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The East African : November 18th 2013
4 ANTICIPATED GROWTH Falling interest rates, credit uptake and strong shilling lift Kenyan economy Banks and non-bank p≥ivate fi≥ms expect ove≥all inflation to inc≥ease only slightly in the ≥emainde≥ of 2013 By MWAURA KIMANI The EastAfrican K enya’s economy is stabilising and is expected to expand rapidly in the coming year, with business executives optimistic of higher credit uptake, a stronger currency and lower lending rates before the year ends. A new market survey con- Growth in 2013 is expected to be resilient on account of enhanced confidence.” CBK survey ducted last month, and released by the Central Bank of Kenya on Friday, showed that confidence in the economy is at its highest since the beginning of the year, as inflationary risks fell off the list of fears for most banks and non-banking firms. Business executives had in August expressed concern over a potential sharp surge in inflation due to the implementation of the Value Added Tax Act 2013, which raised taxes on almost all goods and services. While the CBK had projected the implementation of the VAT Act to have only a one-off effect on prices, business executives polled in August cited the law as the biggest threat to growth and the economic outlook. This has since changed, and business managers have factored in any shocks from an upsurge in inflation. The survey shows that both banks and non-bank private firms expect overall inflation to increase only slightly in the remainder of 2013, largely on account of a likely increase in food prices attributed to the depressed short rains. However, a stable exchange rate is expected to moderate imported inflationary pressure. Over the past three months, the shilling has fluctuated within a range of Ksh84.72 and Ksh86.79 against the dollar. The improved outlook gives businesses room to formulate strategies for the coming year; at the same time last year, uncertainty about the March 4 general election made planning difficult. Data from the Kenya National Bureau of Statistics shows that inflation declined from 8.29 per cent in September to 7.76 per cent last month, although it remains above the government’s 7.5 per cent upper band. Executives surveyed by the CBK predicted stability in the remaining part of the year, and a pick-up in economic activity, given the rising number of loan applications and credit growth. “The factors that are key to the strong growth outlook are macroeconomic stability, increased foreign direct investment in the The EastAfrican NEWS NOVEMBER 16-22,2013 infrastructure and energy sectors, a projected pick-up of the global economy that will support the export sector, increased trade in the region as well as an expanding export market with the bringing in of new trading partners, implementation of the devolved government system which will stimulate growth at the county level, and an improved business environment,” said Prof Njuguna Ndung’u, the CBK governor. The CBK said the significance of the cost of funds, credit risk, and Treasury bills as a determinant of interest rate spreads — the difference between what banks pay depositors for their money and how much they charge for loans — has increased. Inflation is cited as among the least of the determinants despite recent pressures, which are seen as short term. However, the country risk profile and exchange rate risk remain the least significant determinants. A fortnight ago, the CBK an- nounced that the Central Bank Rate (CBR) — the rate bankers use to benchmark the cost of their loans to borrowers — would remain unchanged at 8.5 per cent. Banks have been reluctant to match the CBR, with lending rates averaging at least 16 per cent currently. “We do not expect the CBK to react to a temporary VAT-driven breach of the inflation target; however, a modestly higher inflation profile means the first hike in the CBR may come as early as March 2014,” said Razia Khan, the head of research at Standard Chartered Bank, Africa. “So far, confidence in the Kenyan economy appears to be holding up. The shilling has appreciated modestly since early September. There has been little discernible impact on Kenya’s bond and equity markets,” she said in the bank’s latest assess- C≥ystal Ventu≥es plans to sell 20 pe≥ cent stake in MTN By A SPECIAL CORRESPONDENT The EastAfrican RWANDA’S BIGGEST local investment company, Crystal Ventures Ltd, is expected to sell its 20 per cent stake in MTN Rwanda through an initial public offering that is expected to boost activity on the country’s budding stock market. Crystal Ventures Ltd is owned by the ruling Rwanda Patriotic Front (RPF). While the company is still tight- lipped about the deal, including how much it intends to raise, sources say it has already approached the industry regulator seeking ap- proval to list its shares. The talks are said to be at a tech- nical stage and Renaissance Capital will act as lead transaction advisor. “Talks between the regulators and Crystal Ventures are ongoing; although they are still at a technical stage, we expect the transaction anytime soon,” said a source at the Rwanda Capital Markets Authority. If approved, the IPO will be Rwanda’s third local listing after Bralirwa, Heineken NV’s Rwandan unit, Brasseries et Limonaderies du Rwanda SA (Bralirwa), the country’s largest brewery and soft drinks marker, and Bank of Kigali, the country’s largest bank by assets. Local brokers expect the IPO to generate solid interest among investors as the telecom giant has maintained its lead in the Rwandan market. Robert Mathu, executive director of CMA said Crystal Ventures has expressed interest in selling the remaining shares they still control. “Crystal Ventures have expressed interest about selling their shares in MTN but we have not received any formal approach. At the moment, I don’t have details,” said Mr Mathu. Established in 1998, MTN Rwanda enjoyed a monopoly in Rwanda’s mobile telephony sector until 2009, when Rwandatel launched operations, a factor that has helped the company deepen its brand loyalty. Rwandatel’s assets were bought by South African Liquid Telecom mid this year. Analysts are counting on MTN Rwanda’s management role and robust financial performance over the past three years to bring in good returns for investors. Recently, the telecom giant was recognised as Rwanda’s best taxpayer after handing over approximately Rwf.24 billion ($35 million) in taxes in the previous fiscal year. “This event, if it does happen in the coming months, will be a boon to investors as we have not had an IPO for two years running now,” said an investor note issued on Friday by CDH Capital Ltd, a local brokerage firm. MTN Rwanda currently domi- nates the Rwandan telecom market with a subscriber base of 3.6 million, followed by Tigo Rwanda Ltd and Airtel with two million and 973,000 subscribers respectively as of September this year. In 2011, both the government and Crystal Ventures relinquished 25 per cent shares for an undisclosed amount to the MTN group. While the Rwandan bourse has three cross-listings — Uchumi Supermarkets, KCB and Nation Media Group — it is the local companies that still dominate trading.
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