QUARTERLY MARKET ANALYSIS REPORT January 2019 INSIDE 1. Performance in the Real Sector .................................................................................................... 2 2. International Markets ....................................................................................................................... 6 3. Money Market .................................................................................................................................... 9 4. Fiscal Performance ........................................................................................................................ 10 5. Capital Markets ............................................................................................................................... 12 6. Risk-related Factors ...................................................................................................................... 15 1 1. Performance in the Real Sector Figure 1: GDP growth, inflation and stock market performance 14.00 4,900.00 12.00 4,200.00 10.00 3,500.00 8.00 2,800.00 6.00 2,100.00 4.00 1,400.00 2.00 700.00 - - Quarterly GDP Growth (%) Inflation (%) NSE20 Index Data source: Central Bank of Kenya; Kenya National Bureau of Statistics Figure 2: Commodity inflation and crude oil prices 25.00 90.00 80.00 20.00 70.00 15.00 60.00 50.00 10.00 40.00 5.00 30.00 20.00 - 10.00 (5.00) - Overall Inflation (%) Food Inflation (%) Fuel Inflation (%) Non-food Non-Fuel Inflation (%) ADNOC Crude Oil Prices (US$/Barrel) Data source: Kenya National Bureau of Statistics 2 Inflation (%) Inflation and Quarterly GDP (%) Jan-17 Nov-16 Feb-17 Dec-16 Mar-17 Jan-17 Apr-17 Feb-17 May-17 Mar-17 Jun-17 Apr-17 May-17 Jul-17 Jun-17 Aug-17 Jul-17 Sep-17 Aug-17 Oct-17 Sep-17 Nov-17 Oct-17 Nov-17 Dec-17 Dec-17 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Sep-18 Sep-18 Oct-18 Nov-18 Oct-18 Dec-18 Nov-18 Dec-18 NSE20 Index US$ / Barrel Figure 3: Domestic wholesale agriculture commodity prices 100.00 80.00 60.00 40.00 20.00 0.00 Kales Index Cereals Index Legumes Index Tubers Index Fruits & Vegetables Index Data source: Index calculated by KIPPRA using data from Ministry of Agriculture Figure 4: Average domestic pump prices and global crude oil prices 130.00 140.00 120.00 130.00 110.00 120.00 110.00 100.00 100.00 90.00 90.00 80.00 80.00 70.00 70.00 60.00 60.00 50.00 50.00 40.00 40.00 Motor Gasoline Premium Light Diesel Oil (Gasoil) Illuminating Kerosene ADNOC Crude Oil Prices Data Source: Kenya National Bureau of Statistics; Energy Regulatory Commission 3 Average Local Retail Price (KSh./Ltr) Monthly Wholesale Food Price Index Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Mar-17 Apr-17 Apr-17 May-17 Jun-17 May-17 Jul-17 Jun-17 Aug-17 Jul-17 Sep-17 Aug-17 Oct-17 Sep-17 Nov-17 Dec-17 Oct-17 Jan-18 Nov-17 Feb-18 Dec-17 Mar-18 Jan-18 Apr-18 Feb-18 May-18 Mar-18 Jun-18 Jul-18 Apr-18 Aug-18 May-18 Sep-18 Jun-18 Oct-18 Jul-18 Nov-18 Aug-18 Dec-18 Sep-18 Oct-18 Nov-18 ADNOC Crude Oil Prices (US$ / Barrel) Dec-18 Figure 5: Monthly tourism arrivals (number) 130,000 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 Data source: Kenya National Bureau of Statistics Figure 6: Electricity generation and consumption (KPLC sales in million KWh) 1,000.00 950.00 900.00 850.00 800.00 750.00 700.00 650.00 600.00 Electricity Generation Electricity Consumption Data source: Kenya National Bureau of Statistics 4 Number of Tourists Nov-16 Dec-16 Nov-16 Jan-17 Dec-16 Feb-17 Jan-17 Mar-17 Feb-17 Apr-17 Mar-17 May-17 Apr-17 Jun-17 May-17 Jul-17 Jun-17 Aug-17 Jul-17 Aug-17 Sep-17 Sep-17 Oct-17 Oct-17 Nov-17 Nov-17 Dec-17 Dec-17 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Sep-18 Sep-18 Oct-18 Oct-18 Figure 7: Cement production and consumption (‘000 MT), index of value of building plans 600.00 290.0 580.00 270.0 560.00 540.00 250.0 520.00 500.00 230.0 480.00 210.0 460.00 440.00 190.0 420.00 400.00 170.0 Cement Production Cement Consumption Index of Value of Building Plans Data source: Kenya National Bureau of Statistics Figure 8: New vehicle registration and production of assembled vehicles (number) 700 30600 650 29200 600 27800 550 26400 500 25000 450 23600 400 22200 350 20800 300 19400 250 18000 Production of Assembled Vehicles (No.) New Vehicle Registration (No.) Data source: Kenya National Bureau of Statistics 5 Produn. Of Assembled Vehicles (No.) Cement Production & Consumption ('000 MT) Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Mar-17 Apr-17 Apr-17 May-17 May-17 Jun-17 Jun-17 Jul-17 Jul-17 Aug-17 Aug-17 Sep-17 Sep-17 Oct-17 Oct-17 Nov-17 Nov-17 Dec-17 Dec-17 Jan-18 Jan-18 Feb-18 Feb-18 Mar-18 Mar-18 Apr-18 Apr-18 May-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Sep-18 Sep-18 Oct-18 Index of Value of Building Plans New Vehicle Registration (No.) 2. International Markets Figure 9: Trends in coffee and tea production (metric tonnes), exports (Ksh millions) and auction prices (Ksh/Kg) Figure 9(a): Coffee production and exports 7,000.0 3,500.0 6,000.0 3,000.0 5,000.0 2,500.0 4,000.0 2,000.0 3,000.0 1,500.0 2,000.0 1,000.0 1,000.0 500.0 - - Kenya Coffee Production (MT) Kenya Coffee Exports (KSh. Million) Data source: Kenya National Bureau of Statistics Figure 9(b): Kenya coffee auction prices (Ksh/Kg) 650.00 600.00 550.00 500.00 450.00 400.00 350.00 300.00 250.00 200.00 Data source: Kenya National Bureau of Statistics 6 Auction Price (KSh/Kg) Coffee Production (MT) Sep-16 Sep-16 Oct-16 Oct-16 Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Mar-17 Apr-17 Apr-17 May-17 May-17 Jun-17 Jul-17 Jun-17 Aug-17 Jul-17 Sep-17 Aug-17 Oct-17 Sep-17 Nov-17 Oct-17 Dec-17 Nov-17 Jan-18 Feb-18 Dec-17 Mar-18 Jan-18 Apr-18 Feb-18 May-18 Mar-18 Jun-18 Apr-18 Jul-18 Aug-18 May-18 Sep-18 Jun-18 Oct-18 Jul-18 Aug-18 Sep-18 Oct-18 Coffee Exports (KSh.M) Figure 9(c): Tea production and exports 55,000.0 15,400.0 50,000.0 14,200.0 45,000.0 13,000.0 40,000.0 11,800.0 35,000.0 10,600.0 30,000.0 9,400.0 25,000.0 8,200.0 20,000.0 7,000.0 Kenya Tea Production (MT) Kenya Tea Exports (KSh. Million) Data source: Kenya National Bureau of Statistics Figure 9(d): Kenya tea auction prices (Ksh/Kg) 340.00 320.00 300.00 280.00 260.00 240.00 220.00 Data source: Kenya National Bureau of Statistics 7 Auction Price (KSh/Kg) Tea Production (MT) Sep-16 Sep-16 Oct-16 Oct-16 Nov-16 Nov-16 Dec-16 Dec-16 Jan-17 Jan-17 Feb-17 Feb-17 Mar-17 Mar-17 Apr-17 Apr-17 May-17 May-17 Jun-17 Jul-17 Jun-17 Aug-17 Jul-17 Sep-17 Aug-17 Oct-17 Sep-17 Nov-17 Dec-17 Oct-17 Jan-18 Nov-17 Feb-18 Dec-17 Mar-18 Jan-18 Apr-18 Feb-18 May-18 Jun-18 Mar-18 Jul-18 Apr-18 Aug-18 May-18 Sep-18 Jun-18 Oct-18 Jul-18 Aug-18 Sep-18 Oct-18 Tea Exports (KSh.M) Figure 10: The exchange rate of Kenya shilling to global currencies 150.0 150.0 140.0 140.0 130.0 130.0 120.0 120.0 110.0 110.0 100.0 100.0 90.0 90.0 80.0 80.0 US Dollar Index KES/USD KES/STG-POUND KES/EURO Data source: Central Bank of Kenya; Kenya National Bureau of Statistics; https://www.investing.com/quotes/us-dollar-index-historical-data Figure 11: The exchange rate of Kenya shilling to regional currencies 0.1400 9.0000 0.1200 8.5000 0.1000 8.0000 0.0800 7.5000 0.0600 7.0000 0.0400 6.5000 0.0200 6.0000 KES/USHS KES/TSHS KES/RWF KES/BIF KES/SA-RAND Data source: Central Bank of Kenya 8 Units of KES to 1 USH, TSH, RWF, BIF Units of KES to 1 USD, STG-Pound, Euro 01-Nov-17 01-Nov-17 18-Nov-17 18-Nov-17 05-Dec-17 05-Dec-17 22-Dec-17 22-Dec-17 08-Jan-18 08-Jan-18 25-Jan-18 25-Jan-18 11-Feb-18 11-Feb-18 28-Feb-18 28-Feb-18 17-Mar-18 17-Mar-18 03-Apr-18 03-Apr-18 20-Apr-18 20-Apr-18 07-May-18 07-May-18 24-May-18 24-May-18 10-Jun-18 10-Jun-18 27-Jun-18 27-Jun-18 14-Jul-18 14-Jul-18 31-Jul-18 31-Jul-18 17-Aug-18 17-Aug-18 03-Sep-18 03-Sep-18 20-Sep-18 07-Oct-18 20-Sep-18 24-Oct-18 07-Oct-18 10-Nov-18 24-Oct-18 27-Nov-18 10-Nov-18 14-Dec-18 27-Nov-18 31-Dec-18 14-Dec-18 31-Dec-18 Units of KES to 1 SA-Rand US Dolla Index 3. Money Market Figure 12: Interbank rate and volume, Repo and interest rates Central Bank Rate (%) Repo and Reverse Repos 11.00 11.00 10.00 10.50 9.00 8.00 10.00 7.00 6.00 9.50 5.00 4.00 9.00 3.00 8.50 Reverse Repos Repo (7-days) % Interbank Rate and Volume 12.00 45000 Commercial Bank Rates (%) 40000 21.00 10.00 35000 18.00 8.00 30000 15.00 25000 12.00 6.00 20000 9.00 4.00 15000 6.00 10000 3.00 2.00 5000 0.00 0.00 0 Deposit Rate Savings Rate Lending Rate Volume (KSh. Million) Weighted Average Rate (%) Data source: Central Bank of Kenya Figure 13: T-bill weighted average rate (%) 11.5 11.0 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 91-Day 182-Day 364-Day Data source: Central Bank of Kenya 9 Interbank Weighted Average Rate (%) 01-Nov-17 06-Nov-17 Jun-16 18-Nov-17 Jul-16 18-Nov-17 05-Dec-17 Aug-16 22-Dec-17 Sep-16 30-Nov-17 08-Jan-18 Oct-16 12-Dec-17 Nov-1625-Jan-18 Dec-16 11-Feb-18 24-Dec-17 Jan-17 28-Feb-18 Feb-17 05-Jan-18 17-Mar-18 Mar-17 03-Apr-18 Apr-17 17-Jan-18 20-Apr-18 May-17 29-Jan-18 07-May-18 Jun-17 24-May-18 Jul-17 10-Feb-18 Aug-1710-Jun-18 Sep-17 22-Feb-18 27-Jun-18 Oct-17 14-Jul-18 06-Mar-18 Nov-1731-Jul-18 Dec-17 18-Mar-18 17-Aug-18 Jan-18 03-Sep-18 Feb-18 30-Mar-18 20-Sep-18 Mar-18 Apr-18 11-Apr-18 07-Oct-18 May-18 24-Oct-18 23-Apr-18 Jun-1810-Nov-18 Jul-18 05-May-18 27-Nov-18 Aug-18 14-Dec-18 Sep-18 17-May-18 31-Dec-18 Oct-18 29-May-18 Nov-18 Dec-18 10-Jun-18 Volume (KSh. Million) 22-Jun-18 04-Jul-18 16-Jul-18 Jun-16 Jan-17 28-Jul-18 Jul-16 Aug-16 Feb-17 09-Aug-18 Sep-16 Mar-17 Oct-16 21-Aug-18 Apr-17Nov-16 02-Sep-18 Dec-16 May-17 Jan-17 Jun-17 14-Sep-18 Feb-17 Jul-17 Mar-17 26-Sep-18 Apr-17 Aug-17 May-17 08-Oct-18 Sep-17Jun-17 20-Oct-18 Jul-17 Oct-17 Aug-17 Nov-17 01-Nov-18 Sep-17 Dec-17 Oct-17 13-Nov-18 Nov-17 Jan-18 25-Nov-18 Dec-17 Feb-18 Jan-18 Mar-18 07-Dec-18 Feb-18 Mar-18 Apr-18 19-Dec-18 Apr-18 May-18 31-Dec-18 May-18 Jun-18 Jun-18 Jul-18 Jul-18 Aug-18 Aug-18 Sep-18 Sep-18 Oct-18 4. Fiscal Performance Figure 14: Composition of government domestic debt by instrument 100% 90% 80% 70% 64.64 64.64 63.68 60.45 60.53 60% 50% 40% 30% 20% 32.39 36.93 37.26 32.26 33.71 10% 0% Oct-Dec 2017 Jan-March 2018 April-June 2018 July-Sept 2018 Oct-Dec 2018 Treasury Bills (excluding Repos) Treasury Bonds CBK Overdraft to Govt Other domestic debt Data Source: Calculated using data from Central Bank of Kenya, Weekly Bulletin. Figure 15: Composition of government domestic debt by holder 100% 4.42 4.50 4.48 4.48 4.54 90% 80% 28.42 27.37 27.19 26.90 27.43 70% 6.68 6.81 6.95 7.18 7.46 60% 6.28 6.35 6.37 6.15 6.05 50% 40% 30% 54.95 55.02 54.99 52.27 54.49 20% 10% 0% Oct-Dec 2017 Jan-March 2018 April-June 2018 July-Sept 2018 Oct-Dec 2018 Banking Institutions Insurance Companies Parastatals Pension Funds Other investors Data Source: Calculated using data from CBK Weekly Bulletin 10 Figure 16: Proportionate shares of domestic and foreign debt 5,500.00 5,000.00 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Domestic debt Public & Publicly Guaranteed External debt Data Source: Calculated using data from Central Bank of Kenya Weekly Bulletin 11 KSh. Billion 47.9% 52.1% 48.5% 51.5% 48.6% 51.4% 48.6% 51.4% 49.2% 50.8% 49.4% 50.6% 5. Capital Markets Figure 17: Bond volumes traded (Ksh millions) and FTSE NSE Kenya government bond price Index 96.00 60,000.00 95.00 55,000.00 94.00 50,000.00 93.00 45,000.00 92.00 40,000.00 91.00 35,000.00 90.00 30,000.00 89.00 25,000.00 88.00 20,000.00 87.00 15,000.00 FTSE NSE Govt Bond Price Index Bond Volumes Traded (KSh. Million) Data Source: Nairobi Securities Exchange; Central Bank of Kenya Figure 18: The 5 and 10-year Kenya Eurobond yields (%) 9.000 8.000 7.000 6.000 5.000 4.000 3.000 2.000 5-year Eurobond Yield (%) 10-year Eurobond Yield - 2024 (%) Data Source: Central Bank of Keya 12 FTSE NSE Kenya Government Bond Price Index 03-Nov-17 12-Nov-17 21-Nov-17 30-Nov-17 09-Dec-17 Jan-17 18-Dec-17 Feb-17 27-Dec-17 05-Jan-18 Mar-17 14-Jan-18 Apr-17 23-Jan-18 01-Feb-18 May-17 10-Feb-18 Jun-17 19-Feb-18 28-Feb-18 Jul-17 09-Mar-18 Aug-17 18-Mar-18 27-Mar-18 Sep-17 05-Apr-18 Oct-17 14-Apr-18 23-Apr-18 Nov-17 02-May-18 Dec-17 11-May-18 20-May-18 Jan-18 29-May-18 Feb-18 07-Jun-18 16-Jun-18 Mar-18 25-Jun-18 04-Jul-18 Apr-18 13-Jul-18 May-18 22-Jul-18 31-Jul-18 Jun-18 09-Aug-18 Jul-18 18-Aug-18 27-Aug-18 Aug-18 05-Sep-18 Sep-18 14-Sep-18 23-Sep-18 Oct-18 02-Oct-18 Nov-18 11-Oct-18 20-Oct-18 Dec-18 29-Oct-18 07-Nov-18 16-Nov-18 25-Nov-18 04-Dec-18 13-Dec-18 22-Dec-18 Bond Volumes Traded (KSh. Million) 31-Dec-18 Figure 19: Stock market performance 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 NSE20 Index Mkt Cap (KSh Bn) Data Source: Nairobi Securities Exchange Figure 20: Stock value turnover ratio 0.00300 0.00250 0.00200 0.00150 0.00100 0.00050 - Data Source: Nairobi Securities Exchange; Calculated as equity turnover value (Ksh millions)/ Market capitalization (Ksh millions) 13 01-Nov-17 01-Nov-17 18-Nov-17 18-Nov-17 05-Dec-17 05-Dec-17 22-Dec-17 22-Dec-17 08-Jan-18 08-Jan-18 25-Jan-18 25-Jan-18 11-Feb-18 11-Feb-18 28-Feb-18 28-Feb-18 17-Mar-18 17-Mar-18 03-Apr-18 03-Apr-18 20-Apr-18 20-Apr-18 07-May-18 07-May-18 24-May-18 24-May-18 10-Jun-18 10-Jun-18 27-Jun-18 27-Jun-18 14-Jul-18 14-Jul-18 31-Jul-18 31-Jul-18 17-Aug-18 17-Aug-18 03-Sep-18 03-Sep-18 20-Sep-18 20-Sep-18 07-Oct-18 07-Oct-18 24-Oct-18 24-Oct-18 10-Nov-18 10-Nov-18 27-Nov-18 27-Nov-18 14-Dec-18 14-Dec-18 31-Dec-18 31-Dec-18 Figure 21: Foreign trading in the stock market 25,000.00 130.00 22,500.00 120.00 20,000.00 110.00 17,500.00 100.00 15,000.00 90.00 12,500.00 80.00 10,000.00 70.00 7,500.00 60.00 5,000.00 50.00 2,500.00 40.00 Foreign Buys (KSh. Million) Foreign Sales (KSh. Million) Equity Market Turnover (KSh. Million) Average Foreign Participation to Equity Turnover (%) Data Source: Central Bank of Kenya; AIB Capital Ltd (http://www.aibcapital.com/research). 14 KSh. Million Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Percentage 6. Risk-related Factors Table 1: Sovereign credit ratings and outlooks for select African economies (29 June 2018) S&P Fitch Moody’s Country Credit Outlook Credit Outlook Credit Outlook Rating Rating Rating Ethiopia B Stable B Stable B1 Stable Gabon Not Rated Not Rated B Negative Caa1 Stable Ghana B- Positive B Stable B3 Stable Kenya B+ Stable B+ Stable B2 Stable Mozambique SD Not rated RD Not Rated Caa3 Negative Namibia Not Rated Not Rated BB+ Stable Ba1 Negative Nigeria B Stable B+ Negative B2 Stable Senegal B+ Positive Not Rated Not Rated Ba3 Stable South Africa BB Stable BB+ Stable Baa3 Stable Zambia B Stable B Negative B3 Stable Data source: Bloomberg Finance L.P., Standard & Poor’s, Fitch, and Moody’s Figure 22: Kenya purchasing managers’ index Data Source: Stanbic Bank (https://www.stanbicbank.co.ke); IHS-Markit (https://ihsmarkit.com) Key: 50.0 = Neutral; Above 50.0 = Expansion; Below 50.0 = Contraction 15 Figure 23: Mean annual and seasonal rainfall 1,200.0 1,100.0 1,000.0 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 - 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 March-May June-August October-December Annual Data Source: Kenya National Bureau of Statistics; Kenya Meteorological Department (2018 provisional data, http://www.meteo.go.ke/pdf/seasonal.pdf ) Figure 24: Mean annual and seasonal maximum temperatures (0C) 31.0 30.0 29.0 28.0 27.0 26.0 25.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 March-May June-August October-December Annual Data Source: Kenya National Bureau of Statistics; Kenya Meteorological Department (2018) provisional data 16 Mean Temeprature (Degrees C) Rainfall in milimeters Figure 25: Mean annual and seasonal minimum temperatures (0C) 19.5 19.0 18.5 18.0 17.5 17.0 16.5 16.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 March-May June-August October-December Annual Data Source: Kenya National Bureau of Statistics; Kenya Meteorological Department (2018), provisional data 17 Mean Temperature (Degrees C)