Weekly Market Roundup: Kenya To Know Fate of IMF Emergency Loan USD 1.5Billion

The government will have to wait a little longer to know the fate of the two year USD 1.5 billion from the International Monetary Fund as a precautionary facility that was approved in March last year.

Read: Kenya Secures US$1.5 billion From IMF as Standby Credit Facility 

IMF in November assessed Kenya’s compliance with commitments made under the precautionary financing facility.

One of the conditions for the government from the IMF was to narrow its budget deficit to below 6.5 percent of GDP in the current fiscal year and to 5.0 percent in 2017/2018 fiscal year.

Bretton Woods institutions, World Bank and the International Monetary Fund, have cast doubt on Kenya’s economic growth outlook citing a number of factors: uncertainties with this year’s elections, interest rate controls, revenue collection shortfall and a ballooning public debt. The country also faces external risks in the form of anaemic global economic growth, volatility in global financial markets and a spike in oil prices.

Related: Kenya to Outperform Rest of SSA Economies, Says WB and BMI

Economic Highlights

Data from the Kenya National Bureau of Statistics show that overall producer inflation dipped by 0.47% in Q416 as compared to 6.80% advance in Q415. The decline was on account of lower producer prices of manufacture of cocoa, chocolate and sugar confectionery, tea and manufacture of knitted fabrics. On a quarterly basis, producer prices inched higher by 1.79% over Q316 attributed to manufacture of food products; rubber and plastics products; and basic metals and fabricated metal products.

Read: Kenya’s Q3 Economic Growth Slows to 5.7 percent

The European Investment Bank (EIB) has announced that it has extended a KES 21.2Bn credit line to a consortium of banks including Equity bank (NSE: EQTY), I&M Holdings (NSE: CTY) and Bank of Africa for onward lending to the SME sector across the East African region. This is expected to strengthen the grip of the two listed lenders on the credit-strapped SME sector.

Insurance firms are now positioning themselves after the implementation of Section 20 of the Insurance Act Cap 487 which provides for compulsory insurance of marine cargo imports by locally registered companies.

Jubilee Insurance (NSE: JUB) unveiled its new marine cargo insurance online portal which provides access to customers and intermediaries; allowing them to manage their insurance policies. Additionally, the online portal will minimise the risks of fraud by permitting the authorities to verify and validate all certificates issued. Marine insurance is poised to rake in close to KES 20Bn in premiums annually.

Uchumi Supermarkets (NSE: UCHM) is in an ownership row with a self-help group (Njathani Electricity Project), of a 20-acre piece of land valued at KES 2.2Bn in its books, as at FY14. The self-help group, despite recognising Uchumi as the legal owner, contends it has occupied the land for over 30 years without a claim by Uchumi. Kenyan land laws provide that ownership of land transfers to the occupant if the legal owner does not claim the land for a period of 12 years. If the case is determined against Uchumi, it will adversely affect its Balance sheet by devaluing its net asset position.

Kenya is seeking to improve the value and output of its agricultural products through mechanisation. This follows a KES 10.0Bn deal (debt) signed between Kenya and India, after President Kenyatta’s recent visit to the Asian country. The cooperation seeks to enhance the duos trade ties and provide Kenya with a wider agricultural export market.

The notable increase (+KES 41.4Mn) in the long-term debt position (KES 65.5Mn) of Nairobi Business Ventures, was the result of conversion of a short-term overdraft facility by the Bank of Baroda. This eased its finance costs during the period from KES 4.9Mn to KES 3.2Mn. The company plans (in 2017) to incur a capital expenditure of between KES 80 – 60Mn for an extra 4 retail stores to the currently operating 6.

Equity bank has suspended its longer term (2 – 12 months) Eazzy Plus mobile loan product in favour of the 1 month term Eazzy loan product. 3Q16 figures show a healthy uptake of mobile loans with 84% of total loans being processed through its mobile platform. With this suspension, we see its mobile loan book experience subdued growth going forward.

Currencies

The Kenyan shilling negative performance, against a basket of international and regional currency peers, continued onto the second week of 2017.

The local unit lost a marginal 0.10%, coming under pressure from elevated dollar demand by importers, to end the week at 103.90. The central bank stepped in to the caution forex dealers against making comments about the shilling’s direction as a measure of curbing market speculation. President-elect Donald Trump delivered his maiden news conference but remained mum on the details regarding his administration’s anticipated tax cuts and increased spending. Across the pound, the shilling posted mixed results; gaining 1.27% against the British pound and declining 0.73% against the Euro currency.

The better performance over the pound currency was heralded by British Premier comments regarding tighter border controls over market access; interpreted to precipitate a hard Brexit landing. Euro’s strength was bolstered as the minutes of the previous European Central Bank meeting indicated that a number of the policymakers had not backed an extension of the bond buying program. Positive economic data was also released in the European bloc showing a jump in investor confidence to 18.2 from 12.8. On the regional front, the Ugandan shilling gained 0.65% over the Kenya shilling. The better showing by the Ugandan currency was on account of commodity export inflows coupled with local currency piling by corporates ahead of tax payments.

Equities

All market indicators followed previous week’s bearish sentiment to close lower on increased turnover on the blue-chip companies; Safaricom (NSE: SCOM) and East African Breweries (NSE: EABL). The NSE 20 share index fell below the 3,000 mark to close at 2,971.10 (-5.36%) points, the NASI closed at 123.94 (-4.49%) points and NSE 25 Index (-5.74%) settled at 3228.69. Equity turnover increased slightly by 1.54% to KES 2.79Bn from KES 2.75Bn last week. The bearish sentiment eroded KES 85.0Bn (-4.52%) in investors wealth during the week to settle at a market capitalization of KES 1.7950Tn.