this month it would shut down the camp, and set up a team to explore how it

could be achieved. Kenya has also bemoaned the high cost of maintaining Dadaab, even though the

international community, via the UN refugee agency

(UNHCR), covers most costs. The UNHCR voiced “profound concern” over any move to shut Dadaab,

while hailing Kenya’s “extraordinary role over the years in hosting refugees.”

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Diaspora Remittances During the month of May, Kenya’s Central Bank

released data on remittances for the month of April 2016. Remittances in Kenya increased by 15.3% to

USD 144mn in April 2016 compared with USD 124mn in January 2015. The cumulative inflows in

the 12 months to April 2016 rose by 10.7% to USD

1.62bn.

Outlook Kenya is the dominant economy in the EAC

contributing to more than 40% of the region’s GDP.

The country’s investment climate is the strongest in the region with foreign direct investment flowing in

from markets in line with its economic blueprint. We expect a stable but tight macroeconomic

environment. GDP is expected to grow by 5-6% in 2015 driven by a recovery in the Agriculture sector

despite a tougher operating environment in the

year. Economic growth in the year is expected to fall behind initial estimates of 6% to 7% as a result

of the tougher operating environment in the year in which interest rates soared, the local currency

depreciated by more than 10% and external shocks

affected most sectors. Economic growth is expected to remain investment driven going forward with the

onset of the election cycle serving to put a drag on investments towards Q4 2016 until the elections

period in August.

Kenyan Shilling The Shilling gained against all major currencies during the month. The Shilling marginally gained

slightly against the USD during the month by 0.3%. This was on the back off suppressed dollar demand

and a reducing import bill. The Shilling

strengthened against all regional currencies, gaining 1.2% 0.4% and 0.3% against the USH, TSH and

RWF.

Currency Outlook We expect the KES to trade between KES 101.00 -102.00 against the USD in June 2016.

Inflation Headline inflation decreased during the month of

May 2016 to 5.0%, up from 5.3% in the month of April 2016. The decline was mainly attributed to a

fall in food and fuel prices by 26 basis points (bps) and 14bps respectively.

The m/m Consumer Price Index (CPI) increased by 0.7% from 167.07 in April 2016 to 167.99 in May

2016.

Inflation Outlook We expect inflation to remain within Central Bank’s medium-term target of 5.0% with a 2.5% band.

Source: KNBS, CBK Interest Rates The Central Bank’s Monetary Policy Committee

(MPC) lowered the Central Bank Rate (CBR) in its latest meeting in May 2016 by 100bps to 10.50%.

The MPC decided to ease its monetary policy as inflationary pressures continued to ease. The

committee noted that overall inflation is expected to

decline and remain within the Government target range in the short-term. The MPC will have its next

meeting in July 2016.

The average rate of the 91 day Treasury bill (T-bill) stood at 8.2% in May 2016, a decrease from 8.9%

in the previous month. The average rate for the 182

day T-bill declined by 50bps to 10.3% in May 2016.

Interest Rate Outlook We foresee the Central Bank’s Monetary Policy

Committee maintaining their neutral monetary

policy stance at the next meeting so as to maintain market stability and anchor inflation pressures.

Date USD EUR GBP JPY(100) USH TSH RWF

30-Apr-16 101.14 114.50 147.52 93.14 32.95 21.65 7.38

31-May-16 100.83 112.37 147.40 90.71 33.35 21.73 7.40

MTD 0.3% 1.9% 0.1% 2.7% 1.2% 0.4% 0.3%

Kenya Exchange Rate Against Major and Regional Currencies

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Corporate Actions Safaricom Net Profit Rises 20% to KES 38.1bn Telecommunications firm Safaricom announced a

19.6% rise in net profit to KES 38.1bn in the year to March 2016, with much of the growth coming from

non-voice services. The Nairobi Securities

Exchange-listed firm has proposed a dividend of 76 cents per share, up from 64 cents in the previous

year. Total company sales rose by 19.8% to KES 195.7bn. Revenue from services such as voice, M-

Pesa, SMS and mobile data expanded by 13.8% to

KES 177.8bn. Income from other sources such as handsets and construction brought in an extra KES

17.9bn. The single largest growth of 42.7% in revenue was in mobile data whose sales hit KES

21.2bn. The second largest growth was in M-Pesa services which expanded by 27.2% to KES 41.5bn.

The EBITDA (earnings before interest, taxes,

depreciation and amortisation) margin, which shows a firm’s ability to earn a profit and generate cash

after netting out what is not core to its internal operations was up to 44.6% compared to 43.6%

in year ending March 2015. Standard Chartered Posts 44% Jump in First Quarter After-Tax Profit Standard Chartered Bank (SCB) announced a 44.4%

growth in its net profit for the first three months to March, lifted by increased interest income. The

lender booked an after-tax profit of KES 2.6bn in

the first quarter of the year compared to KES 1.8bn in a similar period a year earlier. The jump in net

profit is the largest among top-tier banks that have announced their first quarter results. SCB’s interest

income grew to KES 6.4bn in the review period from

KES 5.4bn despite the loan book shrinking by KES 5.4bn to KES 109.7bn. Customer deposits jumped

by KES 12.5bn to KES 184.5bn. The bank recorded a rise in gross non-performing loans to KES 15.4bn

from KES 8.3bn in the period, but the loan loss

provision remained almost flat at KES 728mn. Its core capital increased by KES 1.0bn to KES 34.2bn.

The growth comes after the lender reported a 39 per cent drop in its net profit for 2015 to Sh6.3

billion weighed down by decreased lending and a sharp rise in non-performing loans.

KCB Quarter One Net Profit Rises 6.1% to KES 4.63bn as Bad Loans Surge East Africa’s largest commercial bank by assets,

KCB, was hit by a KES 7bn increase in gross non-performing loans (NPLs), even as it recorded a

6.1% growth in net profit in the first quarter of the

year compared to last year. Provisioning for loan losses more than doubled to KES 1.34bn thereby

cutting into the company’s net profit that now stands at KES 4.63bn in the quarter ending March

31, up from KES 4.36bn in the same period last

year. KCB saw its deposits fall by nearly KES 1bn, amid the industry talk about flight to safety by

customers from small banks to big banks after the collapse of several financial institutions since last

year. Its loan book remained flat. With the net profit standing at KES 4.63bn the institution now

falls behind Equity Bank which reported KES 5.1bn

in net profit for the first three months of the year. KCB was last month appointed the manager of

Chase Bank which had collapsed on April 7, but re-opened its doors on April 27.

Stock Market Performance Sector Performance National Bank of Kenya, Longhorn Kenya and Trans-Century Ltd were the top three performers in the

bourse yielding 20.2%, 14.3% and 12.4% respectively. Automobiles & Accessories, Insurance

and Investment Services were the top performing

sectors yielding a return of 2.4%, 2.0% and 1.8% respectively. The increase in performance in the

Automobiles & Accessories sector was mainly driven by Marshalls East Africa and Car & General Ltd.

Stock Market Outlook The NSEASI (Nairobi Securities Exchange All Share

Index) declined by 2.3% m/m (down 1.4% YTD) to close the month at 143.61 points, while the NSE -

20 Share Index was down 4.5% m/m (down 5.3%

YTD) to close the month at 3,827.80 points. We expect the market activity to remain subdued as

investor sentiment has dampened.

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TANZANIA

China Fund’s Africa’s Biggest University Library in Tanzania China’s taking another step in expanding its footprint

in Africa. China is building what’s touted as Africa’s

biggest university library in Tanzania. The foundation stone for the new library at the

University of Dar es Salaam (UDSM) was laid by Tanzanian President John Magufuli. It will be built at

a cost of about USD 40mn and is fully funded by the

Chinese government. When finished, the state-of-the-art facility will total 20,000 square meters and

boast over 800,000 books. The mega-facility will also accommodate 2,600 university students at a

time.

Tanzania Tourism Sector Gets USD 100 Million World Bank Funding The Government has secured USD 100mn from the

World Bank to improve tourism in the southern circuit. The money will be spent in a five year period

starting from 2017 for improvements in

infrastructure and promotion of tourist attractions in the area. The government obtained the money to

boost the tourism industry, which has contributed 17% to the country's gross domestic product (GDP),

for the last three years.

Tanzania Purges 10,000 'Ghost Workers' In Anti-Corruption Drive Tanzania has removed more than 10,000 "ghost

workers" from its public sector payroll in a crackdown on corruption. Payments to the non-

existent employees had been costing the

government more than USD 2mn a month. The authorities say they are continuing to audit the

public payroll and expect to find more phantom workers. President John Magufuli, who was elected

in October, has promised to cut wasteful public

expenditure in office. He ordered the audit in March, calling for the money saved to be used towards

development. Mr Magufuli has announced a range of cost-cutting measures since coming to power,

including cancelling official celebrations for Independence Day. Tanzania spends more than USD

260mn a month paying the salaries of its estimated

550,000 public workers.

Tanzanian Shilling The Tanzanian Shilling (TSH) remained flat against the U.S. dollar (down 1.9% YTD) in May 2016 to

close the month at TSH 2,190.

Inflation The Annual Headline Inflation Rate for the month of April, 2016 has decreased to 5.1% from 5.4%

recorded in March, 2016. The decrease of Annual

Headline Inflation Rate for the year ending April, 2016 explains that, the speed of price increase for

commodities in the year ending April, 2016 has decreased as compared to the speed of price

increase recorded for the year ended March, 2016. The overall index went up to 102.46 in April, 2016

from 97.50 recorded in April, 2015. Food and Non

Alcoholic Beverages Inflation Rate for the Month of April 2016 has slightly decreased to 7.1% from

8.3% recorded in March, 2016.

Interest Rates The Bank of Tanzania (BOT) maintained a neutral monetary policy stance, despite marked increases in

private sector credit growth and inflation, while the TSH has also been depreciating at an alarming rate.

The Central Bank Rate remained unchanged at 12% in April. The main reason the BOT has held a neutral

stance is to encourage GDP growth in line with their

Vision 2025, where Tanzania plans to become a middle income nation.

Stock Market The DSEASI (Dar es Salaam Securities Exchange All

Share Index) fell by 4.0% m/m (up 5.3% YTD) to close at 2,457.03 points from 2,559.31 points. We

expect market activity to remain moderate supported by foreign investor participation.

Outlook We expect economic growth to remain robust in the

medium term driven by rising private consumption, strong growth in the services sector as well as

spillover effects from the massive infrastructure investments in the country. We expect the BOT to

maintain its neutral stance to first Quarter of 2016.

Tanzania is well positioned to capture strong growth in the region. We expect GDP growth in 2015/16 to

be 7.0%.

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UGANDA

Uganda Halts Military Cooperation With North Korea Ugandan President Yoweri Museveni said his country

would halt security and military cooperation with

North Korea, following a summit in Kampala between Museveni and South Korean President Park Geun-

hye. This deprives North Korea of a crucial base for arms and other exports in Africa. In the meeting, her

President Museveni agreed to comply with United Nations sanctions aimed at limiting North Korea’s

capacity to earn foreign cash for its banned nuclear

and missile program. Instructors from North Korea have been in Uganda for years, training its police in

weapons use and in other areas, according to South Korean officials and a United Nations sanctions

report. Uganda was also believed to be a crucial

buyer of rifles and other small arms from North Korea.

France Pledges USH 667Bn for Kampala-Jinja Expressway Project The French government, through its public bank and overseas development agency, Agence Française de

Développement (AFD), has said it will commit EUR 180mn (USH 667bn) to the development of the

proposed Kampala-Jinja Expressway next year. The ambitious toll road project is estimated to cost about

USH 800bn, and will be financed through a Public-

Private Partnership (PPP). The AFD financing (loan) will, however, fit in on the side of government. The

77km stretch will start at Nakawa in Kampala and connect to Jinja Township. The road will have four to

eight lanes, respectively at various points. It will

have six lanes between Bweyogerere and Lugazi, and then a dual carriage between Lugazi and Jinja.

Trademark East Africa Gives Uganda USH100 Million for the Northern Corridor Project Trademark East Africa (TMEA) has given Uganda

office equipment worth USH 100mn to support

initiatives of creating a coordinating center for the Northern Corridor Integration Project initiatives. The

equipment which includes laptop, desk computers, printers, projectors and heavy duty photocopier will

complement the resources required to effectively

discharge the coordination role. The Northern Corridor Project is key to TMEA's activities because of

the benefits realized so far in terms of reducing time and improving business along this route.

Ugandan Shilling The Ugandan Shilling fell against the US Dollar during the month. The Shilling depreciated by 1.4%

m/m (up 0.2% YTD) against the U.S Dollar to close

the month at USH 3,365.

Inflation Uganda's annual headline inflation for May 2016 rose

to 5.4% from 5.1% a month earlier fueled by a surge in core inflation. Annual core inflation, which

excludes food, fuel, electricity and metered water

increased to 7.0% this month, from April’s 6.4%. The monthly headline inflation also increased by

0.2% for the month of May 2016 compared to 0.1% recorded in April 2016. This was caused by increase

in monthly core inflation at 0.5% increase from the

earlier 0.0% recorded in April 2016.

Interest Rates Bank of Uganda’s (BOU) Monetary Policy Committee

cut the Central Bank Rate (CBR) by 100bps to 16.0%

in its recent meeting in April 2016. The BOU cited that inflationary pressures remained subdued. The

BOU forecasts the annual both headline and core inflation will remain in the range of 6.5% ± 1% in

the first half of 2016 before gradually declining to the BoU's medium-term target of 5% in Q1-2017.

Nonetheless, there are upside risks to this outlook,

including the future path of the exchange rate, which in part is contingent on external economic

environment. The BOU cut the CBR given that the inflation outlook has improved and to ensure that

real economic growth remains close to potential. The

BoU believes that it is warranted to cautiously ease monetary policy.

Stock Market The USEASI (Ugandan Securities Exchange All Share Index) decreased by 0.9% m/m (up 0.3% YTD) to

close at 1,768.37 points from 1,784.61 points.

Outlook Economic recovery is expected to continue in 2015/16 driven by FDI inflows and growing private

sector participation in the economy. Despite huge

infrastructure investment in the oil industry, transport and power sectors economic growth is

expected to moderate to about 4.8% in 2015 and 5.5% going forward.

INVESTOR BRIEFING NOTE October 2014

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KENYA | UGANDA | TANZANIA | RWANDA | SOUTH SUDAN | MOZAMBIQUE | MALAWI